Introduction The following investigative document presents an overview of the textile industries in two emerging countries: Guatemala and India. The document analyses, compares and contrast the differences in the institutional structures of both countries and offers specific details and analysis of the textile industries for local and international businesses.
Guatemala
Republic of Guatemala is located in Central America bordered by Mexico to the North, the Pacific Ocean to the southwest, and Belize to the North East Honduras and El Salvador to the southeast. The country is mountainous with small desert and sand dune patches, having many hills filled with people, except for the south coastal area and the vast northern lowlands of Petén department. Two mountain chains enter Guatemala from west to east, dividing the country into three major regions: the highlands, where the mountains are located; the Pacific coast, south of the mountains; and the Petén region, north of the mountains. All major cities are located in the highlands and Pacific coast regions; by comparison, Petén is sparsely populated. These three regions vary in climate, elevation, and landscape, providing dramatic contrasts between hot and humid tropical lowlands and colder and drier highland peaks. Volcán Tajumulco, at 4,220 meters, is the highest point in the Central American states.
Demographics
Guatemala is a country of youth; 70% of its population is less than thirty years old. The capital city, Guatemala, is located in the geographical heart of the country and is home to an average of 4.5 million inhabitants. Compared to other countries in the Central American region, Guatemala has the largest productive population percentage, by age group, and according to the projections by CELADE, by the year 2020, Guatemala will have the largest number of inhabitants in the productive age group. The Civil War forced many Guatemalans to start lives outside of their country. The majority of the Guatemalan Diaspora is located in the United States with estimates ranging from 480,665 to 1,489,426. The difficulty in getting accurate counts for Guatemalans abroad is because many of them are refugee claimants awaiting determination of their status.
Politics:
Guatemala has a democratic and representative government conformed by the Executive Branch (President), Legislative Branch (Congress) and Judicial Branch (Supreme Court). Each citizen has the right to vote and is free to exercise such right. Álvaro Colom Argueta is the sixth Constitutional President of the Republic elected democratically in 2007. He is committed to the sustainable economic and social development of the country.
Political Parties: • The State allows the creation and operation of all the political organizations in Guatemala: political parties, civic committees, electoral committees, among others. • Political Parties: Must have at least one affiliated form every 1,000 inhabitants. • All Political parties must have: a National Assembly and a National Executive Committee.
Economy
Guatemala’s macroeconomic stability enabled a 0.6% economic growth at the end of 2009, positioning the country as one of the few countries with positive growth during a crisis. Guatemala has the largest economic market in Central America, with a US$38,139.00 millions GDP for 2009, representing 33% of the region’s total GDP. However, the country still faces many social problems, the distribution of income remains highly unequal with more than half of the population below the national poverty line. The service sector is the largest component of GDP at 58.7%, followed by the agriculture sector at 22.1% (2006 est.). The industrial sector represents only 19.1% of GDP (2006 est.). Mines produce gold, silver, zinc, cobalt and nickel. The agricultural sector accounts for about one-fourth of GDP, two-fifths of exports, and half of the labor force. Organic coffee, sugar, textiles, fresh vegetables, and bananas are the country's main exports. Inflation was 5.7% in 2006. The 1996 peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and since then Guatemala has pursued important reforms and macroeconomic stabilization. The Central American Free Trade Agreement (CAFTA) entered into force in July 2006 inducing increased investment and diversification of exports, with the largest increases in ethanol and non-traditional agricultural exports. While CAFTA has helped improve the investment climate, concerns over security, the lack of skilled workers and poor infrastructure continue to hamper foreign direct investment.
India
The Republic of India is a country in South Asia. It is the seventh largest country by geographical area, the second most populous country with more than 1.2 billion people and the most populated democracy in the world. Mainland India is bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal on the east; and it is bordered by Pakistan to the west; China and Nepal to the north; and Bangladesh and Burma to the east. In the Indian Ocean, mainland India and the Lakshadweep Islands are in the vicinity of Sri Lanka and the Maldives, while India's Andaman and Nicobar Islands share maritime border with Thailand and the Indonesian island of Sumatra in the Andaman Sea.
