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Sorry, didn’t mean to wish you well!

Whatever you might say about “customer relationship management”, you can’t fault some companies for trying.

Only, sometimes they just try too hard.

For instance, one bank (that shall remain unnamed) sent an email with birthday wishes WEEKS after the event. You could laugh at the mistake, blame it on a fault with the IT system, whatever.

But what do you do when the very next day they follow it up with an emailed apology that says:

“Dear Customer

We apologize for inadvertently e-mailing a Birthday wish to you. Kindly accept our sincere apology for the inconvenience caused to you.

We look forward to your continued patronage and wish you the best at all times.

With Warm Regards

XYZ Bank”

Sometimes customer relationships should remain managed in an understated and old-fashioned way. Otherwise the “WOW Factor” can turn into the “WHA…?! Factor”.

Speed, Connectivity and Value-Creating Intangibles: the New Rules of the International Apparel Sourcing

In 1998, Stan Davis and Christopher Meyer, two collaborators of the Ernst & Young Centre for Business Innovation, wrote a groundbreaking book under the title: ‘BLUR. The speed of change in the connected economy.’ The authors defined blur as ‘the accelerating pace of change of our post-modern economy’. They wrote: “Because we are so newly caught up in the whirlwind of this transition, we are experiencing it as a blur.” In the meantime, in some business circles, ‘BLUR’ has acquired the status of a cult book. Raving about this book may be exaggerated, but its main message is certainly worth to be pondered on: three forces, also called the ‘trinity’ of the blur -speed, connectivity and intangibles- are setting the new rules of doing business!

What could ‘speed, connectivity and intangibles’ mean for the garment sector and especially for the sourcing activity?

Speed!
In their book, Davis and Meyer refer to Benetton, which gained fame for engineering a sourcing system so seamless it cut months out of the traditional supply chain. Speed was the driver. And because the company could tie its production to retail activity, it kept the hottest items in stock and was left with little to unload in end-of-season sales. Not mentioned in BLUR, but presently even more successful ‘speed performers’ than Benetton are the champions of ‘lean retailing’, such as Zara/Inditex and Hennes & Mauritz.

However, ‘lean retailing’, a business model that centres on quick response, low inventory costs, rapid-moving stock and transferring responsibility for inventory management to suppliers, is not only a question of speed, it’s as well a question of connectivity. In the broader sense of the word, connectivity is putting everybody and everything in connection in one way or another. (In a more narrow sense, connectivity is the ability to make products that link electronically to information bases, an ability that might be displayed at the next Avantex fair in Frankfurt).

Be connected
A company with a great record in terms of ‘connectivity’ is the Sri-Lanka based company MAS Holdings, whose ambition it is to become world leader in the intimate apparel sector. MAS is engaged in a number of enterprises in several countries, all of which are joint ventures with at least one other party. Over the years the company has devoted itself to a thoughtful supply chain architecture.

In the field of fabric and clothing sourcing, many sourcing operators (manufacturers, retailers, agents) are increasingly eager to be connected globally. Sourcing fairs which continue frustrating their visitors’ desire for global connection (e.g. by excluding the offer of non-European suppliers) are understandably losing interest. Not surprisingly, Texworld in Paris and Intertex in Milan, international sourcing events aimed at textile manufacturers from non-European countries, have grown rapidly. These fairs are complementing respectively Première Vision in Paris and Moda In Tessuto in Milan, thus creating temporarily in both cities the ‘global search machines’ the outsourcing companies want.

Another sourcing event that has grown rapidly by becoming global is Fatex in Paris. A few years ago, this annual clothing manufacture and sourcing trade fair was an exclusively French affair (with French exhibitors only). Then the organisers decided to open up onto the international area. In 2000, 103 foreign exhibitors moved in. In November 2001, foreign presence doubled to 207, or 42% of the total number of exhibitors (not even included the 47 French companies with delocalised units). From 2002 on, Fatex will adopt a seasonal rhythm, organising a spring and an autumn edition, simultaneously with the private label fashion fair Intersélection.

