1.

1 INTRODUCTION
1.1.1 PROCESS OF TECHNOLOGICAL UPGRADATION
(Jhala.P.B., (2003))The industry is primarily consisting of SMEs with traditional technology
and inadequate quality systems. It requires cost-effective technology upgradation in pre-sewing,
sewing and post-sewing processes to increase productivity, reduce costs, adapt quickly to the
demand cycle and improve quality. The industry is in the process of modernisation to face the
global challenges in the export-front and stiff competition in the local market due to liberalised
imports. The government is also providing support to the industry in various forms in the above
pursuit1.
(Almanac of chinas textile industry 1997-1999)2 Technology upgrade is another area that
needs to be addressed by the industry. Although china has made significant progress in upgrading
its overall technological capabilities, the technological gap with advanced industrialized
countries in the textile and apparel sector is still wide in areas of technical equipment, design and
development, product quality, product level and responsiveness to the market. The technology
and techniques used in chinas textile industry are for most small and medium sized enterprises
(SMEs) at the level of the Europe-American textile industries in 1970s and 1980s. Energy
consumption per unit of production is about twice that of the developed countries and the
average production efficiency is only one-third to one-eigth of the level of these countries2.
(Yang, March(1998))3Although chinese enterprises are quickly catching up-mostly through
the presence of foreign funded enterprises-they need to focus more on the transfer of managerial,
process and product technology as a means of upgrading their international competitiveness.
Technological development in the textile and apparel industry aimed at cost reduction in
developed countries as a response to the threats of cheap textile and apparel import from
developing countries in the past two decades have occurred mainly in three areas. The first is in
1 Jhala.P.B. ((2003)). Technology Upgradation of SMEs in Indian garment sector. Asian Textile Joural-Bombay12.10 , 109-141.
2 Almanac of chinas textile industry 1997-1999

3 Yang, Y. and Chuanshui , Z. (1998), Chinas Textile and C lothing Exports in a Changing World Economy, The
Developing Economies, XXXVI-I: 3-23, March.

raw material, the second is in the process of garment assembly and the third concerns the value
chain of the textile and apparel sector.
(De Araujo and Guedes, 1999)4 The use of computer assisted design (CAD) and computer
assisted manufacturing (CAM) has resulted in significant savings in the cost of labor at the preassembly stage .
(Abernathy F H, 1999 )5 Recently the introduction of information technology such as
electronic data interchange (EDI) has also significantly speeded up the textile and apparel value
chain from material supply to apparel delivery. This not only allows firms to respond to the
market more rapidly but also reduces the cost of inventory. Thus continuous adoption of new
technologies such as CAD/CAM can greatly enhance the competitiveness of chinas textile and
apparel industry. In order to deal with the expected increase in international and domestic
competition, the industry is being urged to upgrade technology, improve management, simplify
its trading system and modify its fashion. In this respect, further promotion of FDI targeted at the
textile and apparel industry and making FDI an integral strategy for the transfer and upgrade of
technology in the industry can greatly enhance the overall competitiveness of the industry.
(Verma, 2000)6 in his Restructuring the Indian Textile Industry puts forth his concern that the
response of the industry ought to be directed to meet the challenges. The Indian textile and
clothing industry is in a crisis and is pleading for reforms that goes much beyond restructuring.
The reforms need to be a synergy of the stakeholders, which could be on a sustainable basis for
competitive advantage. They should be able to enforce technological up-gradation in the textileproducing firms, and invite a better appreciation of the role of state-of-the-art Information
Technology (IT) such as ERP. Verma (2000) also envisages that such an eventuality would occur
sooner rather than later is exemplified by the development of textilespecific ERP software by
Indian software companies.
4

5 Abernathy F H, Dunlop J T, Hammond J,Weil D, 1999 A Stitch in Time: Lean Retailing and the Transformation of
Manufacturing: Lessons from the Apparel and Textile Industry (Oxford University Press, Oxford).

6 Verma, S. (2000). Restructuring the Indian Textile Industry. Restructure of the Textile sector in India, Vikas .

(Gaboardi 2005)7 Similarly, the results of the e-Business Survey 2005 indicate that, since 2003,
e-business activity has increased among the large companies, while the economic crisis has
hampered the innovation among small firms. There is an increasing adoption of more
sophisticated solutions, particularly ERP systems, as one of the most interesting trends among
this industrys large firms. This allows them to gain competitive advantages, represented by cost
savings, quick reaction to market changes and more bargaining power towards business partners
and distribution.
(De Marchi, 2007)8 studied the innovation strategies of the North carolinas textile and apparel
industry and their attitude towards information technologies as well as the role of institutions in
shaping their competitiveness. They found that firms do not devote a significant amount of
company resources to IT. In most of the companies, the IT budget was less than 1% of the
companys sales. The more complex and innovative technologies, such as customer relationship
management (CRM), ERP, data warehousing and business intelligence solutions are not
significantly used. The adoption of ERP was just 14.7%, which was very less compared to other
manufacturing companies.
( Tirupur Knitwear Cluster n.d.) 9PricewaterhouseCoopers made a diagnostic study of ICT
in textiles clusters for the National Manufacturing Competitiveness Council (NMCC) under
Project Vikas. They found that the Tirupur knitwear garments cluster is a mature cluster and
many firms have adopted IT to a great or small extent. Small firms have basic finance and
accounting solutions; slightly larger firms use certain order tracking systems. Firms that operate
on a bigger scale have custom-built or in-house solutions that are developed in conjunction with
a third party. Only a few of the large export units, with a turnover of INR 10 billion or more, are
process mature enough to use full-featured ERP software.

7
8 De Marchi, Valentina, Eleorora DiMaria, Stacey Frederick. North Carolinas Textile and Apparel Industry:
Recent Survey results. Journal of Textile and Apparel, Technology and Management:JTATM5.4 (2007).

1.1.2 MODELS OF TECHNOLOGICAL UPGRADATION IN TEXTILES

The restructuring of the textiles industry: Technology and new organizational models
Brazil
Until 1970, small textile firms (less than 500 workers) accounted for approximately 50
per cent of the textiles output in Brazil, while medium and large firms were responsible for 15
per cent and 35 per cent respectively (BNDE, 1977)10. But after the economic policy
implemented during the Brazilian miracle (1968-1973), the sector became much more
concentrated. Concentration and restructuring have continued in recent years, which have been
characterized by:
1 the stagnation of internal demand for textiles due to economic recession and social
impoverishment;
2 the gradual liberalization of domestic tariffs, and the relative opening of the economy to
international competition;
3 an increased incentive to export, given the international increase in export quotas allowed by
the weakening of the controls built into the Multi-fibre Agreement operating between 1974 and
1992;
4 the beginnings of the implementation of the Mercosur Agreement, a common market between
Uruguay, Paraguay, Brazil and Argentina, which will create a market of 200 million consumers;
5 they need to recover lost productivity and competitiveness in the industry which, between 1990
and 1992, was operating at 50 per cent to 60 per cent of its installed capacity11.

10 BNDE, (1977), Diagnstico Sobre a Industria Txtil, (mimeo), Rio de Janeiro, BNDE, Area de Planejamento.

The push towards technological upgrading was reflected in increasing imports of textiles
machinery over the years. In 1991, such machinery accounted for 17.2 per cent of total capital
goods imports. Modernization with computer technology began in the 80s, with the incorporation
of microelectronic devices into machinery in some phases of the production process and in other
sub-branches of textiles (e.g. into the circular automatic looms used in knitting).
(RevistaTextil, various numbers) 11Innovations were further developed in the finishing
stages of production. Technologically, Brazil is considered to be at an intermediate level within
the international economy; with the average age of its textile machines being 14-16 years (as
opposed to 6-8 years in developed countries). Some 60 per cent of its installed equipment is
locally produced, a pattern found among the ten most advanced countries in textile production .
(Ferraz, 1992)12 Greater use of mixed fibres tends to facilitate the use of microelectronic
control devices. These intensify managerial control of the manufacturing process by registering,
storing and transmitting information at each stage of the production process. They also take over
or modify tasks that previously required human intervention. For example, they crucially affect
the jobs of quality controllers. The devices demand an upgrading of supervisory and technical
skills, but also training in basic informatics techniques for many types of operators, many of
whom are women. The use of microelectronic control devices has facilitated the adoption of new
forms of management and work organization at the plant level, such as semi-autonomous groups,
quality control circles (CCQs) and just-in-time production .
In general, industrial automation and new organizational techniques are seen by
respondents in large textile firms as contributing to higher employment levels, but only among
technical staff and mostly at the levels of project planning and maintenance. The knowledge
relevant for industrial automation is thus expected to be in the fields of management, electronics,
and the maintenance of machines. While the need for polyvalence and flexible work rhythms is
increasing, the number of occupational categories and labour-intensive tasks is decreasing. With
11 Revista txtil, various numbers
12 Ferraz, Joo C. (1992), Modernizao Industrial Brasileira, Srie Documentos, No. 7, IEI,
UFRJ