Demographics
Although India occupies only 2.4% of the world's land area, it supports over 15% of the world's population. Only China has a larger population. India's median age is 25, one of the youngest among large economies. About 70% live in more than 550,000 villages, and the remainder in more than 200 towns and cities. India's literacy rate is 64.8% (53.7% for females and 75.3% for males). The state of Kerala has the highest literacy rate at 91% while Bihar has the lowest at 47%. The national human sex ratio is 944 females per 1,000 males. India's median age is 24.9, and the population growth rate of 1.38% per annum; there are 22.01 births per 1,000 people per year. Though India has one of the worlds most diverse and modern healthcare systems, the country continues to face several public health-related challenges.
Politics:
India is a federal constitutional republic with a parliamentary democracy consisting of 28 states and seven union territories. India is the most populous democracy in the world. It is a parliamentary republic and operates under a multi-party system. There are six recognised national parties, such as Indian National Congress (INC) and Bhartiya Janata Party (BJP), and more than 40 regional parties. From 1950 to 1990, barring two brief periods, the INC enjoyed a parliamentary majority. Since late 1980s, politics in India has been dominated mostly by the INC and the BJP; however, the emergence of several influential regional parties has often necessitated the formation of multi-party coalition government. According to its constitution, India is a "sovereign, socialist, secular, democratic republic." Like the United States, India has a federal form of government. However, the central government in India has greater power in relation to its states, and has adopted a British-style parliamentary system.
Economy
With an average annual GDP growth rate of 5.8% for the past two decades, India is one of the fastest growing economies in the world. According to the International Monetary Fund, India's nominal GDP stood at US$1.43 trillion, which makes it the eleventh-largest economy in the world, corresponding to a per capita income of US$1,000. Services, industry, and agriculture account for 54%, 29%, and 18% of GDP respectively. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers, but more than half of the population depends on agriculture for its livelihood. India continues to move forward, though hesitantly, with market-oriented economic reforms that began in 1991. Reforms include increasingly liberal foreign investment and exchange regimes, industrial decontrol, reductions in tariffs and other trade barriers, opening and modernization of the financial sector, significant adjustments in government monetary and fiscal policies, and more safeguards for intellectual property rights. Despite India's impressive economic growth over recent decades, the country continues to face various socio-economic challenges. Though the percentage of people living below the World Bank's international poverty line of $1.25/day decreased from 60% in 1981 to 42% in 2005, the country still contains the largest concentration of poor people in the world.

Institutional Structures
| |Guatemala |India |
|GDP (purchasing power parity) |$70.31 billion (2010 est.) |$3.68 trillion (2009 est.) |
| |Country comparison to the world: 81 | |
|GDP real growth rate |2.2% (2010 est) |7.4% (2009 est.) |
| |Country comparison to the world: 143 | |
|Labor force |4.26 (2009 est.) |467 million (2009 est.) |
| |Country comparison to the world: 84 | |
|Credit Policy and Capital attracting |Guatemala has poor access to credit for small |India ranks 65th on the ease of getting credit,|
| |and medium sized exporters and importers. A |with no variation across cities. On the legal |
| |robust trading system provides small and |rights index, which measures the degree to |
| |medium-sized traders with the ability to |which collateral and bankruptcy laws facilitate|
| |finance their export and import activities, yet|lending, India scores 5 out of 10. On the |
| |the current system often requires many smaller |credit information index, which measures rules |
| |traders to self-finance their activities. This |affecting the scope, access and quality of |
| |reality imposes serious costs on importers and |credit information, India has a score of 3 out |
| |exporters making them less competitive. |of 6 same as Sri Lanka but behind Pakistan (4 |
| | |out of 6). Internationally, India is in the |
| | |middle of the range for this index, with Brazil|
| | |scoring 5 and China 4. |
|Procedures for starting a business |In order to formally incorporate in Guatemala, |The bureaucratic and legal hurdles an |
| |both domestic and foreign firms must publish |entrepreneur must overcome in order to |
| |their intent to conduct business; agree to |incorporate and register a new firm include: |
| |Guatemalan legal jurisdiction and register with|Obtain a Director Identification Number, obtain|
