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Unzipping Garments

It’s been the zipper that always stuck. No matter what they tried. For the big names of textile industry, the reservation of garments for the small-scale sector has been the one issue on which all their plans for making it in the Rs.25,000-crore segment snagged. So, when the government, after much dithering, announced a new textile policy that opens up the garments sector, the response has been ecstatic.

“We can at last increase our capacities and invent more in our captive suppliers,” says Nabankur Gupta, group president of Raymond India. The Rs.2300-crore company is hoping to stitch up a larger share of the Rs.600-700 crore branded menswear domestic market than it has. Raymond, which has around 30% of this market, has its eye on the unorganised segment. This market is largely supplied by small units.

Although large companies, usually the composite textile mills, could set up garment units earlier, any investment above Rs.3 crore (the SSI limit) invited an export commitment of 50% of production. This put pressure on garment makers like KG Denim, although established players like Arvind Mills skimmed along with global alliances. Another fallout? The wide gap in the quality supplied to the domestic market and for export. But all is set to change with the announcement of a more pragmatic policy. Says an elated Nitin Mohan, director of Blackberrys, the Gurgaon-based manufacturer know for its trousers, suits and blazers: “This means we will able to get in the technology upgrades we’ve wanted. CAD/CAM and finishing equipment will come in, making the sector more competitive.”

   
    But already, the euphoria over the new textile policy is evaporating as industry takes stock of the problems looming over it. Labour, for one. From traditional millowners in the south to recent entrates in the garment market, there is unease over outdated labout regulations that are stifling the industry. “The dereservation is welcome,” concedes Krishnaraj Vanavarayar, managing director of Sri Sakthi Textiles. But nothing much will change as far as investments are concerned, he warns.

The former chairman of South India Mills Association believes that although the bigger domestic players might benefit to some extent, no foreign direct investment will be made unless labour regulations such as the Industrial Disputes Act are overhauled. His contention: the textile industry is labour intensive but productivity is abysmal.

Mohan of Blackberrys shares this concern and says changed labour laws are on everyone’s wishlist. “This like any other business, has good times and bad. So we would be allowed to hire contract labour. People do so, but it leads to complicated paperwork,” he says.

In an industry which is the largest employer (18-20 million workers) in India, such concerns are not misplaced, specially since the government is blithely talking of pushing up textile and apparel exports from the present $1billion to $50 billion by 2010! And garments will account $25 billion. Most industry experts believe this optimism is absured in the current context (see graph).

   
    FDI would be vital for achieving even modest targets. China’s garment exports of $32 billion account for the bulk of its textile exports of $45 billion, with 40% of the earnings coming from joint ventures involving FDI.

But things may change with the new policy. Garments being a hot-growth area, the big boys will be flexing their muscles, making the outlook for smaller players less rosy. ‘Whether it is garments or cloth, players like us will be the chief beneficiaries,” says Raymond’s Gupta. And there will be more acquisitions like Madura Garments by the AV Birla Group, leading to the possibility of a shake-out.

It’s not as if all is lost for smaller firms. Industry experts point out that smaller players have undeniable strengths. International management consultant Roland Berger & Partners, which was commissioned by the Confederation of Indian Industry to access the competitiveness of the textile industry, points out that small units have a higher degree of flexibility and lower production costs.

In fact, Devangshu Dutta, director of a company sourcing and procurement for the apparel industry, thinks the two sides are almost evenly matched. “Garments is a complex business and scale is not the only factor. Smaller players can be more nimble and cut costs,” he says. Some, however, aver that diversity becomes a casualty as small units cannot produce the fabric range that big companies can.

Dutta also believes there has been too much emphasis on equipment and not on processes. “Garment units need to invest in product development,” emphasises this former textile consultant.

This means design, and understanding the retail process. Sizable investment has to be made in these to reach some level of competitiveness. “Despite high costs, manufacturing still thrives in the US and Europe. That’s because the players understand the home market well, thanks to investment in the so-called softer aspects,” says Dutta.

However, the increasing emphasis on design, newer fabrics and greater flexibility has left Indian garments literally on the shelf. The growing number of styles and collections required each year call for shorter lead times – the time from design to sample and through to delivery – making it tough for smaller players to enlarge market share.

So, what would be the shape of things to come? Would the many regional but highly successful brands in the country be cut to size? Or would they lose their identity in a flurry of mergers and acquisitions? The last is a distinct possibility, although some consultants appear to think there will be JVs, but primarily in branding and marketing.