the introduction of new equipment, more weight is now being given to general education and to
vocational training, rather than to workers' experiential and tacit skills.
Argentina
There is very little information available on the technical levels of the textile industry in
Argentina. The best way of analysing the degree of modernization in the sector is to look at the
latest trends in textile machinery imports. Since 1982 (with the exception of 1983, which was a
year of turmoil, with the return to democracy and the switch to the economic liberalization
model), imports of textile machinery have increased steadily.
Since 1985 textile machines have been the main type of machinery imported,
representing in most years more than two thirds of total machinery imports. The rapid
modernization of the textile industry since 1985 has partly reflected the influence of the
economic model underlying the economic readjustment policy, proposed by the IMF, which was
intended to return Argentina to the world market. New technology was recognized as
indispensable for international competitiveness and, in the case of textiles, the promotion of
certain product-lines for exports urgently required technical renewal.
(Novick and Lavigne, 1988)13The effects of textiles modernization on new forms of
work organization in Argentina have not been sufficiently researched. A casestudy of one of the
largest national textile firms, however, shows that the firm had introduced semi-autonomous
groups and the just-in-time system to all its plants. This was done in order to be able to respond
quickly to changing export market needs, to adapt production to higher quality products and to
different types of customer orders. The authors estimated that such organizational innovations,
being used in four or five of the leading textile firms, had led to job 'restructuring' for
approximately 7,500 workers. Quality control had been brought down to the shop floor and
relegated to blue collar workers, whom the firms now require to have new skills such as a higher
disposition to group work and greater flexibility.

13 Novick, M. and E. Lavigne (1988), 'Nuevas Tecnologias de Gestin: una Alternativa Hacia un Nuevo Modelo
de Empresa?' in CEIL, Documentos de Trabajo, N. 20, Buenos Aires.

II. Reasons for different models in India and China:

Why is there such a difference in business models? Actually in both China and India the
cost-conscious and the profit-conscious models exist. Although focusing on reducing cost, the
Chinese companies do not forget to pursue more value-added products and profit. Indian
companies also introduce new machinery and enhance management to improve cost-efficiency.
However, historic, cultural, and social contexts in each country inform the various emphases and
strategies that enterprises use in their decisions. Such decisions cannot be simply explained
through static comparative advantages. As we see, labor costs in India are as cheap as in China,
and China has as many engineers as India. Only by examining the development path
comprehensively can we understand the reasons behind the divergence in business patterns.
As mentioned before, todays major Chinese textile companies are pretty young. While
the old state-owned textile enterprises lost their competence and went bankrupt, competitive
private textile mills and garment factories were set up only after the economic reform in 1978.
Since the focus of early economic reform in China was in rural areas, some of the peasants and
small hand-workers became the first beneficiaries of reform and established their enterprises.
Today 87.5% of the textile and apparel enterprises are based in rural areas.
Some of the most famous apparel brands such as Younger, Luomen, Shanshan, and
Sanhong were all founded and managed by former peasants. Chinese peasants at that time had
very limited education: none of the founders of the companies just mentioned have education
beyond secondary school, and none of them speaks English. Consequently these companies lag
in human capital and technology acquisition. After the devastating Cultural Revolution (19661976), there were few engineers and skilled workers left in the urban textile industries and even
fewer in rural areas. The typical story is that several young men bought a machine together and
commenced the most primitive production of cloth, socks, shirts, and trousers. The quality of
such production was of course pathetic and there was no design, for they simply copied others
products. However, in the early 1980s China was still largely locked into a planned economy.
The shortage of consumer products was so serious that the consideration of quality and brand
was merely secondary. The basic products were still salable on the world market, and Chinas
textile giants today obtained their first capital in this manner.

Because of the lack of skilled workers, experienced engineers, and qualified designers,
these enterprises can do little to improve technology or fashion design. Their development is
rather based on the efficient organization of mass production, promoting productivity and
reducing cost. This also fits the Chinese work ethic. Chinas cultural background makes Chinese
workers relatively disciplined and willing to work hard. From the middle 1980s to the early
1990s, when the foreign orders arrived, Chinese manufacturers had neither modern machinery,
nor technology strength, nor communication capability. Their only option was to use their
advantage in a highly disciplined workforce and compete with others through astonishing
productivity and cut-throat prices. Besides, the emphasis of the Chinese government on
infrastructure construction, including road construction, power, and water supply development,
provided the fledgling textile enterprises with substantial support that came from lower
production and transportation costs.
Although the strategies of Chinese textile and apparel companies have changed a lot
since then, established business models and existing customer groups still largely influence the
direction of the companies technological development. Reducing costs, increasing productivity
and managing mass production continue to be the major themes of Chinese textile industry.
In comparison, many Indian textile enterprises have a long and stable development
history, which can be traced back to the colonial era. Arvind Mills was founded in 1931; Premier
Mills was set up in 1949; The Raymond Group was incorporated in 1925; Lakshmi Mills was
established in 1910. Even the younger brother Vardhman, established in 1962, is almost two
decades older than its Chinese counterparts. Through a long period of market operation, Indian
companies have relatively established market networks and regular customer groups. Not
concerned with survival, they are aiming at higher profit.
Besides, the founders and managers of Indian enterprises are either experienced experts
in the textile industry or industrialists who are able to understand sophisticated technology. The
Indian entrepreneurs belong almost exclusively to the upper classes in the social (caste) system.
They have the knowledge, the capital, and the social relationships to build up their enterprises.
Their good educational background, systematic management, and technological and financial
capability enable them to consider more value added and profit, whereas the Chinese village

entrepreneurs struggled for survival under circumstances of little technology and little capital for
a long period.
Apart from management, the external conditions in India are not friendly to mass
production. The road traffic, train transportation, and harbor facilities in India are of poor quality.
Restrictive labor laws prevent companies from recruiting large numbers of workers. When the
enterprises hire more than 100 workers, they have to deal with worker unions. Under the unions
pressure, only 2% of Indian textile factories have three shifts, whereas about 20% of Chinese
counterparts are operating 24 hours a day.
In short, the choices between two paths of technological development promoting
productivity or customization have been decided by the historical, cultural, economic, and
social conditions in India and China.
Under its particular socio-political conditions, it was reasonable for Chinese enterprises
to prioritize a mass production model, which led to the Chinese textile industrys amazing boom.
By contrast, Indian companies based their strategies on market experience and mature
management, which do not trigger explosive growth, but are stable and effective.

1.1.3 DEFINITIONS
Technology Upgradation Fund Scheme Definition of Technology Upgradation
Technology upgradation would ordinarily mean induction of state-of-the-art or near-state-of-theart technology. But in the widely varying mosaic of technology in the Indian textile industry,
even a significant step up from the present technology level to a substantially higher one for such
trailing segments would be essential. Accordingly, technology levels are benchmarked in terms
of specified machinery for each sector of the textile industry. Machinery with technology levels
lower than that specified will not be permitted for funding under the TUF Scheme.
Is there any scheme for modernization and technology upgradation in the textile sector?
a) The Indian textiles industry does not have the same technological edge as the textile industry
in developed countries. This is mainly in the weaving and processing segments. b) The
Technology Upgradation Fund Scheme (TUFS), which is the flagship Scheme of the Ministry
of Textiles, is the scheme for modernisation and technology upgradation in the textile sector. c)
This Scheme aims at making available funds to the domestic textile industry for technology
upgradation of existing units as well as to set up new units with state-of-the-art technology so
that its viability and competitiveness in the domestic as well as international markets may
enhance.
Why is the need of modernization of the India Textile Industry? Multi Fiber Agreement
(MFA) has been integrated into WTO package. As per Agreement on Textile and Clothing
(ATC), from 1st January, 2005 the quota has been removed in respect of exports from India to
any where in the world. Such change will increase competition not only in the international
market, but also in the domestic market. To meet the challenges the industry is required to
become competitive, cost effective and quality oriented. Though industry is gearing itself for this
challenge, but simultaneous help and assistance is required from Government of India
particularly for modernization of industry.
Salient features of the Technology Upgradation Fund Scheme (TUFS)? a) It is a Plan
Scheme. b) It aims at providing capital for modernization of Indian textile industry at
international interest rate. c) Technology levels are benchmarked in terms of specified machinery.
d) Segments such as spinning, cotton ginning & pressing, silk reeling & twisting wool scouring,
combing and carpet industry, synthetic filament yarn texturising, crimping and twisting,

