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June 29, 2023
Dia Rekhi & Faizan Haidar, Economic Times
New Delhi, June 29, 2023
Fast Retailing, the parent company of Uniqlo, is looking to set up a significant manufacturing presence in India through about 20 ‘production partners’, multiple people aware of the development told ET.
One of the world’s most valuable clothing retailers, Uniqlo already has a cluster of production partners in India and is looking to expand this network through a significantly large investment, they said without sharing any estimated amount.
“The investment amount will be significant because Uniqlo is serious about India and views it as an important market,” one of the persons said. “Unlike the existing facilities in India, which cater more towards exports, the production partners that Uniqlo will bring to India will be specifically meant for the domestic market.”
One of the company’s production partners that ET spoke to confirmed that their current mandate is to produce only for exports.
Uniqlo, which is Asia’s biggest clothing brand, had said India is one of the top priority markets for them where consumers are increasingly shifting from ‘fast-fashion’ to long-lasting essentials and functional wear.
The company’s ambitions for India are considerable with its CEO Tadashi Yanai indicating that he wants Uniqlo to become the “best-selling retailer in India”.
The Japanese brand opened its first door in September 2019, but stringent lockdown measures announced to contain the outbreak of the pandemic in March 2020 delayed the expansion plan.
The brand is now planning to enter Mumbai and Bangalore. It has already opened stores in Lucknow and Chandigarh after Delhi.
Uniqlo does not own any factories. Instead, it outsources production of almost all its products to factories outside Japan.
As per a report titled ‘The Uniqlo case: fast retailing recipe for attaining market leadership position in casual clothing’, this model allows Uniqlo to keep its breakeven point low and improve return on investment.
“As we expand our global sales, we continue to grow our partner factory network in countries like Vietnam, Bangladesh, Indonesia, and India,” the company has stated on its website.
As per its list of garment factories, as on March 1, 2023, Uniqlo has 227 factories in China, 54 in Vietnam, 33 in Bangladesh, 13 in Indonesia, and 16 factories in India and Japan among several other locations.
As the world’s second most-populated country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing.
Over the past decade, global brands Zara and H&M became market leaders in the fast fashion segment in India.
“For global brands, India should be one of the most logical sourcing hubs given its large vertically integrated manufacturing sector on the one hand and the large, growing domestic market driving demand on the other hand,” Devangshu Dutta, founder of retail consulting firm Third Eyesight, told ET. “However, its weight in the sourcing baskets has historically been low due to several reasons, in spite of China being visible for decades to the management teams of brands and retailers as a concentrated sourcing risk,” he said.
Uniqlo’s existing production partners in the country include Shahi Exports, Brandix Lanka, Tangerine Design, Maral Overseas, Shingora Textiles, Silver Spark Apparel, SM Lulla Industries Worldwide and Penguin Apparels.
As per Fast Retailing’s first-half results, the company said its revenue was 1.4672 trillion yen, or around $10.2 billion, and that its operating profit had risen to 220.2 billion yen ($1.53 billion), bolstered by strong performances from operations in several regions, including India where it said it generated significant increases in both revenue and profit.
With regard to Uniqlo International, in particular, it said revenue stood at 755.2 billion yen ($5.25 billion), while operating profit was 122.6 billion yen ($852.93 million).
The company said regions like India “reported significant revenue and profit gains as they enter a full-fledged growth phase”.
(Published in Economic Times)
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December 3, 2020
Written By Dheeraj Tagra
At a time when India is seeing a growing number of young entrepreneurs eager to innovate and take risk in the shape of ‘start-ups’, it is sad to note that the apparel manufacturing sector has not attracted these youngsters. If we do see some intervention in the textile value chain, it is mostly on the retail side and little bit on the tech side. Over the years, there are very few professionals who have taken the plunge to be entrepreneurs and run a factory successfully.
While entrepreneurship is being encouraged greatly these days, the definition of MSME is enhanced and many Government schemes are inviting investments in apparel manufacturing, why has the apparel industry been left behind in getting new ‘entrepreneurs’ is a question many are asking. The fact remains that the Indian apparel professionals lack entrepreneurial skills and feel safe working with established companies rather than using their experience to upgrade the industry.