As for FDI, Gupta believes that there’s not much that MNCs will gain by coming here. “Since Indian firms are supplying finished products to global brands like GAP and Boss, I don’t see what they’ll gain by coming here,” he says. But it’s early days yet. The consensus is that garment manufacturers might still be able to sew up the market if the bigger knots are unravelled in time.

By Pallavi Bhattacharjee (with reports from M. Anand)
(Published with the permission of Business World ) 20 Nov 2000.

The Brave New (Old) World

Over the past few years, the Internet has been revolutionising the way we interact with each other, as individuals, as companies or corporate entities, providing a mass of information keeps growing with no end in sight. With cheap and direct access, we can quite simply move around with a few clicks, most of the time locate what we want, make an informed (and even comparison-based) decision, and exit. Surely, as many pundits forecast, the Internet should bring an end to intermediation of any sort. Well, yes. And no.

Yes, the Internet makes information more easily accessible to everyone. Every week there are literally thousands of websites, hundreds of portals and at least a few dozen exchanges that spring up. These get hit upon either directly, or via the many search engines that, in turn, are also constantly updating and fine-tuning their search algorithms, pushing to create sensible shortlists that are useful for the researcher. One is even named after the butler created by P. G. Wodehouse, with the implicit claim that it will anticipate your needs even before you know of them! However, these are only attempts at generating intelligence (at best), more often just information, quite a lot of which is unintelligible, and very far from the “knowledge” that we human beings seem to create in our minds quite automatically as we go about doing our tasks. Just a few days ago, I was searching for hotels in the US – what I downloaded was a morass of information, and I spent a whole day sorting through it. In this case I could have just as well requested a trusted travel agent to come up with a few appropriate options for me, from which I could have booked my choice.

Our minds are, yet, the best-known computer to man, in terms of versatility. Our minds can store enormous amounts of data – a surprising amount remains in long-term memory (despite the fact that often we can’t seem to remember the name of the person that we just met in the lift!). More importantly, we can connect and inter-relate seemingly unrelated items of information, for example, creating travel itineraries covering flights, hotels and various other details into a plan that is most effective and efficient keeping in mind the time constraints, costs and our objectives for travelling. We are still not fully-there from robot programmes which will automatically find you the best prices, and the most convenient locations or times, let alone do that for hotels AND flights AND trains and any other items that your itinerary contains. Travel is actually probably one of the simpler examples – you could still create parameters which, provided the base information about price, time or location is provided by the service providers, can be used in programmes that can analyse patterns of new and past data, and revert with some shortlisted options.

Let us think of a more complex example – the textile and apparel supply chain. It is one of the most fragmented industries, and possibly one of the most global in terms of trade flows. There are multiple layers of raw materials and intermediate products, most of which pass through some sort of intermediaries (such as commission agents, stockists, importers etc.). In such a form the industry is a prime candidate for opening out to the Internet, where suppliers can create their websites, or store their information through other platforms (such as “exchanges”) which can be accessed by buyers from around the world – easy to set up, independent of time zones and very very low cost. Get rid of the multiple layers that mostly add costs, book orders directly, get rid of stocks… sounds like a heaven-sent opportunity!

Well, that is how it is being seen by the 70-80 exchanges that have come up around the world, or are in various stages of being set up. Some of these have been set up by existing industry players, some by technology companies, and yet others by people who have set up exchanges in other sectors who believe that similar business principles can be applied to the textile and apparel supply chain as they have applied in the other sectors. This should dramatically raise the direct access between suppliers and customers – be the end of agents and other intermediaries – and basically make millions for the companies promoting the exchanges!

Yet, around the world, retailers and brands that buy finished products and raw material do not seem to be rushing to stake any significant proportion of their purchases to web-based sourcing. And there are multiple reasons for that.

Firstly, such a proliferation of exchanges seems to be only a reflection of the fragmentation, and there does not seem the likelihood that any clearly dominant player will emerge in the next few months. There is little or no differentiation between most of these exchanges – most of them offering a sophisticated yellow pages capability, while others offer possibly a few add-ons such as functionality that allows buyers to bid for stocks, or suppliers to quote for products.

Secondly, in certain areas, buyers or suppliers themselves have got involved in setting up exchanges. Some of these are private web-based initiatives (such as Wal-Mart or Littlewoods on the retail end, or LiFung.com or TheThread.com on the supply side), while others apparently are more public and collaborative, such as World-Wide Retail Exchange.