Viscose Filament Yarn (VFY) / Viscose Staple Fibre (VSF), weaving/knitting, fabric
embroidery and technical textiles including non-wovens, garment, design studio, made-up
manufacturing, processing of fibres, yarns, fabrics, garments and made-ups and the jute industry
are eligible to avail subsidy under this Scheme for their technology upgradation requirements. e)
Investments in common infrastructure or facilities by an industry association, trust or cooperative society and other investments specified are also eligible for funding under the scheme.
f) Voluntary Retirement Scheme (VRS) for restructuring of man power of an existing unit as a
part of the technology upgradation project will be eligible for funding as a part of the project.
However, interest reimbursement will not be admissible on that part of the investment. g)
Improved metal frame hand looms used by the handloom weavers have also been covered under
the scheme. h) With effect from 28.4.2011, Restructured TUFS has been approved with the
enhanced 11th Plan allocation under TUFS from Rs. 8000 crore to Rs. 15404 crore. The
Restructured TUFS ensure focus of interventions on hitherto slow growing sectors like weaving,
encouragement to forward integration and tighter administrative controls and monitoring of the
scheme. This subsidy is expected to leverage sectoral investment shares of 26% for spinning,
13% for weaving, 21% for processing, 8% for garmenting and 32% for others (including
composite projects, technical textiles, silk, jute etc). The Restructured TUFS is expected to
trigger additional investments of over Rs. 46,900 crore during the balance period of the 11th Five
Year Plan. i) Repayment period has been modified to 7 years including 2 years of moratorium/
implementation
Quality and Technology Upgradation have emerged as the two important elements for
enhancing competitiveness of any manufacturing industry. The large industries have both
adequate information about the global markets and access to funds, which enable them to
implement strategies for continuous technology and quality upgradation. On the other hand,
MSMEs, with limited information and access to funds, typically think short term. They tend to
minimize capital investment with the objective of keeping the cost low. This approach has
brought many Indian MSME suppliers to the lower end of the global value chain and ultimately
made them uncompetitive as the suppliers of stand-alone products. The present scheme aims to
address the quality and technology aspects of manufacturing in MSMEs.

1.1.4 ENVIRONMENT OF TECHNOLOGICAL UPGRADATION:

(Wang, 2000)14 There is a wide spread in china that under the WTO the local textile and apparel
industry will not be able to compete against foreign invested enterprises chasing the local
market. As pointed out earlier, SOE reform is critical in making them more responsive to
consumer and market changes. Critical areas of reform include organizational structures,
technology upgrade and research and development which together will improve efficiency.
Furthermore, compliance with WTO principles can also be costly. For example, compliance with
environmental standards is particularly relevant for the textile industry because chemical fiber
and rayon production, for instance are known to be associated with high levels of environmental
pollution. Addressing such issues entails additional cost for the industry.
Cost of energy is an important component of the cost structure in any
manufacturingprocess. As such, to reduce production costs and remain competitive, MSMEs
need to focus on economising on energy use. To conserve the crucial energy resources, the
Government of India enacted the Energy Conservation Act, 2001. The Act brought every sector
of the economy under the purview of energy conservation and efficient management. While the
major consumers of energy, namely, the large companies and undertakings have been mandated
to report the extent of conservation of energy achieved in their annual reports, the small and
medium enterprises have no such statutory mandate. An important goal of the present scheme is
to encourage and support energy efficiency by the Micro, Small & Medium Enterprises.
Besides curtailing the cost of energy, which is a significant component in the cost structure of
almost any manufacturing/production activity, energy efficiency also reduces global warming. As
more than 90% of energy consumption originate from fossil fuels, this involves generation of
huge quantity of Green House Gases (GHG) leading to change in the global atmosphere15.
UNIDO recognizes the numerous constraints that stand on the way of profit making and longterm growth, such as:
Lacking conducive regulatory environment and market information,
Inadequate institutional and technical support infrastructure disabling industrial performance
and competitiveness of SMEs,

 Weak knowledge and skills on the side of entrepreneurs in developing countries,

Difficult access to financial services, and
High up-front investments and transaction costs.
UNIDO seeks, through a combination of advisory and capacity building services, to
strengthen national capacities for the creation and continuous improvement of a business
environment. This allows the private sector to make a greater contribution to growth,
employment and income generation.
UNIDO also supports the creation and/or strengthening of the institutional infrastructure
required for the formulation and implementation of SME and private sector development policies
and strategies. Working with policy makers to identify constraints in the market environment and
finding ways to address them, UNIDO strives towards enhancing of productivity and
competitiveness within a market development perspective.
CBU provides advisory and capacity-building services to create and/or strengthen the
institutional, operational, legal, and regulatory infrastructures required for the formulation and
implementation of strategies for industrial upgrading. Industrial upgrading programmes enhance
productivity and competitiveness of industries. CBU is also the seat of UNIDOs Gender
Mainstreaming Steering Committee (GMSC). CBUs portfolio includes:

Industrial upgrading services for enterprises, capacity building services for support institutions
and policy advice for Governments to improve the productivity and competitiveness of
industries at regional, national and local levels

Policy advice to create enabling business environments for SMEs and the private sector

Promotion, in cooperation with numerous public and private partners, of local manufacturing
of pharmaceutical products in Africa and beyond

Promotion of public-private and business partnerships between global and national public and
private institutions with the aim of integrating domestic industries into global value chains

Assistance and advice to governments and enterprises on deployment of foresight

methodologies as a decision-making tool in strategy formulation and implementation of longterm industrial development strategies.

Global forum activities to facilitate an exchange of experiences and to disseminate information

on good practices related to enabling business strategies for the private sector

Capacity

building services for UNIDO on gender mainstreaming in programming and

throughout its organization.

1.1.5

EXPERIENCE OF OTHER COUNTRIES:

Technological Capabilities of BIMSTEC Nations
The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation
(BIMSTEC) is a regional grouping comprising seven economies of the South-East Asian region.
The grouping was kicked off in June 1997 by four economies of the region Bangladesh, India,
Sri Lanka and Thailand. Subsequently, the scope of the initiative was enlarged by including
Bhutan, Myanmar and Nepal. In this section, we look at the extant technological capabilities of
BIMSTEC nations for assessing their prospects of entry into global value chains. Due to lack of
comparable data on technological progress indicators, we confine our analysis to four primary
BIMSTEC members, i.e. Bangladesh, India, Sri Lanka and Thailand.
Global Competitiveness Report (2005-06)14 Our data sources are the Global
Competitiveness Report (2005-06) brought out by the World Economic Forum (WEF), the
Human Development Report (2005), and the World Investment Report (2005) of the United
Nations. We begin our analysis by examining technological readiness and innovation capacities
in the four BIMSTEC nations.
(WEF, 2005)15. These are shown in Table 1. Technological readiness and innovation,
respectively, reflect the ability of a country to efficiently apply existing technology and its
capacity to generate new technologies The concepts broadly indicate the current and future
technological capabilities of nations. As can be seen from Table 1, Thailand tops the four
14 Global Competitiveness Report (2005-06) , Technological Readiness WEF (2005), p. 24

15 World Economic Forum (WEF) (2005), The Global Competitiveness Report: 2005-06 , Geneva, Switzerland.

countries in technological readiness ranking, while India tops in innovation. Sri Lanka and
Bangladesh appear at third and fourth positions, respectively, in both indicators.
According to the Global Competitiveness Report (2005-06)16, Technological Readiness
relates to factors which facilitate and enable the technological capacity of a country. This
includes the general availability of technologies and the penetration rate of information and
communication technologies (ICT). Access to ICT is considered a particularly critical component
of technological readiness, since such access helps in establishing effective and rapid
communication systems, as well as providing an efficient indicator for commercial transactions.
Innovative capacity is essential for developing dynamic national competitive advantages based
on technology and skill-intensive industries, as opposed to static advantages, that grow out of
lowproduction costs. Development of such dynamic advantages depend on joint efforts of both
public and private sector, quality of scientific research institutions, skilled workforce, availability
of scientists & engineers, R&D expenditure and intellectual property protection.

It is interesting to note the gaps between Indias overall international rankings in the two
categories. While India is ranked 57 out of 117 countries in technological readiness, its rank in
innovation is at a much higher 27, underlining its success in developing fairly strong capabilities
in generating new technologies, alongside somewhat modest achievements in cultivating
technological readiness. On the other hand, the relative ranking gap is smaller in case of
Thailand, which shows that Thailands level of technological readiness is not much behind its
innovative capacities.
16 Global Competitiveness Report (2005-06) , Technological Readiness WEF (2005), p. 24

The technological readiness indicator, as developed by the Global Competitiveness

Report, takes into consideration a variety of factors for constructing the index. The information
and communication technology (ICT) infrastructure is an important constituent of this index.
One of the reasons behind Thailand performing better in technological readiness is its success in
deepening the ICT infrastructure. In this regard, Thailand, fares much better than Bangladesh,
India and Sri Lanka.
Technological capabilities in four select BIMSTEC nations underscores sharp
heterogeneities in national technological endowments. While India and Thailand have taken
significant strides in innovative capacities, and ICT-led hi-tech export assembling operations,
respectively, Sri Lanka and Bangladesh, are yet to catch-up technologically with these nations.
Entry into global chains contains considerable opportunities for learning through technological
diffusion. However, more capable firms are able to learn fast and move up the value chain
quicker.
Such mobility also depends on the institutional support made available by national
country governments for improving firm-level capabilities. Greater state investment in
expanding R&D resources of public institutions (i.e. state laboratories and scientific agencies),
disseminating the output of scientific institutions for larger commercial applications, and
improving institution-industry interface, will go a long-way in enhancing supply-side capabilities
of local enterprises. Otherwise, learning through global chains is likely to be ineffective and
unlikely to facilitate high-end movement.
Future technological effort aiming to enhance supply-side capabilities has to proceed in
line with individual country requirements. India, for example, has to devote attention to
penetration of its ICT infrastructure. Efforts in this regard should focus on making available ICT
facilities at grass root level, primarily through spread of personal computers and expansion of
Internet facilities through a bottom-up approach. Thailands technology development agenda, on
the other hand, needs to address the serious shortfalls in availability of human capital, which
constrains its innovative capacities. Investment in R&D, both at government and corporate
levels, accompanied by initiatives directed at improving quality of research in technical and
scientific institutions should focus high on its list of priorities.