It is also pertinent to mention here that the second generation of established players are not much enthusiastic to continue in the apparel or textile manufacturing sector; so having a fresh entrepreneur, for whom understanding the functions of the industry is difficult, is indeed a cause of worry for many.
At a time when India is seeing a growing number of young entrepreneurs eager to innovate and take risk in the shape of ‘start-ups’, it is sad to note that the apparel manufacturing sector has not attracted these youngsters. If we do see some intervention in the textile value chain, it is mostly on the retail side and little bit on the tech side. Over the years, there are very few professionals who have taken the plunge to be entrepreneurs and run a factory successfully.
Often, Indian apparel factories claim that a particular department/unit of their company is a separate profit centre for them and their teams runs its business as entrepreneurs, rather than just doing their stated job, but is that enough? What more can be done to encourage fresh entrepreneurs to be a part of the apparel industry, needs serious debate.
Many at small scale but none at the large level To its credit, the industry in the last few years has seen a few players that have started their own business and are surviving well. Majority of such entrepreneurs are those that have decades of experience in a particular department of an apparel unit, developed strong network as well as resources. And now they are utilising their strengths as a business promoter. In most cases these units are very small and operations are very much under the control of the promotor, so they are surviving, and a few of them have even grown reasonably well. There also there are few who are still struggling to create a place of their own.
Major obstructions
This is a hard fact, but the reality is that over the last 5 years, Indian apparel export is facing negative growth and it is very hard to grow for most of the established players. Very few companies have expanded in recent years while majority of the companies have seen standard growth. So, it’s natural that no one would like to invest in such an industry which does not promise growth on the base of past performance.
New players prefer to invest in other industries like retail, e-commerce as the variables are more manageable. One of the biggest constraints in apparel manufacturing or even in textile industry is managing a large labour base, besides being deadline driven and seasonal in nature (in export mainly).
Government push
It is heartening to note that the Government in the last few years has announced various initiatives to promote entrepreneurship across the manufacturing industry, that too at state as well as centre level like incubation centre, one district one product (ODOP), Mudra loan, Start-up India, Make in India, Single Window Clearance and various other kinds of subsidies.
The overall industry can expect to see more inflow of investment with initiatives likes proposal for creation of National Technical Textiles Mission for a period of 4 years (2020-21 to 2023-24) with an outlay of Rs. 1,480 crore and approval to introduce the Production-Linked Incentives (PLI) Scheme with the financial outlay of Rs. 10,683 crore for over a 5-year period.
Yet, experts believe that Government is not much concerned regarding new entrepreneurs in the apparel business as fresh investment by old players also serves the purpose of the Government – large-scale employment generation. According to information shared by Apparel Export Promotion Council (AEPC), there are 493 members who have established their companies from 2017 to date, but how many of them are actually new entrepreneurs, even AEPC is not sure about this.
Giving the obvious reasons for lack of fresh talent in the industry, Rahul Mehta, Chief Mentor, CMAI and MD, Creative Garments, Mumbai, argues, “The simple reason is the meagre profitability of the apparel sector. Garment manufacturing is a labour-intensive activity, involving largely hands-on working and day-to-day operations. Although the investment tends to be lower than most other industries, the returns do not justify the effort. Hence, whilst existing companies continue to operate, very little incentive is there for new entrepreneurs coming in.” He further adds that apparel industry is considered a traditional industry, and does not have the appeal of a ‘New Age’ industry – which most people of the younger generation would be interested in.
Regarding Government schemes, he is of the view that most of the Government schemes are for refund of taxes, and not really for making the business more profitable. Hence, these would not incentivise fresh investments and that too from new entrants.
What could be the solution!
To bring fresh approach to a stagnant industry, new entrepreneurs are a must and to encourage this, Government schemes have to be devised accordingly. At the same time, proper guidance and hand holding by existing players is also required rather than looking at these new players as just a competition.
