It is not only the Tirupur industry which is going through difficult times, but other regions and manufacturing hubs that are equally hit by the slowdown in Europe and US… leading to buyers’ demand for even more price reduction. The successive global and local issues spread over the last three years have only made the situation more challenging. While progressive companies have been able to face off the challenges, though it is mostly on the toplines, many exporters have downsized and consolidated, while a few have just given up and closed shop…
In fact, the news that filters in is even more depressing… with garment export community not sure what they should be doing. A finding of a survey by a garment association shows that the capacity utilization by the industry is not more than 50-60 per cent for bigger exporters and 30 per cent for medium and small exporters, with around 10 per cent exporters without work for more than six months, many of whom are on the verge of closure… Talking to a cross section of exporters, AO’s calculation is not at variant to the survey. We have many names of companies that are consolidating, downsizing and are closed or on the verge of closing, but that is not the premise of the article… the issue is what next…?
[bleft] A finding of a survey by a garment association shows that the capacity utilization by the industry is not more than 50-60% for bigger exporters and 30% for medium and small exporters, with around 10% exporters without work for more than six months, many of whom are on the verge of closure… Talking to a cross section of exporters, AO’s calculation is not at variant to the survey. [/bleft]
Even buying office head honchos are openly admitting that they are confused and uncertain… In fact, small buying agencies are finding it difficult to continue operations. The agencies which came up post 2005 are the ones most affected and a number of them have either closed or repositioned moving into new domains. Some buying offices have shifted base to cheaper destinations like Bangladesh, Vietnam and Cambodia.
In the couple of good years after the quota, most Indian exporters went in for expansion and upgradation with expectation of huge volumes, but unfortunately the bubble busted soon after and many units failed to take off… the last 7 years have been a struggle… either on the labour norms, fluctuating dollars, slowdown of major economies or because of manmade or natural disasters that have affected the business.
Is India Still Competitive…?
Despite all the challenges… there are still many in the industry who believe that this is a great time to be in the apparel industry in India. “Business is definitely shifting out of China for reasons well known. Not all of these businesses can be absorbed by countries that have no vertical industry, like Vietnam, Bangladesh and Cambodia. Some part of this business has to move to countries like India, which have a large vertical textile industry, long-term availability of labour, strong entrepreneurship and well developed management skills,” reasons Jagadish Hinduja, MD, Gokaldas Images. But sadly, these so-called qualities have failed to arrest the uninterrupted drop in exports and buyers search for cheaper destinations continues.
India’s traditional foothold in textiles is often cited as a major advantage for the country. “Remember India is one of the largest producers of cotton/cotton yarn and cotton fabric. Internationally, except China no other country has such a huge supply side – and China is becoming more and more expensive,” says Vijay Agarwal, Chairman, Creative Group.
Agreeing that India is still competitive because of many reasons the most important being that it is still a big source of raw material, there is still a lot of manpower and creativity is a culture, Manish Bharati, V-P, LF Fashions argues, “The point is how do we utilize the above in the most productive way.” It is very easy to pinpoint the advantages, but how to harness and translate the same into business is the question no one seems to have an answer to.
[bleft] The textile industry has remained within its confines… Even if the industry wants to move into growth segments like sportswear and trousers… where are the mills with the right type of fabric at competitive prices. [/bleft]
The fact is that the textile industry has remained within its confines and failed to grow and develop new products. Even if the industry wants to move into growth segments like sportswear and trousers… where are the mills with the right type of fabric at competitive rates. In fact, one of the biggest disappointments was the inability of the Indian industry to attract buyers for the trousers category, despite it being hyped as one of the key products for growth post quota with many companies investing in latest machines to create capacities. “The fact is that India does not have the right fabric resources for trousers, canvas and twills at the right price and qualities while its nearest competitor Bangladesh though also does not have fabric, is in a position to import fabric freely from China for garment manufacturing making it very cost-effective, which is why most buyers are flocking to the country for this category,” argues Roopak Malik, MD, Textile Sourcing Limited.