(Ramasamy, 2004)17 Both Sri Lanka and Bangladesh, which require a lot of
technological catching up, must look forward to licensed technology and FDI, as core sources
of capacity-building. Sri Lanka has already taken some interesting initiatives in the form of
public-private partnerships for augmenting firm-level capabilities. More such initiatives should
be the order of the day. Indeed, for enhancing technological capabilities and upgrading local
firms, both countries can consider adopting the cluster approach. Identifying selective clusters
with global chain presence and providing them with an appropriate set of business development
services (BDS), can help in effective technological upgradation. Bio-technology and marine
products, for example, can be very useful sectors for Sri Lanka in this regard, while Bangladesh
can consider its vast range of textile and jute products, for such upgradation.
1.1.6

Need for the Study

The textile and apparel industry plays a vital role in the Indian economy and is the singlelargest source of foreign exchange earnings for India. Currently the industry accounts for 4
percent of GDP, 20 percent of industrial production, and slightly more than 30 percent of export
earnings.1 About 38 million people are employed in the Indian industry, making it the singlelargest source of industrial jobs and the second-largest overall (after agriculture). India is the
worlds third-largest producer of cotton and has the largest cotton acreage in the world. India also
has an established and expanding polyester fiber and filament yarn industry. It is the worlds
second-largest textile producer after China, accounting for about 15 percent of world production
of cotton textiles. India is also the worlds largest exporter of cotton yarn with 20 percent of the
total, and accounts for about 7 percent of world trade in fabrics. The Indian textile and apparel
industry is diversified and has the capacity to provide a wide variety of textiles to meet different
market needs. It has access to a large pool of skilled labor as well as trained and skilled technical
and managerial personnel. Nevertheless, Indias textile and apparel industry faces several
structural problems.
Foremost, the slow pace of modernization, particularly in the weaving, dyeing and
finishing, and apparel sectors, have hampered the growth and competitiveness of the industry.
Other structural problems include a restricted fabric base, dependence on cotton, limited product
mix, low productivity, multiple and discriminatory tax policies, and high infrastructure costs.
17 Ramasamy, R. (2004), Technology Development in Sri Lanka : The evolution of public and private sector
partnerships, Technology Monitor, Asia Pacific Centre for Transfer of Technology (APCTT), July-August.

Import restraints and market access barriers have fostered industry inefficiency and limited
growth. As India reduces tariffs and dismantles trade barriers under its WTO commitments, and
as WTO countries phase out textile and apparel quotas established under the MFA by January 1,
2005, India is likely to face intense competition both domestically and internationally from other
low-cost exporting countries that also largely depend on the performance of their textile and
apparel sector for economic growth.
In recognition of these factors, the GOI has taken measures to enhance the competitiveness
of the Indian textile and apparel industry, as provided for in the NTP 2000 and other GOI
policies. These measures include plans to (1) remove industry structural anomalies, (2) enhance
the level of technology, (3) improve the quality and productivity of the cotton sector, (4) reduce
textile tariffs and eliminate market access barriers, and (5) provide incentives to potential
investors and exporters to promote trade and investment in the industry. As a result of the GOI
initiatives, many Indian textile and apparel firms have modernized and expanded their operations
in an effort to improve their competitiveness in markets both at home and abroad. Furthermore,
some large Indian firms, lacking capital and marketing expertise, have sought joint ventures or
other arrangements with foreign firms to enhance their competitiveness in the global market.

1.1.7

LITERATURE SURVEY

1.2.1 INTERNATIONAL STUDIES

In the light of the huge labor cost differential between many third countries and Europe, EU
industry strives to remain competitive by means of higher productivity, and through competitive
strengths such as innovation, quality, creativity, design and fashion.

These competitive

advantages are the result of a permanent process of restructuring and modernization. The sector
has been adopting new technologies at a fast pace, both with regard to information and
communication technologies and new production techniques. Equally, EU industry has a leading
role in the development of new products, such as man-made textile fibres or technical textiles. As
far as work force is concerned, Europe has seen a sharp decline in employment over the past two
decades, losing as much as 47% (in textiles) and 40% (in clothing) over the period 1980 to
1995.18 The fact that EU production declined to a much lesser extent than EU employment
suggests a substantial rise in productivity during that period, brought about by the restructuring
process referred to above. Moreover, it is generally acknowledged that the quality of the
European workforce exceeds that of other world regions. Women account for a large proportion
of the T/C workforce, in particular in clothing. Recently, EU industry has had some difficulty in
attracting highly qualified staff (such as staff with sound knowledge of information and
communication technologies).
18 A World Employer (2000) Textile, Clothing, Footwear, OETH report

http://www.mcrit.com/euram/documents/docsAlcoi/TEXTILE_enterprise_paper_EU_2001.pdf

The firm-level panel data set I analyze is uncommon in that it contains direct measures of
spending in several dimensions of technology, namely computers, software, technology transfers,
patents and innovation activities performed within the firm like R&D. This permits to build a
direct and comprehensive measure of investment in technology instead of relying on the
estimation of residuals from the production function as proxies for the level of technology.
In the model, underlying productivity differences produce a sorting of firms in three groups: the
most productive firms both export and use the advanced technology, the intermediate group
exports but still uses the old technology and the least productive firms use the old technology and
serve only the domestic market. Indeed, in 1992 exporters had, on average, a higher level of
spending in technology per worker than non exporters in the same industry. The model also
predicts that during the liberalization period both old and new exporters upgrade technology
faster than non exporters, which is confirmed by the data. In particular, new exporters were not
more technology intensive than non exporters before liberalization, but upgrade technology
faster as they enter the export market during the liberalization period.
The patterns in the data described above show that there is a coincidence between entry
in the export market and technology upgrading but do not provide an answer to the question of
whether trade liberalization induced firms to adopt new technologies. Indeed, both entry in the
export market and technology upgrading could be caused by other economic reforms undertaken
in the same period if these had heterogeneous effects on firms with different characteristics.
The models prediction that that the reduction in tariffs induces firms in the middle range
of the productivity distribution to enter the export market and upgrade technology, but should not
affect firms in the lower and upper ranges reduction in Brazils tariffs had a stronger effect on
both entry in the export market and technology upgrading in the 3rd quartile of the firm size
distribution. Address this concern by showing that results are robust to controls for industry
trends at the 2-digit-SIC dissagregation level and the likely determinants of Brazilian trade
policy: skill, capital intensity and the elasticity of demand of the industry at the 4- digit-SIC

dissagregation level. The model developed in this paper builds on an extensive theoretical
literature analyzing the effects of trade on technological change19.
In particular, it was inspired by the insight that a reduction in trade costs increases the
share of firms that export and use the most advanced technology in Stephen R. Yeaple (2005).
The model I present differs from Yeaples in that heterogeneity in exporting and technology
choice is the result of ex-ante heterogeneity in productivity.7 To my knowledge, the model
presented in this paper is the first to show that when firms are heterogeneous the presence of
fixed technology adoption costs implies that the tradeinduced reallocations of market shares
towards exporters can induce them to upgrade technology. This differential feature of the model
is important to interpret the empirical findings reported above:
The reduction in tariffs induced technology adoption mostly the 3rd quartile of the firm
size distribution, and not only new exporters but also firms that were already exporting upgrade
technology when variable trade costs fall. The empirical work presented in this paper is related to
the literature that analyzes the question of whether export market participation has a positive
impact on productivity.
The first studies by Sofronis K. Clerides, Saul Lach and James Tybout (1998) for
Colombia, Mexico and Morocco; and Bernard and Jensen (1999) for the U.S. find that exporters
have higher productivity than non exporters, but this is because ex-ante more productive firms
become exporters, while there are no effects of exporting on productivity. Instead, recent papers
in this literature like Johannes Van Biesebroeck (2005) and Jan De Loecker (2007) find
increases in productivity after firms enter the export market in Ivory Coast and Slovenia,
respectively. This paper differs from this literature in that the outcome of interest is technology
instead of productivity; and in that it analyzes the effect of bilateral trade liberalization on
technology adoption, not the effect of exporting. The first departure from previous literature,
namely the focus on investment in technology as the outcome of interest, has the advantage of
isolating a particular mechanism through which firm-productivity can improve.8 Earlier studies
have often estimated productivity as a residual in the production function. These residuals not
19 Grossman, Gene M. and Elhanan Helpman. 1991. Innovation and Growth in the Global Economy. Cambridge:
MIT Press.