| |the Ministry of Economy. Foreign firms are |digital signature certificate, and reserve the |
| |subject to additional registration procedures, |company name with the Registrar of companies, |
| |which often delay final incorporation much |among others. |
| |longer than for a local company. Additional | |
| |requirements include: demonstrating solvency, | |
| |depositing operating capital on a local bank, | |
| |supplying financial statements agreeing to | |
| |fulfill all legal obligations before leaving | |
| |the country. | |
|Foreign trade trends |The textile and clothing industry is an |Until the early 1990s, India was a closed |
| |important component of Guatemala’s economy. |economy: average tariffs exceeded 200 percent, |
| |More than 94%of Guatemala’s clothing exports go|quantitative restrictions on imports were |
| |to the USA, reflecting the importance of |extensive, and there were stringent |
| |preferential trade programs which provide duty |restrictions on foreign investment. The country|
| |benefits to garments made in the Central |began to cautiously reform in the 1990s, |
| |American region. In turn, Guatemala is the |liberalizing only under conditions of extreme |
| |USA’s tenth largest supplier of clothing in |necessity. Nonetheless, in recent years, the |
| |value terms, and its second largest supplier in|government’s stand on trade and investment |
| |Central America. But Guatemala’s textile and |policy has displayed a marked shift from |
| |clothing industry is still relatively small and|protecting ‘producers’ to benefiting |
| |depends on imports for most of its yarn and |‘consumers’. This is reflected in its Foreign |
| |fabric requirements. This is partly due to the |Trade Policy for 2004/09 which states that, |
| |fact that locally produced fibers and fabrics |"For India to become a major player in world |
| |are not available in the quality and quantity |trade ...we have also to facilitate those |
| |needed to meet the demands of the garment |imports which are required to stimulate our |
| |export industry. On August 5, 2004, the United |economy." India is now aggressively pushing for|
| |States signed the Dominican Republic-Central |a more liberal global trade regime, especially |
| |America-United States Free Trade Agreement |in services. It has assumed a leadership role |
| |(CAFTA-DR) with five Central American countries|among developing nations in global trade |
| |(Costa Rica, El Salvador, Guatemala, Honduras, |negotiations, and played a critical part in the|
| |and Nicaragua) and the Dominican Republic On |Doha negotiations. Although India has steadily |
| |August 15, 2008, the CAFTA-DR Parties |opened up its economy, its tariffs continue to |
| |implemented important changes to the |be high when compared with other countries, and|
| |agreement’s textiles provisions, including |its investment norms are still restrictive. The|
| |changing the rules of origin to ensure that |Textile Industry has received Foreign Direct |
| |pocket fabric in apparel is sourced from the |Investments inflows worth US$ 910 mn, between |
| |United States or another CAFTA-DR Party. |Aug 91 and May 06. It accounts for 1.29% of |
| | |total FDI inflows in the country. There are |
| | |large and potential opportunities for the |
| | |investment in Textile Industry that will |
| | |provide attractive amounts of returns. |
|Business Liquidation |The existence of the corporation ends by |Insolvency procedures in India are among the |
| |dissolution. There are two kinds of |most onerous in South Asia. India scores 133rd |
| |dissolution, partial and total. Partial |on the ease of closing a business. Going |
| |dissolution does not imply the extinction of |through bankruptcy takes 10 years. Currently, |
| |the corporation. Total dissolution, terminates |the Companies Act of 1956 governs liquidations.|
| |with the life of the corporation. Its main |They are carried out by official liquidators |
| |effect is to provoke the total liquidation of |(OLs), who follow cumbersome procedures that |
| |the legal entity’s patrimony. |cause undue delay and thwart efficient |
| | |outcomes. Directors typically retain possession|
| | |of the company until an OL is appointed, and |
| | |assets often dissipate in the interim. |
| | |Creditors play a marginal role. |

Comparison of Institutional Voids between India and Guatemala:
Political and social system
|India |Guatemala |
|Political Structure |
|India is a Democratic Republic with a Parliamentary system of |Guatemala is a constitutional democratic republic. Corruption is an |
|Government. Corruption and bribery is rampant in state and local |endemic problem in Guatemala that has profoundly negative impacts on |
|governments. |investment, governance and the legitimacy of democratic government. In|
| |addition to the direct losses caused by diversion of funds, corruption|
| |is used as an argument against paying taxes, impeding the generation |
| |of additional revenues. |
|Civil Society |
|India is the largest democracy in the world. But without its lively |Civil society in Guatemala is coming of age, as non-governmental |