That especially the leading Western clothing companies want to be connected globally doesn’t mean they are playing around on the globe like young kittens. Devangshu Dutta, ex-KSA-consultant and co-founder and director of the supply chains solutions company Creatnet Services Ltd recently pointed out that in the 1990s a scientific sourcing principle began to be applied. It was good to cut down supplier numbers, since this reduced the management effort on the part of the buyer to constantly look for new suppliers and maintain current relationships. Devangshu Dutta thinks that the supply base consolidation has gone a step too far. He’s pleading a new deal. Outsourcing companies should acknowledge that the business of clothing retailing needs a healthy balance between predictability and innovation. Buyers should make a mental division between ‘largely predictable products’ and ‘fashion products’. For ‘largely predictable products’, supply base hopping is almost certainly the wrong strategy to follow. On the other hand, putting a long-term commitment on any significant proportion of the fashion segment to specific suppliers can be counter-productive. The competitiveness of supply bases is changing all the time, and suppliers are constantly developing new capabilities around the world. Therefore, buyers should keep their doors open for new suppliers to walk in and display their capability.

Focus on value-creating ‘intangibles’
The Ernst & Young fellows Davis and Meyer admit that ‘intangibles’, the third component of ‘blur’ is not a brand new element of the economy. The intangibles have, in fact, grown quietly as part of the economy, without calling too much attention to themselves. The authors mention four types of intangibles: services, information, the service component of products and emotions. They pretend that every offer has both tangible and intangible economic value. However, the intangible is growing faster. The outsourcing of the clothing manufacturing activities can be seen as an effort to move away from the tangibles in order to concentrate on the intangibles.

In 1997, Sara Lee Corporation (Wonderbra, Champion Sportswear, Hanes underwear,…) announced it was embarking on a massive ‘de-verticalisation’ program. Chairman and CEO John H. Bryan explained the decision this way: “Our de-verticalisation program is designed to enable us to focus our energies and talents on the greatest value-creating activities in our business, which is building and managing leadership brands.” The first de-verticalisation transaction to be completed by Sara Lee was the divestiture of nine yarn and textile operations related to its United States products business to newly-formed National Textiles, LLC.

About Nike, Davis and Meyer wrote: “Nike became the leader in its industry by keeping all kinds of traditional capital off its balance sheet, putting it in the hands of the suppliers instead. Nike’s own value-producing capacity is its design capabilities, marketing acumen, positioning, and distribution channels. Together, these accumulate into intangible strengths that yield much higher returns than would traditional capital investments.”

Also Naomi Klein, the author of ‘No Logo: Taking Aim at the Brand Bullies’ and her likes assert that in the new global economy, brands represent a huge portion of the value of a company and, increasingly, its biggest source of profits. Therefore, they say, companies are eager to switch from producing products to marketing aspirations, images and lifestyles. They are trying to become weightless, shedding physical assets by shifting production from their own factories in the first world to other people’s in the third. However, Naomi Klein’s outraged claim that consumers are being manipulated by big corporations and their brands appears to be a one-sided opinion. Surely, brands have influence on the behaviour of the consumer, but the contrary is also true. Often, consumers dictate to companies and ultimately decide their fate. As an example, Nike has had to revamp its whole supply chain after being accused of running sweatshops. Managing ‘intangibles’ such as brands is becoming increasingly difficult. Annual tables of the world’s top brands, which used to change little from year to year, now show that many brands are falling from grace and that newer, nimbler ones are replacing them. Not only companies, also countries have to carefully administer their ‘intangibles’. Outsourcing clothing retailers and manufacturers tend to favour sourcing from countries that they are already familiar with. However, if they fall out of love with a country, it’s extremely difficult to coax them again into new business. This has been the fate of Yugoslavia under president Milosevic. Though Yugoslavia can presently offer the former European customers of its once flourishing CMT-industry a pretty low salary level, a well educated workforce, rapid land and air connection, an improved human rights situation and a sufficient level of political and economic stability, very few traditional customers did yet return.

Less Could Be More

For all those who have admired the consistency and presentability of produce in western supermarkets, here’s proof that tough times really focus us on substance and force us to look beyond skin-deep beauty.

Even in fruits and vegetables.

British supermarket Sainsbury has challenged European Union guidelines that restrict the sales of fruits by certain physical standards. Sainsbury’s is questioning EU regulations that prevent selling “ugly” fruit and vegetables. Due to EU regulations such as size of cauliflower (minimum 11 cm diameter) and the shape of carrots (requirement that there should be a single root, not multiple), Sainsbury estimates that up to one-fifth of what is produced in British farms cannot be sold in the supermarket. According to Sainsbury’s estimate, not following these regulations can help to reduce prices by up to 40%, and reduce wastage by up to 20%. The retailer is also trying to drum up customer support by running an online poll (94% responses were in favour of Sainsbury’s move, at the time this column was being written).