only capture differences in technical efficiency across firms but also differences in market power,
factor market distortions, or changes in the product mix, as suggested by the recent work by
Lucia Foster, John Haltiwanger, and Chad Syverson (2008), Chang-Tai Hsieh and Peter
Klenow (forthcoming) and Andrew B. Bernard, Stephen Redding and Peter Schott
(forthcoming), respectively. More importantly, changes in technology not only affect
productivity but can have implications for factor markets if new technologies use skilled labor
more intensively. Indeed, several studies have documented increases in the relative demand for
skill in developing countries during the trade liberalization period, leaving the open question of
whether skill-biased technological change might have been an endogenous response to trade
liberalization. This paper provides evidence for a particular channel through which increased
trade can induce firms to upgrade technology, namely increased export revenues.
The second departure from existing literature, namely the estimation of the impact of a
reduction in a trading partners tariffs on investment in technology instead of the effect of export
market participation, parallels the comparative static exercise that naturally emerges from a
model where both the decision to export and adopt technology are endogenous, thus each
variable is a direct function of tariffs. This exercise is aimed to address the policy question of
what is the effect of a reduction in a trading partners tariffs on technology investment, for which
comparison of exporters and non exporters across time can only offer indirect evidence. Indeed,
the finding that entry in the export market is not associated with increases in productivity in the
absence of trade reforms can be explained by entry responding to temporary opportunities to sell
in a foreign market. The opposite finding, even in the context of a trade reform, cant be fully
attributed to it, specially in the context of simultaneous implementation of other market-oriented
reforms that might have made it possible for some firms to invest in productivity improvements
and thus enter the export market. The empirical methodology implemented in this paper follows
the literature measuring the effects of trade liberalization on economic outcomes through
changes in tariffs.
East Asian economies such as Hong Kong, South Korea and Taiwan are good examples of
industrial upgrading. They started out with low technology T&C industries and upgraded into
higher value added activities and higher technology industries, making a transition from Original
Equipment Manufacture (OEM) to Own Design Manufacture (ODM) to Own Brand

Manufacture (OBM).4 As this process of technological and industrial upgrading occurred, T&C
production relocated and moved offshore within the region. This stylised description of the
development of the manufacturing industry within East Asia is known as the Flying Geese
model (Akamatsu 1962). China, Viet Nam and Cambodia have more recently been able to take
part in this regional process of upgrading as T&C production has been offshored and outsourced
to its (mostly) coastal regions from other East Asian Newly Industrialised Countries (NICs).
Several countries did manage to upgrade as a part of textiles world worth chains and get
into different higher worth value-added activities, however this has needed pro-active upgrading
policies. Some countries fared well underneath the buyer-driven system, with some Asian
countries changing into OEM (original instrumentation manufacturing) producers and/or OBM
(original complete manufacturing) producers. Such a movement needs a talented men with
acceptable style and promoting skills.

The new industrialized economies in East Asian became OEM producers part through
triangle manufacturing, whereby U.S.A. patrons place Associate in Nursing order with East
Asian NIEs, WHO successively shift a part of the assembly to low-wage countries (China,
Indonesia, Vietnam), and finished merchandise area unit shipped directly from that country to the
U.S.A. underneath the U.S.A. quota system (in operation till the quotas of the MFA (Multi Fibre
Arrangement) were phased get into 2005) that applies to the exportation country (Gereffi, 1999).
However, different countries area unit fast into the upstream a part of the assembly chain with
few incentives (from actors lower and more down the worth chain) and few skills to upgrade to
OEM production14.
The governments policies and establishments ar a lot of in tune with ways of the
personal sector and international enterprises (Mortimore, 2004). The samples of Republic of
Costa Rica, many Asian countries and Mauritius (in Section 2) illustrate that countries that were
once poor and used textiles and vesture to develop will afterwards attract top quality investment,
upgrade and develop human resources as long as acceptable policies and establishments ar in
situ. Enhancing work productivity through skills coaching and technological upgrading may be a

key step towards diversifying production into higher worth other clothes like the a lot of fashion
sensitive womens wear classes15.
In Sri Lanka the government has levied a garment tax to fund technological upgrading
and skills enhancement in the industry. The commercial minister of Sri Lanka has called for the
introduction of design and product development professional courses for industry participants in
the countrys universities (UNCTAD 2005a). The Sri Lanka government has therefore recognised
the cumulative and spillover effects that T&C production may bring to the economy and has
acted to improve benefits16.
Bangladesh produces at the low end of the market (cut, make and trim) where value
added and profit margins are low. Kabeer and Mahmud (2004) argue that the industry has made a
significant contribution not only to economic growth and export earnings in the country, but also
to poverty reduction. The majority of its workers come from poorer households and the poorer
districts of Bangladesh, have low levels of education and their families are often landless and in
food deficit for some of the year.
Mauritius has developed economically firstly on the basis of sugar followed by textile
and clothing in the 1980s and subsequently tourism and other services. Whilst in general subSaharan Africa lags behind other developing regions of the world in terms f T&C manufacturing
due to inadequate transportation and communication infrastructure; shortage of low wage labour;
difficult political environment etc. Mauritius is an example of a successful T&C exporter which
has flourished due to favourable external conditions and active government intervention. The
reasons for success in T&C production and ability to move into increasing value added activities
are multi-fold is due to preferential market access to the European market; productive labour,
Indian migrants; foreign capital from East Asia (Hong Kong investors); political stability and
favourable tax treatment.
One consideration put forward by the government is to vertically integrate cotton
processing and processing, therefore reducing dependency on imports of raw materials (ILO,
2005). Whether this is enough to maintain the T&C industry in Madagascar and attractiveness of
the Zone Franche to investors remains to be seen. Cling et al. (2007) note that export and
employment growth in T&C has now come to a halt. They also argue that since the end of the

clothing quotas, EPZs can no longer be put at the core of development and employment policies
in

Africa,

but

that

no

alternative

strategy

has

emerged

yet.

Cambodia Over the last decade Cambodias garment industry has been a key source of export
growth and formal employment contributing approximately 10% to the countrys GDP (ODI
2005) and 12% currently, growing from a virtually non-existent base in the 1990s. Around twothirds of Cambodias exports now go to the US, with the remaining going to the EU22.
Turkey is the fifth largest global apparel supplier and the second largest supplier to the
EU, which accounts for 80% of the countrys exports (Istanbul Chamber of Commerce, 2008).
Unlike most emerging economies that entered the industry by providing CMT assembly
operations, Turkey leapfrogged by entering the industry in the 1980s as a full-package supplier to
global brands facilitated by a strong domestic textile industry.

The sector has continued to upgrade, moving from full-package operations to design (ODM) and
more recently developing its own brands (OBM). In 2008, Turkish textile and apparel
manufacturers exported to over 170 countries, reaching a record high of US$23 billion, 17.5% of
Turkeys total exports and 11% of total employment in 2010 (Demirsar, 2010; Turkey's
Undersecretariat for Foreign Trade, 2010). The main export items are t-shirts, sweatshirts,
underwear, sleeping wear, socks, mens shirts, and pants (Tan, 2001).
The labor force in Sri Lanka is better educated and more skilled than in most other
Asian countries. This can be explained by a good general education system and the presence of
specific education and training facilities for the apparel and textile sectors at different levels,
including university degrees in technical capabilities and design. Foreign investment initially
brought crucial technology, know-how, and skills to Sri Lanka, during which time 90% of
training was conducted in house by internal training departments (Kelegama&Epaarachchi,
2001). Today, Sri Lankan workers often hold supervisory or management positions in other
countries in the region. This availability of a more highly skilled labor allows firms to offer more

services to buyers. However, the negative image of apparel manufacturing for the femaledominated workforce (over 80%) has proven problematic for labor availability in Sri Lanka
amongst both skilled and unskilled workers.
Foreign investment played a central role in establishing the apparel industry in
Bangladesh; however, the industry is now dominated by locally owned firms. Lead buyers
include U.S., European and Japanese firms, such as JC Penney, The Gap, Levi Strauss, H&M,
Marks and Spencer, and Uniqlo. There are three different types of garment manufacturers in
Bangladesh: (1) integrated manufacturing, where factories import the cotton and do the rest of
the production process (spinning, weaving/knitting, cutting and sewing) on their own; (2)
factories importing yarn and then completing the rest of the manufacture; and (3) factories
importing fabric and sewing the garment in CMT factories. Most of the knit factories belong to
the first two categories and woven factories belong to the third category (World Bank, 2005b).
This is the result of regulations of the EPZs, which until 2005 required that FDI be associated
with backward-linkage industries (spinning and/or weaving/knitting, dyeing and finishing).