|NGO scene, many ills in society would continue unchallenged. Civil |organizations seek to overcome the country's troubled history of armed|
|society derives its strength from the Gandhian tradition of |conflict. |
|volunteerism, but today, it expresses itself in many different forms | |
|of activism. | |

Openness
|Modes of Entry |
|India's ranking among the world's 127 economies slipped as it lost |Thanks to the improvements in the climate sector and free trade |
|ground in areas like trade freedom (125), technology (64), corporate |agreements signed with several countries, Guatemala has attracted |
|tax rate (118) and corruption (71), according to the list compiled by |investments and generated new jobs in different economic sectors such |
|the US magazine. New Delhi has reduced controls on foreign trade and |as Agro-industry, Tourism, Manufacture, Call Centers & BPO, Natural |
|investment with higher limits on foreign direct investment permitted |Resources, Energy and Mines, among others. |
|in a few key sectors, such as telecommunications. However, tariff | |
|spikes in sensitive categories, including agriculture and incremental | |
|progress on economic reforms still hinder foreign access to India's | |
|vast and growing market. | |

Labor Markets
|Workers Market |
|Two-third of India’s workforce is employed in agriculture and rural |75% of the workforce is in the informal sector, which is not monitored|
|industries. One-third of rural households are agricultural labor |by the government. These workers receive no benefits such as |
|households, subsisting on wage employment. Only about 9 percent of the|healthcare, overtime pay, job security, or vacation time. 8% of |
|total workforce is in the organized sector; the remaining 91 percent |formal sector workers were unionized in 2008. 2% of all Guatemalan |
|are in the unorganized sector, self-employed, or employed as casual |workers are unionized vs. 12.4% of all workers in the US. |
|wage laborers. Trade unions have strong political connections. | |

Capital Markets
|Debt & Equity |
|The local banking system is well developed. Multinationals can rely on|Guatemala’s capital markets are weak and inefficient. There are two |
|local banks for local needs. Equity is available to local foreign |principal commercial exchanges that deal almost exclusively in |
|entities. |commercial paper and government bonds. Foreign investors are reported |
| |to be large holders of Guatemalan government debt. There is no market |
| |in publicly traded equities, the absence of which raises the cost of |
| |capital and complicates mergers and acquisitions. |

Product Markets
|Suppliers Base and Logistics |
|Suppliers are available, but their quality and dependability varies |Guatemala’s geographical location is strategic; it is the perfect |
|greatly. Roads are in poor condition. Ports and airports are |platform for the largest markets in the World. Guatemala has a modern |
|underdeveloped |highway network connecting the different regions, ports and the |
| |Mexican and Central American boarders. The roadway system is made up |
| |by 15,187.7 kilometers of paved and accessible highways for both |
| |freight and passenger transportation. |

Textile Industry in both countries
Guatemala
More than 80,000 Guatemalans are currently employed by the apparel industry, most of whom are young women. The apparel industry has experienced growth over the past decade, but international attention directed to the poor working conditions within apparel-for-export factories or maquilas has resulted in the closing of some major plants, including the Phillips-Van Heusen factory that used to be located in Guatemala. So long as labor remains cheap and accessible in Guatemala, the apparel industry is likely to continue expanding. The United States provides a sizeable market for Guatemala's apparel exports, importing more than US$1 billion worth of apparel in 1998 alone. There are about eight local mills producing yarns, woven fabrics, and knits. There are about 169 apparel factories, most of them Korean-owned. The two main categories right now are cotton and synthetic knit tops and cotton woven and knit cotton trousers, pants, and shorts. Guatemala's apparel and textile industry is still facing the impact from the move of many specially woven orders to Asian countries, which has represented a challenge Guatemalan’s companies to reduce and readapt product lines. Companies are focusing on better serving more fashion goods that would find Guatemala’s close proximity to the market as a competitive advantage. CAFTA has helped the industry to face this challenge, by giving the opportunity to use yarn and fabrics made in the region, which has enabled the mills to expand their actual capabilities and capacities. Most of the industry in Guatemala is Korean-owned, and they work with local banking but mostly with international U.S.-Korean financing. Finance, however, is still a challenge in the region.