So less beauty could mean more veggies in the supermarket, and more money in everyone’s pocket including, hopefully, the farmer.

And this may also vindicate anyone who has complained that the beautiful veggies and fruits in western supermarkets taste inferior to their “ugly” counterparts sold on Asian hand-carts. Give us more substance and less style, any day.

Let’s look at some other substantial issues that merchants should consider.

Remember “I can’t get no satisfaction”? That’s what Mick Jagger and his mates in the Rolling Stones hit the world in the face with in 1965, allegedly in response to the rampant commercialism they had seen in the US.

After 43 years – at least judging by the modern supermarket shelves – apparently we still ain’t getting no satisfaction. In fact, the array of choice tends towards “overload”.

A typical developed country supermarket is estimated to carry over 40,000 SKU’s. Can you think of 40,000 types of items (or even 10,000) that you would need from the supermarket for your home?

So here’s the result. During my travels, if I’m in a store that is unfamiliar I could spend over an hour wheeling a trolley around before reaching the checkout. The first 5-10 minutes are focussed on figuring out the aisles based on my list. The next 10 minutes are spent picking what is actually on my list. And the rest of the time before the checkout is usually spent browsing through the thousands of SKU’s and picking stuff that we never knew we needed when the family made the shopping list.

Now, the guys who run the supermarkets are generally a smart bunch – they’ve figured that the more options you put in front of consumers, the more they buy. My cash receipts are proof of that. But, as American professor and author Barry Schwartz (“The Paradox of Choice”) says, the point where the choice becomes counter-productive is already well-past in developed markets.

With such overwhelming choice, consumers get into analysis-paralysis. And even after they finally purchase something out of the enormous range, you get shades of post-purchase dissonance. Only, in this case the dissonance, the dissatisfaction is not related to a bad product, but: “What if there I had made another choice? What if there was a better product than this? What if there was something available for less?”

During these times, it is pertinent to also put this in the context of business costs. There is surely a cost of providing that humongous choice in supermarkets. Have we considered what the saving could be, if the variety was reduced, if the product range was consolidated?

Consider the time (and therefore cost) spent on product mix and pricing decisions – surely merchandising teams have to be larger if you have a larger product mix, since each person can only handle a finite workload. Consider the cost of logistics of handling a widely diversified range. Consider the efficiencies lost in diverse production mix. So, does the consumer really need, really even want all that choice?

Retailers like the German chain Aldi raise precisely those questions. Aldi sells about 1,100 SKUs compared to the usual 40,000. And it claims that the typical shopping basket in Aldi’s UK stores is 25% less than competing supermarkets.

Indian retailers, of course, are possibly yet to reach that pain threshold of choice. There are possibly some potentially useful choices that are still missing. But even here, it is well worth taking a hard look at the product offering. With availability levels that can dip as low as 50-60%, it is probably worth asking – what if we dropped XYZ product from our range? Would it really hurt our sales or even our image; or would it help us to focus better on the products that really matter?

If we took our attention away from building such false choices, could the business become more profitable and therefore more sustainable?

The US and European markets are often the source of many a management thought and business model related to consumer products and retail, and of “best practices”.

So, in closing, I should share this question someone asked me recently: “when do you think consumer spending will bounce back in the US?” My first response was, “If only I had a crystal ball”. But the next thought in my mind was what if US consumers actually came to a decision that they had “enough”? What if their excessive consumption was no longer the role model for consumers in emerging economies? What if, instead, the frugal consumers of India and China became the global role model?

What would your business model look like then? Would your corporate be more socially responsible? And would it have a better chance of lasting longer?

For those who are interested in taking this inquiry even further, I can recommend John Naish (“Enough: Breaking Free from the World of More”, 2008), John Lane, Satish Kumar, M. K. Gandhi, Alan Durning (“How Much is Enough?”), or any number of ancient Indian, Chinese, Greek or Roman schools of thought, many of them pigeonholed into “religious” or spiritual categories.

You might also like this video of a talk by Barry Schwartz on Ted.com (below).

Do please share the results of your inquiry with us, too.