Bennet, 2008; Morris et al., 2011; Shakya (2010) Lesotho has a large pool of low-wage,
literate, but not technically, trained labor. The textile and apparel industry is Lesothos largest
formal sector employer, and jobs in apparel reached a peak in 2004 at 54,087 workers.
Employment declined by about 26% with the phase out of MFA in 2005, but it has increased
again in recent years. Bennet, 2008; Staritz (2010) Over 80% of total employment is in foreign
firms: 85% are female workers, many of whom are the head of households. Lall (2003)
Lesothos worker productivity is low, ranging from 30% to 70% of that in East Asia, although
apparel manufacturers that have begun to initiate internal productivity improvement training
programs have noted substantial improvements in their competitiveness (The MFA Forum,
2006).
Gereffi& Bair (2010) One of Nicaraguas key competitive advantages in the apparel
industry is its strong industrial relations system, providing the country with important advantages
for buyers focused on ethical sourcing and a good basis for workforce development.
PortocarreroLacayo (2010) However, there is no deep-rooted culture in workforce development

in Nicaragua and human capital is a major weakness in the country. (UNESCO Institute for
Statistics, 2010) Illiteracy is high; 30% of the adult population has no formal schooling (FIAS,
2005),

and

enrollment

in

secondary

education

reached

just

68%

in

2009.

The apparel industry draws predominantly on a young labor force with basic education.
Employers have no minimum educational requirements for the majority of their production staff,
and only test applicants for basic reading, writing, and arithmetic skills.
Mitchell and Mabert (1986) stated that small manufacturers often felt they could not
afford advanced automated technologies. However, small business owners are ever more
frequently asked, "Can you afford not to use such technologies?" Gone are the days when small
businesses are solely concerned with regional competition. Due to developments in
transportation and communication, small businesses can no longer feel immune to the threat of
distant competition. In addition, affordable computing technology has provided opportunity to
enhance the efficiency and effectiveness of their operations.
Wiarda (1987) has suggested various subgroups of technologies within Active
Management Technology (AMT) and classifies them as systems, devices, stations and integrated
and managerial systems.
The systems, devices and stations mainly include automated identification stations,
automated inspection stations, automated material and ling devices, computer aided design
workstations, computerized numerical controlled machine tools, numerical control machine
tools, programmable production controllers, robots, and shop floor control systems. The
integrated and managerial systems mainly include computer-aided manufacturing, computer
aided engineering, statistical process control, production planning/inventory management
software, engineering data management, computer aided process planning, local area networks,
and group technology.
A study by Kleintop and Blau (1994) investigating the impact of end-users training on
electronic mail system implementation demonstrated that end users practice with new IT system
before its implementation will result in higher levels of IT system acceptance. In addition, their
research suggests that increase in amount of training among end users before IT implementation
might lead to higher levels of perceived ease of using IT, as well as perception of IS usefulness.
Moreover, it is suggested that positive change or improvement of business functionality through

new system may not be believed by some employees.

1.2.2 INDIAN STUDIES

(Konzen & Locker, 2000) Rapid changes in fashion and apparel market have been
brought about by the technological innovations and advancement in textile and apparel industry.
Computer Aided Design (CAD) and Computer Aided Manufacture (CAM) are at the centre of
this explosive growth of technology as it holds considerable promise for delivery gains in
efficiency and quality. CAD is a design tool used for creating garments 13. (Gray, 1998;
Groover&Zimmers, 1984)CAM is a manufacturing tool that controls automated processes14.
CAD/CAM is the application of computersto enhance the manufacture and development of
products.The systems allowdesign to be generated rapidly and adjusted equally quickly without
diminishing creativity thatprovidesbetter communication and integration between product
development systems (Istook, 2000)15.
(Yan & Florito,2002) Today,someofthetextile and apparel industriesemploy computer
technologies from management to retail and from design to manufacturing 16.(Grolier, 1996)The
apparel CAD wasinceptedin 1970andhasevolved intoa powerful tool for product development
and manufacture as it has developed from early stages of computer modelling to the modernized
concept of CAD integration with CAM17.(Hardaker&Fozzard, 1995) The ApparelCADhas
received considerable attention in research overtheyears with an aim of saving on production
time and improving quality (Disher, 1991; Gray, 1998; Hunter, King &Lowson, 2000; Bae&
May-Plumlee, 2005)18. (Kang &Kim, 2000)Even with automation of the system, the industry
will require 2specialized manual intervention and therefore theneed for some experts to
operateand supervise systems. It is,therefore,crucial to have systems for developing and
harnessing thehumanresourceof the industry to their maximum potential19.
(Gillespie, 1991)Advances in technology and computer literacy in specialized fields are
an important consideration for the contemporary industries and institutions of higher learning20.
(Smith & Necessary, 1996) Rapid pace of technological advancement in many industries,
includingtheapparel industry, has forced businesses to demand for a computer-iterate
workforce21. Studies have shown that there are an increasing number of jobs that require the use
of computer technologies(Fraser &Goldstein, 1985, MacAulay, 1993)22.
(World Bank, 1999)This is because training and education are influenced by the labour
market demand. In todays fast, inter-related and versatile economy, employers are looking for
productive employees who are quick, creative, flexible and up-to-date with new technology.

Employees with these qualities can keep up with changing systems and techniques in the work
place23.(International LabourOrganisation, 2000)Textile and apparel industries that adopt or
embraceadvancedtechnology and computerization will gain competitive advantage to carry out
collaborative research, design and production, marketing and networking with international
companies24.Kenya being a developing country attracted investors due to opportunities that arose
as a result oftheAfrica Growth Opportunity Act (AGOA). Apparel manufacturing firms were set
up, most of them intheExport Processing Zones (EPZ). This led to the revival oftheapparel
industry in Kenya. The programaimed at promoting exports, foreign exchange earnings, transfer
of 3technology and skills, employment creation and enhancement of industrialization (Republic
of Kenya, 2002)25. (Byoungho, 2004) Investment in Kenya has enabled technology to be in use
in most apparel industries. Although cheap labour has been the main source of
competitivenessinKenya,as with other African and Asiancountries,it is no longer a viable factor
anymore26.
(Porter, 1990) The dynamics ofthetextile and apparel sector and globalization is
forcingmostcountries to change their strategies. As theindustry sector develops, itscompetitive
advantage should be changed accordingly and that is why investment inthenew technology is
inevitable if it is to compete in the global market. Today,theapparel CADtechnology is the most
urgent and important tool if efficiency and quality areto be achieved.This translates to
havingawell-trained labour force to coordinate and facilitatethemanufacturing processes. Fashion
design and clothing technology,as distinct courses intheuniversities,were started in mid-1990s in
Kenya, prior to thisthey were considered as part of home science. Formally, they were offered
insecondary schools and examined at Kenya Certificate of Education (KCE) and Kenya
Advanced Certificate of Education (KACE) levels until 1987 and 1989 respectively,and as
technical coursestodateat craft and grade test levels which are basic levels of skillstraining.
(Gillespie, 1991)The structure of highereducation(HE),while traditionally resistant to
innovation,is

being

dramatically

affected

by

changes

brought

by

information

technologies.However,effective financing has been identified asthemost critical factor that

affectsquality of university education28. Mwapachu (1995) and Shabani (1997) maintainthat
poor funding affects quality ofteaching, availability of learning resources and maintenance of
physical facilities29. Most universities experience conflict over resource allocation between
administrative and academic computing (World Bank, 1994) 30. (Gillespie & Deborah,

1984)Unfortunately, the decision-makers in universities consider demands for improved

administrative as imperative and end up allocatingless to academic instructural needs 31. (United
Nations Education, Scientific and Cultural Organization, 1998)The quality of curricula
should be considered if it is to be beneficial in the world of work32.
(Gopalakrishnan&Damanpour, 1994)Imitation/adoption of the technologies and knowledge
widely varies acrossthe countries, industries, and firms. At the firm level, it has been suggested
that firms differ in technology adoption activities depending on firms internal capabilities
(Gopalakrishnan&Damanpour, 1994). Various organizational factors that may influence the level
of technology adoption of a firm and corresponding hypotheses are discussed
in the following sections.
(Fiegenbaun&Karnani, 1991)Firm Size: In the literature, the size of a firm has been a
conventional factor that determines the innovation and performance level of the firm: firm size
positively influences the degree of innovation and technology adoption of a firm. Although small
firmshave certain advantages over larger firms in terms of flexibility, informality, adoptability,
and operational speed, the size positively affects the technology activities of the firm (Mansfield
et al., 1977). (Rogers, 1995)Larger firms are more likely to adopt new technology than smaller
firms

and

outrun

small

companies

in

technology

intensity.