India
Close to 14% of the industrial output and 30% of the export market share is contributed directly by the Indian textile industry. Indian textile industry is also the largest industry when it comes to employment that generates jobs not just within but also in various support industries like agriculture. This industry holds a significant position in India by providing the most basic need of Indians. Starting from the procurement of raw materials to the final production stage of the actual textile, the Indian textile industry works on an independent basis. Indian textile industry in a very short span had made a distinct position globally, alluring the globe towards the ‘World of Indian textiles’. However, the Indian textile industry is highly fragmented and is lead by several small scale industries. Because of this, there is lack of Industry Leadership. These small companies do not have fiscal resources to invest in technological up-gradation and they are not able to generate economies of scale. This leads to inability to establish a world-class competitive player. There is less FDI in this industry that is hurdle to make industry more competitive on global basis. India has disadvantage in terms of geographic locations which causes global logistic disadvantage as shipping cost is higher. There is uneven supply chain model and inbound freight traffic is low which affects cost of shipping.
SWOT Analysis Textile Industry India
Strengths
• Availability of low cost and skilled manpower provides competitive advantage to industry. • Industry has manufacturing flexibility that helps to increase the productivity. • India is the world’s third larges producer of cotton and the 2nd largest producer of cotton yarns and textiles is poised to play an increasingly important role in global cotton and textile market as a result of domestic and multilateral policy reform.
Weakness
• Indian textile is highly fragmented. • Technological obsolesce. • Lacking to generate economies of scale. • Unfavorable labor laws.
Opportunity
• Growth rate of domestic textile industry. • Greater investment and FDI opportunities are available. • Elimination of quota restriction leads to greater market development.
Threat
• Competition from other developing countries such as China. • Geographical disadvantages. • Disparity between price and quality.
SWOT Analysis Textile Industry Guatemala
Strengths
• Free trade agreement attracts investors • Strategic geographical location, this country offers access to US markets through the Caribbean Basin Initiative and the general system of preferences. • Low cost labor.
Weakness
• Capital markets are weak and inefficient. • Poor infrastructure. • A human rights violations and poor workers condition has undermined foreign investors.
Opportunity
• Nearly all textile and apparel goods that meet CAFTA’s agreement’s rule are traded duty-free. • Government only takes 10% of GNP compared to more than 40% in the US and EU • There are incentive programs for investments and export with no limitations on foreign investments, ownership by individuals or corporations or restrictions of repatriation of capital.
Threat
• Markets moving away to Asian countries. International Textile Group, Inc. International Textile Group is a company that makes a range of apparel and technical fabrics, military as well as automotive safety fabrics, upholstery and specialty textiles. ITG’s operating companies include: Cone Denim, Burlington Worldwide Apparel, Burlington House Interior Fabrics, Carlisle Finishing and Automotive Safety Textiles. The company continues to make fabrics in the United States but it has developed fabric mills in China, Vietnam and Central America, more specifically in Nicaragua and other regions that promise growth. Currently this company does not operates in Guatemala and has developed a source for wool fabrics in India by working with OCM India Limited, a mill in that is also owned by W.L. Ross & Co. Almost all famous brands of denim fabrics purchase fabrics from Cone Denim, including Levi’s, Wrangler and American Eagle which would provide vast business ventures in Guatemala, as denim is one of the main fabric Guatemala specializes in. Conclusion As developing countries, both Guatemala and India, offer a wide variety of opportunities in the textile industry. Both offer optimal conditions for local and multinational companies to create business ventures in either both or any of the two. Both Guatemala in Central America and India in Asia are the fastest growing economies of the regions and they have years of experience in the industry. As an entrepreneur, if I was going to do business in any of these countries I would definitely venture in the textile industry as it is one of the most promising in terms of profitability and openness in both countries.
References
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