Many in the industry are sighing with relief as the present currency values that reflect the inflation of the last 2 years is a bonus for exporters. “I see the current currency values to be moving around in a plus/minus Rs. 3 variation, around the figure of Rs.55/- for the next few months,” predicts Hinduja. But the fact of the matter is that despite the depreciation in the rupee no visible improvement in buying has been noted. When the rupee appreciates there is a lot of hue and cry about becoming uncompetitive, why not the reverse logic when the dollar becomes stronger…
[bleft] The last 7 years have been a struggle… either on the labour norms, fluctuating dollars, slowdown of major economies or because of manmade or natural disasters that have affected the business. [/bleft]
The Government has failed to come forward proactively to lift the industry from the gloom, yet HKL Magu, MD, Jyoti Apparels is happy that the Government has taken some positive steps to support the industry. “The recent positive and timely policy initiatives announced in the Annual Supplement to the Foreign Trade Policy, extending 2 per cent interest rate subvention and restoring 2 per cent Market Linked Focus Product Scheme for apparel exports to the US and EU have instilled hope among the garment exporters for a speedy recovery in exports,” says Magu. The initiatives are very little and of hardly any impact. With 16 per cent interest rate, 2 per cent subvention is hardly an incentive to boost trade. Even the 2 per cent market linked focus scheme has little impact, as it is very costly to enter new markets and often the orders are so small to justify the time and money spent on execution.
It also helps of course that our competitor countries are also beginning to see problems. Bangladesh is seeing labour issues as wages have not kept pace with inflation and a democratic Government has to respond suitably. In the meanwhile, Vietnam is seeing a bout of high inflation. So costs in these places are going to move up. The optimistic in the industry believe the markets of USA and Europe have touched bottom and can only look up.
The only hope now is the proposed FTA with Europe… The delay in the FTA is a matter of concern and recently the AEPC has suggested that some special arrangement should be made for the textile segment while the negotiations for the FTA continue.
It is also pointed out that despite the labour shortage, India does have a large pool of manpower and it is encouraging that industry has made up its mind to move away from metro cities to smaller towns, which will definitely keep costs in check. “We have always looked at the business in a long-term perspective and been among the first to seek new manufacturing destinations with better growth opportunities, but it is heartening to see that the industry in general is talking about shifting nearer to the labour base. This will certainly bring down costs,” says Sudhir Dhingra, CMD, Orient Clothing. But when will the transit happen, no one known’s… there are too many problems in shifting to the interiors and many times the cost could actually work out higher.
Many companies have used this time to better shop floor management in factories, so that Lean and productivity can move together. “The change is visible and if investments are being made today it is mostly in systems and IT solutions to improve productivity,” says Vivek Bhatnagar, MD, Fusion Consulting. But then again how many of the companies that have invested in ERP and product planning software have seen tangible results that have directly helped in increasing business, is a matter of debate.
[bleft] When the rupee appreciates there is a lot of hue and cry about becoming uncompetitive, why not the reverse logic when the dollar becomes stronger… [/bleft]
Survival tips…
The response to the critical question ‘what should exporters be doing at this critical juncture to sustain and eventually grow’ has no fresh thought… the usual answers phrased in different ways include providing quality, giving timely delivery and price, focus on product categories that are our strength or could be our strength, move away from being a generalist to ‘product specialist’, be more proactive in measuring productivity and see what other countries norms are and how they “bridge the gap”, get use to ‘reasonable margins’ as the era of higher profitability may not return, invest in right people to achieve goals and look at Indian market as a big potential and develop a mindset to cater to this market.
[bleft] The only hope now is the proposed FTA with Europe… till then a special arrangement should be made for garments. [/bleft]
India’s strength lies with small quantity, high value items and the survival route is also through this strategy. The changing dynamics of global business has also made it more worthwhile to work in smaller quantities as inventory pile-up is now a major issue. Perhaps that is one of the biggest reasons that smaller players with very little overheads and smaller capacities have been able to survive better. In fact a lot of the investment that is happening in technology today is from either the domestic segment or smaller exporters looking to consolidate their capabilities.
The solutions are easy to tick off as the industry has been debating them for years, but it is time to take hold and think out of the box to arrest decline in exporters before it is too late. The time has come for the industry and the Government to put their heads together and re-write a new chapter for growth, as the situation has moved beyond the domain of the individual players and needs concerted and well thought out planning to get the industry back on track.
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