(Fichman&Kemerer,

1997)Moreover, being highly adoptive of new technologies, large firms are more eagerlyengaged
in learning and utilizing new technologies than small firms. R&D process is a rare activity in
small firms, and thus technology adoption for them remains incremental or often imitative.
(Wagner & Hansen, 2005)This has been explained by the fact that large firmshave sufficient
resources for investing in technologies and are financially stable. Therefore, large firms have an
advantage over small companies because their financials might allow them to be more capable
adopters.
(Moini, 1992)Export Orientation: A desire to leave the highly competitive domestic
market, strive to equal or surpass similar companies, improve business opportunities, and
achieve economies of scale are the motivational sources for a firm to expand its operations to
foreign markets. (Aaby& Slater, 1989; Axinn, 1988; Cooper &Kleinschmidt, 1988;
Czinkota&Johnston, 1983; Madsen, 1989;Nassimbeni, 2001)Commitment, international
attitude, perception and knowledge of international matters, risks involved, and the opportunities
present in foreign markets have been found to be the significant factors that influence a firms

entry into the international market. (Kumar &Siddharthan, 1994)Studies have also found that
technology activities arean important factor in explaining the export performance of firms in
developing countries. (Yeoh&Jeong, 1995)To better assist firms in their internationalization
efforts, various technology development and promotion programs have been initiated as a major
stimulus for economic growth. (Mechling et al., 1995)Similarly, a firms adoption of advanced
manufacturing technology is found to be positively correlated with the export orientation of the
firm. Export orientation can be conceptualized as the extent to which a firm is motivated to
export and various export activities are undertaken. Firms differ in their objectives(i.e.,
flexibility, competition, cost savings, etc.) depending on whether they are engaged in the global
and/or domestic markets, and thus differ in adoption of advanced technologies to compete
effectively in their respective markets (Mechling et al., 1995). Thus, a firms export orientation
mayinfluence adoption of technologies. It seems that technology adoption has become an
essentialof export orientation for a firm. Accordingly, that export orientation is hypothesized to
positively affect the level of technology adoption in a firm.
(Carpenter et al., 2004)Top Managements Commitment: Top management has
overall responsibility for a firm beyond production management. The role of a firms top
management also includes management of external relations and continuous development and
improvementof the firm (Carpenter et al., 2004). Most of the strategic decisions on design and
development, planning and production, innovation and exporting are likely to be made by
managerial and professional workers of the firm. The decisions and actions made by the topmanagements are likely to have an impact on the organizational change, growth, and
development because those at the higher management levels have greater influence upon
decisions and the decisions are strategic in nature. Useem (1993) found that top
managementsvision for the use of these technologies determines the level of support for the
innovation adoption. Thus, top-management commitments to technology is likely to shape the
firms technology adoption activities/policies and influences its level of technology
adoption.Top-managements commitment to technology is defined as the degree to which the
valuesand perceptions of the management are in favor of and open to technology adoption
(Useem, 1993, p.422). Hence, the technology adoption level is expected to be higher in those
firms with top management commitment to technology than in those without.

(Sterlacchini, 1990) Cost of Capital:A firms success significantly depends on its innovative
effortsand the quality of its capital stock. Technology adoption highly depends upon the amount
of planned capital expenditure and the firms ability to securecapital for technology adoption.
Thus, while capital is likely to provide opportunities for technologyadoption activities in the
firm, cost of capital is a major concern that prohibits the firms from making technology
investment decisions and developing adoption activities. (Baldwin & Lin 2002, p.6) The cost of
capital refers to the general cost-related problems associated with advanced technology
adoption, the cost of technologyacquisition, equipment purchase, and development and
maintenance expenses.
(Co et al., 1998; Holt, 1993) Technical Skills:Scholars have stressed the importance of human
resources for generating diversity and innovation. Likewise,the advancement and adoption of
technology increase the need for human support. (Doms et al., 1997)Appropriate and effective
employee skills and practices are increasingly important in todays technology-based
manufacturing. Many forms of technological implementation, especially adoptions of new
manufacturing technologies, need to be accompanied by changes in skill requirements. (Mason
& Wagner, 1994)Even when the technology activities of a firm are limited to an adoption of
existing technologies, they require the services of highly qualified engineers and technicians in
order to identify and make use of relevant information. (Steedman& Wagner, 1989)A lack of
skills inhibits installation of newer equipments due to poor understanding of the technical nature,
potential of theequipment, and usage. (Baldwin et al., 1994) It has been found that skilled labor
has been one of the most important strategies that contribute to the growth of small and mediumsized firms, and it islikely to be a facilitator of technology adoption. Therefore, firms that have a
skilled labor forces to support advanced technology are more likely to be proactive in adopting
technologies because of the availability of technical skills.
(Premkumar, 2003)Competitive Advantage: Competition and environmental change
may force companies to seek new technologies.In a highly competitive industry, there is a
constant need for firms to evaluate advances in technology and adopt them to gain competitive
advantage. Competition is one of the environmental variables that affect a firms strategy, and
competitive advantage has been found to be the most significant motivator that determines the
level

of

technology

adoption

and

implementation

in

firm.

(Grover,

1993;

Premkumar&Rammurthy, 1995)According to the previousstudies, if the firms perceive that

gaining competitive advantage from using the technologies is feasible, they are more likely to
adopt new technologies. The nature of advanced technology adoption depends on the firms goal.
The first and most obvious reason for adopting new technologies is to better satisfy the firms
needs and wants. Specific production problems, or the need to enhance the general product and
process flexibility, may further encourage technical change in a firm. The ultimate goal of
advanced technologies seems to be producing better products and services at lower prices, which
results in gaining a competitive edge. Firms can gain competitive advantage and grow as a result
of technology adoption and implementation. Thus, garment manufacturing firmsare likely to
adopt advanced technologies to gain or maintain competitive advantage.
1.3 RESEARCH METHODOLOGY
This

chapter

presents

the

discussion

of

research

questions

and

objectives

that

have laid the foundation of the conceptual model developed to identify the research
parameters
Additionally,

and

address

hypotheses

the
are

knowledge
generated

gap

logically

identified
for

the

by
purpose

the
of

researcher.
empirical

validation. The antecedent-consequence linkage of technological upgradation has not been

empirically verified extensively. The conceptual model developed in this study is
comprehensive which is not much researched in an SME context. Further, in the
context of SME intensive Indian industrial clusters, highly limited literature that
deals with technological upgradation exists till date. It is also noteworthy that this study is
the first of its kind in the apparel firms of Tirupur and Coimbatore district.
3.1 OBJECTIVES OF THE STUDY
1. To study the profile of apparel industry
2. To assess the level of technological upgradation of apparel manufacturing organization
located in Tirupur and Coimbatore city.
3. To study the perception of organization towards export orientation that triggers technological
upgradation.
4. To examine the commitment by top management in technological upgradation.
5. To analyze the perception on capital cost towards technological upgradation.
6. To analyze the perception on competitive advantage towards technological upgradation.

7. To analyze the perception of employees technical skills towards technological upgradation.

8. To study the factors involved in technological upgradation in relation to various levels of
technological upgradation done by the organization.
9. To identify the factors which predominantly determines the level of technological upgradation.
1.3.2 PERIOD OF STUDY
Duration of study is about 6 years from the period of 2010-2016

1.3.3 HYPOTHESIS OF THE STUDY

1. There is no significant association between the level of technological upgradation and profile of
the company namely years of establishment, number of employees worked in the organization,
Annual sales, Number of products manufactured and frequency of usage of technologies.
2. Export orientation that triggers technological upgradation does not vary significantly
based on the profile of the organization.
3. Commitment by top management towards technological upgradation does not vary
significantly based on the profile of the organization.
4. Capital cost towards technological upgradation does not vary significantly based on the
profile of the organization.
5. Competitive advantage towards technological upgradation does not vary significantly
based on the profile of the organization.
Employees technical skill towards technological upgradation does not vary significantly based
on the profile of the organization.
1.3.4 SOURCES OF INFORMATION
The study has used both primary and secondary data. Primary data was collected from 32 units
as per the convenience of the researcher by using questionnaire. Secondary data was collected
from the unit heads of the units surveyed, SIMA, SITRA, SISSPA, SICA.

