An Engine for Economic Growth

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Responsive and Profitable Apparel Business

A Different Scale

It is a fact that, even with over US$ 6 billion (around Rs. 30,000 crores) of exports and around US$ 8 billion (more than Rs. 40,000 crores) of domestic market volumes, the ready-to-wear apparel industry in India is dominated by small-scale companies. Due to various policies, business environment and various other factors, Indian industry has grown up as a fragmented industry.

This has resulted a vast difference in the size of the Indian companies and the size of the international companies they serve – a difference that means that an average international customer buying from India is 50-times the size of their average Indian supplier. And the picture is obviously even more stark at the higher end of the scale – although there are no authentic or verifiable figures due to the private ownership of Indian export companies, if we assume that the largest Indian garment exporter has a turnover of around Rs. 500 crores, its largest potential customer (Wal-Mart) is 2,500 times larger than the largest Indian supplier!

Figure 1: Fundamental Supply Chain Change?

Thus, there is obviously a vast difference in the level of capability that an Indian exporter can have in comparison to their customer, purely on the basis of the size and the money they can spend. And in their small size they are seen at a competitive disadvantage globally. Industry watchers have been projecting that buying agents and small companies will either die out or evolve into niche players, as the nature of the global supply chain changes (see Figure 1). If that is the only possibility then surely the Indian industry is doomed since it is almost entirely small scale?

Business Opportunities Exist

I believe that the reality is different. If we watch the trends in the international markets, certainly there is consolidation with big companies becoming bigger – they are not just growing, but also buying over other companies or merging with them.

However, I also perceive another opposite fragmentation trend, in parallel. These big companies are going into regions and countries that are new for them. In these markets, the products that they need are different from their usual needs. Also, within their existing markets, customer segments are breaking down into newer, more specialised segments which need not just more of the regular product but specialised collections. This need for differentiation and fragmentation is an opportunity for smaller companies, including Indian companies, to exploit.

But in a fragmented business the business processes must be held together even better because you have shorter lead times, and smaller production runs. Processes and information must be streamlined from Day 1. Imagine the very real scenario of the fabric supplier in Salem (South India), the dye house near New Delhi, the sewing unit in Noida, the buying office in Hong Kong, the importer’s office in New York and the retailer somewhere else in the USA. If an order has to be processed in 60 days or less, with all these parties working together in their diverse locations, the information stream and working processes must be tied together also. Information Technology (IT), especially e-enablement has a very large part to play in this.

Major Business Issues

If we look at the difficulties traditionally faced in tying up the information in the fashion business, four basic issues come up: Processes are complex, the interdependent business partners are in different locations, they have diverse information platforms, and people and existing working systems are a barrier.

Figure 2: Simplified View of A Retailer’s Seasonal Calendar

Complexity is bound to occur: there are so many interdependent activities in any single style, and in a season a company handles several styles (sometimes hundreds). What’s more, when a season’s activities are being done, it is very likely that some activities of a previous season as well as some of the next season would also be happening side-by-side. These overlaps and interdependence obviously create complexity, often beyond what is humanly possible to plan and do. No wonder, there are problems of information gaps, incorrect planning, poor decisions, delays and losses.

At the same time People and Work Systems can differ also, including the following problems:

  • People can have different work objectives – for example, retail merchandisers may look for best moving product, while their sourcing colleagues may look for lowest cost, or Marketing may be more concerned about having the product on the shelves at the specified time, while Production may be mainly concerned with achieving the most efficiency.

  • People can have conflicting work objectives – such as price negotiation between buyer and supplier, or the typical relationship mould between them which is difficult to change to true “partnership”

Changing these is a must but is not easy, because of perceptions of certain information being related to power or status. There may also be the question that one might have “always done the same thing – and it works, so why change it”.

E-Enablement Provides a Solution

Internet-based technologies are providing a way around many of these problems. Since the underlying standards are widespread and inexpensive to use, they bring powerful solutions into the reach of even smaller companies. Web-based systems are typically accessible anywhere in the world, thus truly providing connectivity to globally-spread business partners.

However, if we look at software alone solving our problems, we are doomed to failure. While e-enabling our businesses we must look at the underlying difficulties and tackle them simultaneously. The problems above fall into three broad areas, as I identified in an earlier article: People, then Processes, and finally Technology. It is important that these three areas be identified and tackled in that order – most companies fail with technology as well as with process improvements because they start in the reverse order and tackle people issues last.