Global crisis could badly hit textile industry

By K G Narendranath,

ECONOMIC TIMES Bureau

DELHI, 5 Nov 2008

Much before the index of industrial production (IIP) showed a big decline (IIP grew just 1.3% in August against 10.9% a year ago and 7.4% in the previous month), the production data from the textile industry indicated a slump.

IIP had risen 8.1% in 2007-08 but during the year, major textile groups reported dismal growth figures—wool , silk and manmade fibre textiles grew just 4.2%, cotton textiles 4.1% and textile products (which includes garments), a more tepid 3.3%.

As per textile ministry data, spun yarn output increased 4% in 2007-08 and cloth production, 3.9%. These figures compare poorly with the corresponding figures in the previous two three years. Available official data for this fiscal indicate the growth might have slipped further.

The global financial crisis has undermined the viability of India’s textile and clothing (TC) players’ business, according to the Confederation of Indian Textile Industry or Citi. With a serious contraction in both export and domestic demand and a pervasive liquidity crunch, many units are already gasping for breath.

Those units which had hoped to come out of a financial morass with the help of the RBI-mandated CDR (corporate debt restructuring) have recently begun defaulting on even the restructured loans. This situation, according to the industry body, would aggravate by December.

As CDR tag would hit the rating of these companies, they would find it nearly impossible to get new loans to get their business going. (Think of their predicament when there is anyway a severe credit squeeze).
The textile industry is one of the few industries in India that are “export weighted”.About 55% of the domestic textile production, loosely valued at $40 billion, is exported. As per latest data, India’s TC exports to US have declined 1.5% in January-August this year, bucking the trend of 10-15 % annual increase in exports in the last three-four years. “We expect September-October data to be more dismal,” says an industry official.

“The global financial crisis has hit TC industry hard since USA, EU and Japan are our largest markets. Our textile exports are already faltering and there are reports of more and more importers and retailers closing operations in all developing countries,” says Citi in a note.

There are other problems too, like the 40% increase in MSP (minimum support price) for cotton in October-September 2008-09 season, even as there is likely be a glut in the market — cotton production this season is estimated to be a good 322 lakh bales and export prospects are dim.

The government’s procurement agency, Cotton Corporation of India, would not be able to procure such quantities because of infrastructure constraints. The global fall in prices of petrochemicals like PTA, polyester filament yarn and staple fibre would not suffice to offset the MSP-induced spike in cotton prices.

The only solace is the depreciation of rupee but it is of no great help given the export demand slump.
Citi has therefore a few demands : cut the interest rate on working capital loans for purchase of cotton to 7%, reduce margin money to be provided by mills for working capital for purchase of cotton to 10% from 25% and increase the period for which working capital loan is provided for purchase of cotton from 3-4 months to 9 months.

According to a recent study by Third Eyesight, a consulting firm, “Indian exporters are now trying to increase their share in the EU market and diversify into other markets other than the US. However, the market scenario in most major global markets is looking grim in the short-term.”

Unless decisive policy action is taken, India’s grand plans to catch up with China, which has established a domineering presence in the global textile markets, might also go awry. As per the study, “Given the current market share positions, it is unrealistic to expect India to catch up with China any time soon.”

However, the trend is clearly towards re-integration of India’s industry with the global trade,” the Third Eyesight qualified its assertion in the study titled ‘Eternal hope to reality’.

Though the dollar’s appreciation against the rupee in recent months should have brought a breather to exporters, the benefit of a weaker rupee has been offset by the surge in costs and global economic slowdown.

According to the study, textile companies’ margins are under severe pressure due to rising costs of raw materials, fuel, real estate and more expensive credit. The investment binge that was seen in this industry for the last two-three years— assisted by the soft-loan scheme called TUFS— has almost come to an end.

Partly, this is due to the general credit squeeze, but specific problems faced by the textile industry in terms of cost escalation and difficult competition in global markets also contributed to drying up of new investment proposals.

External developments also worked towards the detriment of textile and garment exporters. Many competitors have been strengthened by government incentives. For example, China has increased Vat refund rates from 9% to 13% for synthetic textiles and from 11% to 13% for other textiles.

If one has to look at the long-term competitiveness of India textile exports, the disconcerting reality is that the export basket at present consists of raw materials and intermediates rather than finished products.

Clearly, there is a need for more investments in the weak links of the textile manufacturing chain like weaving and processing. This would enable the domestic industry which is fairly integrated and supported by a rich and diversified raw material base, to win its spurs. Policymakers must pay heed and come out with incentive schemes.