Processing of Data The respondents were asked to tick mark the chosen option in the statements
of the questionnaire. In order to convert the responses into objective measure, scores were
assigned to each option based on its polarity or level of agreement and the scores were
summarized for further treatment. Most of the options for the statement are in the Likerts Scale,
the most favorable option is assigned with a score of 5 points and the least with 1 point. A few
statements provide the two options Yes or No. The maximum score 5 is assigned to the
positive polarity and the minimum score of 1 is assigned to the negative polarity of the
statements. Then the scores of all indicators are summed up based on the criteria and it is
processed for further analysis.
1.3.5 SAMPLING TECHNIQUES
The structured questionnaire consisting of 5 factors with 10 questions in each factors, the
level of technologies and personal profile of the company is distributed to 380 white collar
employees in the apparel manufacturing organization of Tirupur and Coimbatore city. The
sample size of study is 380 companies engaged in manufacturing and exports of apparel products
in Tirupur and Coimbatore city. Primary data is collected from 380 top management executives
and middle level executives of the companies under study. These middle level executives are
either production head, merchandising head or merchandisers working in the company.
Simple random sampling is the basic sampling technique where we select a group of
apparel firms (a sample) for study from a larger group of apparel firms located in Tirupur and
Coimbatore city (a population). Each individual is chosen entirely by chance and each member
of the population has an equal chance of being included in the sample. Every possible sample of
a given size has the same chance of selection.
The sample size of study is 380 companies engaged in manufacturing and exports of apparel
products in Tirupur and Coimbatore region. Primary data is collected from 380 middle level
executives of the companies under study. These middle level executives are either production
head, merchandising head or merchandisers working in the company.
B) SELECTION OF SAMPLES
For the purpose of the study, Coimbatore and TirupurDistrict was considered as the area of the
study. The main survey was conducted using a self-explanatory questionnaire prepared on a five

point Likert scale (Ranging from strongly agree to strongly disagree). Using this questionnaire,
data was collected from 640 employees from 32 textile units of Coimbatore District. The units
were selected by Stratified Random Sampling Method on the basis of Proportional Allocation as
follows: The Coimbatore District and Tirupurwas divided into varioustaluks each constituting a
stratum.
1.3.8 TOOLS AND TECHNIQUES USED
Following statistical tools are used to analyze the data:

Percentage analysis
Chi-square test
Mean
Standard Deviation
Factor Analysis
Annova
T-test
Correlation
Multiple Regression
In order to summarize the Agreeability scores of various dimensions, summary statistics such as
mini.Value, maxi. Value, mean, and Standard deviation are computed among groups of
respondents and furnished in the tables.
Analysis of variance based on F-statistics, is performed to estimate and compare the mean
performance among groups of respondents.
Chi-square test is performed to study the association between the two attributes namely socioeconomic characters and level of overall mean scores on various dimensions among groups of
respondents.
CRONBACHs ALPHA TEST
Cronbach's (alpha) is a coefficient of reliability. It is commonly used as a measure of the
internal consistency or reliability of a psychometric test score for a sample of examinees.
Cronbach's alpha will generally increase as the intercorrelations among test items increase, and is
thus known as an internal consistency estimate of reliability of test scores. Because
intercorrelations among test items are maximized when all items measure the same construct,
Cronbach's alpha is widely believed to indirectly indicate the degree to which a set of items

measures a single unidimensional latent construct.

DefinitionCronbach's is defined as

whereK is the number of components (K-items or testlets), the variance of the observed total test
scores, and the variance of component i for the current sample of persons. See Develles (1991).

Alternatively,
theCronbach's can also be defined as where K is as above, the average variance, and the
average of all covariances between the components across the current sample of persons. The
standardized Cronbach's alpha can be defined as

whereK is as above and the mean of the K(K 1) / 2 non-redundant correlation coefficients (i.e.,
the mean of an upper triangular, or lower triangular, correlation matrix). Theoretically, alpha
varies from zero to 1, since it is the ratio of two variances. Empirically, however, alpha can take
on any value less than or equal to 1, including negative values, although only positive values
make sense. Higher values of alpha are more desirable. Alpha coefficient ranges in value from 0
to 1 and may be used to describe the reliability of factors extracted from dichotomous (that is,
questions with two possible answers) and/or multi-point formatted questionnaires or scales (i.e.,
rating scale: 1 = poor, 5 = excellent). The higher the score, the more reliable the generated scale
is. Nunnaly (1978) has indicated 0.7 to be an acceptable reliability coefficient but lower
thresholds are sometimes used in the literature.
FACTOR ANALYSIS Factor analysis is a multivariate statistical technique used to condense
and simplify the set of large number of variables to smaller number of variables called factors.
This technique is helpful to identify the underlying factors that determine the relationship
between the observed variables and provides an empirical classification scheme of clustering of
statements into groups called factors.
REGRESSION ANALYSIS In statistics, regression analysis includes any techniques for
modeling and analyzing several variables, when the focus is on the relationship between a
dependent variable and one or more independent variables. More specifically, regression analysis

helps one understand how the typical value of the dependent variable changes when any one of
the independent variables is varied, while the other independent variables are held fixed. Most
commonly, regression analysis estimates the conditional expectation of the dependent variable
given the independent variables that is, the average value of the dependent variable when the
independent variables are held fixed. In all cases, the estimation target is a function of the
independent variables called the regression
function. Regression analysis is used to understand which among the independent variables are
related to the dependent variable, and to explore the forms of these relationships. In restricted
circumstances, regression analysis can be used to infer causal relationships between the
independent and dependent variables.
Regression models Regression models involve the following variables:
The unknown parameters denoted as ; this may be a scalar or a vector.
The independent variables,X.
The dependent variable, Y.
In various fields of application, different terminologies are used in place of dependent and
independent variables. A regression model relates Y to a function of X and .
The approximation is usually formalized as E(Y | X) = f(X, ). To carry out regression analysis,
the form of the function f must be specified. Sometimes the form of this function is based on
knowledge about the relationship between Y and X that does not rely on the data. If no such
knowledge is available, a flexible or convenient form for f is chosen. In order to study the
relationship between the set of explanatory variables (Xis) with the dependent variable (Y) and
to establish a functional relation between them regression analysis is performed. The established
functional relation is tested for its significance using F-Statistics. The significance of the partial
regression coefficients are tested with t-Statistics. The Coefficient of determination R2
computed to know the adequacy of the models established.
CORRELATION
In general statistical usage, correlation or co-relation can refer to any departure of two or more
random variables from independence, but most commonly refers to a more specialized type of
relationship between mean values. There are several correlation
coefficients, often denoted or r, measuring the degree of correlation. The most common of
these is the Pearson correlation coefficient, which is sensitive only to a linear relationship

between two variables (which may exist even if one is a nonlinear function of the other). If we
have a series of n measurements of X and Y written as xi and yiwhere i = 1, 2, ...,n, then the
sample correlation coefficient, can be used to estimate the population Pearson correlation r
between X and Y. The sample correlation coefficient is written

where x and y are the sample means of X and Y, sxand syare the sample standard deviations of X
and Y. This can also be written as:

ANOVA It is a technique whereby the total variation present in a set of data is partitioned into
several components. Associated with each of these components is a specific source of variation,
so that, in the analysis, it is possible to ascertain the magnitude of the contribution of each of
these sources to the total variation. It is used to test the equality of the means of three or more
populations. The purpose of Analysis of Variance (ANOVA) is to test for significant differences
between means. The interest lies in testing the null hypothesis that the category means are equal
in

the

population.

In

other

words,

Ho:1 = 2= 3..= c Under the null hypothesis, SSx and SSerror come from the same
source of variation. In such a case, the estimate of the population variance of Y can be based on
either between category variation or within-category variation. In other words, the estimate of
the population variance of Y,
Sy2 = SSX (c-1) = mean square due to X = MSX
F = MSX MSerror The null hypothesis may be tested by the F statistic based on the ratio
between these two estimates with (c-1) and (N-c) degrees of freedom (df). One-way ANOVA
tests differences in a single interval dependent variable among two, three or more groups formed
by the categories of a single-categorical independent variable. Also known as univariate
ANOVA, simple ANOVA, single classification ANOVA or one-factor ANOVA, this design deals
with one independent variable and one dependent variable. It tests whether the groups formed by

the categories of the independent variable seem similar (specially that they have the same pattern
of dispersion as measured by comparing estimates of group variances). If the groups seem
different, then it is concluded that the independent variable has an effect on the dependent (ex., if
different treatment groups have different health outcomes). All these ANOVA tests are carried
out at 5% significance level.
1.3.9 CHAPTER SCHEME
The dissertation is structured in five chapters. Chapter-1 presents the information related to
Introduction, Literature Review and Research Methodology. Chapter-2 deals with the evolution
of textiles and apparel world over, evolution of textiles and apparel in India, expenditure on
textiles and apparel manufacturers, public financing in textile and apparel, role of national
agencies and management of upgradation in apparel manufacturing. Chapter-3 provides the
development of garment industry in Tamil Nadu, origins of garment industry in Tamil Nadu,
quantitative growth of garment firms, Relationship between garment industry and state
government, governance in garment industry related to technological upgradation, profile of
garment industry in Tamil Nadu. Chapter-4 provides the analysis part of this thesis work and
Chapter-5 provides the major findings and recommendations and annexure.
1.3.10 THE LIMITATIONS OF THE STUDY
1. The research is confined only to Apparel Manufacturers in Tirupur and Coimbatore city
the results which cannot be generalized to other cities in Tamil Nadu.
2. The findings from this study are time, location and industry sensitive. Currently the Indian
apparel industry is experiencing a slow growth due to the global economic downturn. This
study comes after many Indian apparel firms going bankrupt due to loss of orders. This
affected each participant in some ways and could have influenced the findings. Therefore,
future research should try to see how factors are influencing the Indian apparel export firms.
Data on Indias apparel industry are limited; the statistics provided in this study pertain primarily
to the organized sector, consisting mostly of large apparel firms.