The business benefits include more time and effort spent on productive activities rather than chasing after information, shorter lead times, more sales and lower management and financial costs, all of which lead to better profits. And higher profit, of course, is something that all apparel businesses could use in these difficult times!

Figure 3: Benefits from E-Enablement

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Riding on the regional strength

In Europe as also in the West, the two textile giants, India and China, are often referred to as the elephant and the dragon respectively – India is, usually, the heavier, slower but a more patient elephant while China is portrayed as the faster, fire-breathing and market-usurping dragon which can occasionally run into problems because of its inability to cope with smaller details.

China may have emerged as the textile and apparel superpower because of its low-cost mass production capability. Nevertheless, India has been the quiet player which has been working backstage and making inroads into the global markets. India hopes that its ancient tradition of handicrafts combined with modern technology will enable it to assert its position in the world’s markets even after 2004 when restrictions on the textile trade, in the form of quotas, are eliminated as the World Trade Center (WTO) regulations are enforced.

Even as they admit that they face a threat from China, many Indian exporters maintain that Indian textiles are best woven by hand rather than by machines. That, they argue, ensures their survival.

Representatives of India Trade Promotion Organisation (ITPO), which organised the Tex-Styles India 2003 from February 28 to March 3 in Delhi, have been closely monitoring the breathtaking pace at which China’s textile and apparel industry has been making progress. They say that although India is the world’s second largest producer of textiles and apparel after China, India’s share of the overall global textiles market is only 2.8% and much smaller than that of China’s. India caters mainly to its large domestic market with more than a billion population.

However, India is a top global supplier of yarn accounting for 22% of the world’s trade in this commodity; it also accounts for 3.2% share of the global fabrics and meets 2.2% of the world’s apparel demand. Indeed, India produces everything from yarn to finished apparel.

Ambitious or just unrealistic?

India’s exports of textiles were hit during the last fiscal year ended March 31, 2002, and recorded an 11% drop to nearly $10.7 billion. However, India’s textile pundits are saying that exports will rise in the current fiscal year ended March 31, 2003, to the level of $13 billion. It has also set its sights on an ambitious goal of reaching $50 billion in the year 2010, which many critics describe as "unrealistic".

Unlike China, India thrives on catering to small volume requirements of buyers. This is true in the case of apparel and allied industries such as home furnishings where India can truly flex its muscles. This is particularly evident in the case of several Indian companies which supply small but highly specialised silk fabrics to Western countries, especially to the United States. Indeed, some Indians are even importing raw yarn for the manufacture of silk from China because, according to many Indian companies, the quality of Chinese silk yarn is superior to the Indian variety.

Many Indians, aware that they run the risk of not being able to compete against Pakistan and China in the international markets on grounds of cost effectiveness, weaker quality and designs, have begun to upgrade and modernise their production operations. A study prepared by McKinsey & Company under commission from the Indian Cotton Textiles Export Promotion Council also provided a forewarning of this future scenario.

Some suppliers, who run what are known as cottage industries, where traditional hand work is carried out, turned to other mechanised means of production because the traditional hand work has been turning out to be slower and more expensive. These suppliers have been using machines now and have discovered that they can, as a result, cut costs and pass down the benefit of low-cost supplies to the importers. Indeed, by using machines, such manufacturers have been able to supply not only upper-end buyers but the lower-end clientele as well.

Subcontinent hub

A business investment consultant in India, Devangshu Dutta, suggests that when looking at India’s potential, one should consider the growth of the subcontinent hub, taking into account the combined forces of India, Bangladesh and Sri Lanka.
Total apparel exports from the three places are estimated to grow to more than US$15 billion by 2005 and US$25 billion by 2010 from about US$12 billion in 2000.

Mr Dutta says a direct comparison between India and China would be unfair as India grows with the subcontinent and the region has good potential in the future. The subcontinent is also one of the largest and fastest growing consumer markets.

There are plenty of opportunities for raw material manufacturers and machinery makers while import duties are being brought down, he says, adding that in the textile and apparel industry, foreign direct investment is on an upward trend with manufacturing as the focus area.

However, Mr Dutta says that in addition to the dominance of small-scale production, the industry does not have a clear leadership and a true supply chain integration. Supply bases are spread out over a large geographical region, while the use of technology, especially information technology, has been insufficient.

Moreover, the Indian government still has to deal with its excise and other duty or tax imbalances, and modify the labour law which makes removal of staff difficult for employers, who therefore refrain from expansion.