Closed web-based systems are excellent for the company that is initiating it, because it enables the company to streamline operational processes. However, it does create another platform for people to adapt to, though web-based systems are less painful certainly than EDI or other proprietary systems, which require specific investments. Also, occasionally it brings up the question of conflict of interest. For example, how comfortable would one supplier feel in sharing internal information with another supplier who has taken on an additional role?

Other initiatives, such as the WWRE, have got off to a good start, but here internal stumbling blocks are inevitable due to the composition of the groups. Consider the WWRE: 27 retailers currently, in four separate areas of operation (as diverse as food and clothing), with different geographical bases, which make the business imperatives very different for the various participants. Add to that the fact that people are loath to share knowledge that is considered proprietary by them, whether process knowledge or supplier contacts. It is a long-drawn process of consensus management in such a large initiative.

Thirdly, what kind of a service offer is the best? As of now, there is are options available from various B2B service providers, offering varying areas of benefit, from listing services to “software solutions” for various applications, to loose working relationships. Not only do the service offerings actually vary, there are varying degrees of claims and counterclaims that muddy the waters further.

The scenario is actually as confusing as it seems to be – players, whether exchanges, portals or any other kind of company, are dynamically evolving their business models, with changes seemingly almost every week, and new players emerging all the time. In such a scenario, buyers (who are early-adopters) will get into as many exchanges as possible to get the maximum choice, and to hedge their bets. On the other hand, the majority – which comprises of buyers who adopt new technologies later – will hold back to see which exchanges come up as the most widely accepted or most appropriate for them.

Finally, whether we like it or not, textile and apparel products are inherently emotional products. They are, of course, driven by specifications, and those specs can be defined fairly precisely. But what the specifications cannot ever completely convey is how a buyer feels instinctively about including a product in a range. Or, indeed, what the impact would be of making some minor adjustments that can be visualised, discussed and decided in an interactive session between a buyer and a supplier. Or, for that matter, what is the best way to reconfigure a supply chain, under pressure of a new order, or an unforeseen delay in the process. Intermediation is something that has become ingrained in the textile and apparel supply chain.

In such a scenario, it is unlikely that intermediaries will disappear immediately. What is certainly happening, however, that while previously buyers were willing (or forced) to pay for having access to information, pure information itself is being made a commodity. In this frame of reference, companies are seeking out “genuine value-for-money” before they will shell out a buying or selling commission. Process or domain knowledge is an absolute must – only this can enable web-based companies to create unique and genuine value-adding web-solutions. Simply putting up a ‘telephone directory on the web’ will fetch very little in return. Even though a telephone directory has hundreds thousands of entries, how much do you pay for it? Relationship-management and process-management capability will remain in demand, and many of the existing intermediaries certainly show a lot of that.

Vertical integration

One of the most important developments that will certainly be an accelerated outcome of the internet, will be the vertical integration of the textile and apparel supply chain. While, in the past, the very diverse nature of the stages of the supply chain has created and maintained multiple layers, web-based technologies are now enabling companies to structure and manage the apparel supply chain from as early a stage as they wish to, be that fabric, yarn or even fibre. It is more feasible to exert control, without actually physically owning the different bits of the supply chain.

Breaking down size barriers

Another significant outcome is that the web breaks down “size” barriers. Large retailers typically bought from large suppliers, while small retailers typically did business with small suppliers. Any “criss-crossing” (i.e. small companies dealing with larger companies) needed middlemen – individuals or companies that broke bulk or consolidated orders, for small or large retailers, respectively. This had more to do with operating systems, management capabilities and the scale needed for relationship management than it did with actual barriers. Now, however, web-based systems can allow some parity between organisations of different size, because at a low cost the same level of functionality is available to companies of all sizes, This is significantly changing the balance of power, and the overall structure of the industry. Scale was never the only surrogate measure of capability in this industry, but the correlation between actual scale and perceived or actual capability is getting even more vague over the Internet.

The impact of the web on the textile and apparel industry is not going to be immediate – it will take a while to permeate the hundreds of thousands of companies that make up the supply chain – so there is some breathing space.

But surely, in the next five years, the textile and apparel supply chain that we shall be seeing, will be structured quite differently from the existing supply chain. There will certainly be some casualties. What is important is that you – whether you are a supplier or a retailer – should start taking cognisance of the changes to come, and begin changing your own business to avoid being one of the casualties.

Myth and Reality of the Retail Revolution




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