Akhilesh Anand, MD, Carnation Creations, Coimbatore who is among the successful entrepreneurs to have grown in last few years, is of the view that first of all, any professional planning to start their own business should have clarity regarding what they wish to do and why. After this they should build partnership with like-minded people so that both the sides have a common vision and their team should also align with the same vision. He further adds that along with positive aspects, budding entrepreneurs have to think and plan for negative aspects also. “Whatever age a professional has, his/her thought process should be young, should have a knack for rapidly accepting the changes and be innovative at all levels,” he reasons.
A proper ecosystem having equal focus on export as well as domestic market should also exist to promote new players in this industry. With the recent labour reforms and strong focus on skill development, one can expect that managing labour, one of the most difficult aspects of the apparel manufacturing industry, will be easy in coming years. And it will help to attract entrepreneurs in the trade.
Dr. Biswajit Acharjya, Assistant Professor, Entrepreneurship Development Institute of India (Ahmedabad) agrees that Indian apparel manufacturing industry has been missing new entrepreneurs in the last couple of years in India. “The need is to strengthen and properly execute the labour law on a national level. Major textile and apparel units run on electricity which costs more compared to other mediums, especially CNG gas. At the same time, India is having limited water facilities in specific areas. We need to create sufficient water preservation through rainwater or recycling seawater. Infrastructure also needs to improve,” he says. He further adds that there is always a mismatch between the State and Central Government policies in India, which is again a concern. “Existing entrepreneurs should play an active role in mentorship for the new, like job training, grooming and assurance for future responsibility,” he argues.
Apart from Entrepreneurship Development Institute of India (EDII), there are other institutes in the country also dedicated to entrepreneurship like Institute of Entrepreneurship Development (IED), The National Institute for Entrepreneurship and Small Business Development (NIESBUD).There is a strong need to push for entrepreneurship, with a focus on the apparel sector.
Devangshu Dutta, CEO, Third Eyesight, a leading consultancy company, is of the view that the textile value chain has not really been seen as a strategic area by the Indian Government for many years, regardless of the political composition of the Government at the centre.
“Textile and apparel exports have grown at a compounded rate of around 7 per cent annually, a rate almost half of overall exports, when some other major sectors have grown 12-15 per cent, or even as high as 22 per cent annualised in the case of the automotive sector which was virtually non-existent in the export basket 20 years ago,” he says and further adds that India has some critical disadvantages against other competing nations – it is logistically distant from most developed markets, and it is not part of any trade bloc that would give it duty-free access.
To fight against these disadvantages, its natural advantages of entrepreneurship, design and product-development capability and vertical value chain need a lot of support. The Government must also stop seeing the sector in terms of its individual components (fibre, yarns, fabrics, apparel), and must see it as a chain in which we should be focused on the end-point (finished products) to maximise the value captured by India.
“There is no dearth of entrepreneurs in India, and the apparel business has relatively low barriers to entry. If the overall operating environment is cleaned up and made less cumbersome, our firms will do much better. A strategic push is also needed to be funded by the Government for technological upgradation of Indian apparel businesses, not only in terms of manufacturing but also in terms of the improvement of business processes, human capital and digitisation – it will not be expensive in the larger scheme of things but will go a long way in making Indian entrepreneurs and their teams better equipped to deal with the rapidly changing business environment,” he says.
Closing the debate on a thoughtful note, Deepak Mohindra, Editor-in-chief, Apparel Resources opines, “New ventures require professionals at its realm, those having the foresight to see and adapt to new consumer needs and changes and well-honed skills to take calculated risk. The existing stalwarts are largely not willing to take up this challenge, neither have they trained the generation next to take up these kinds of challenges. And that forms the basic handicap in building entrepreneurs and entrepreneurship. Building entrepreneurs requires not only a basic understanding of the industry but also support that has to come in from all quarters – Government, industry stalwarts and the banking system, which has to believe in them and back them as they have backed them in IT sector.”
Source: apparelresources
Devangshu Dutta
July 30, 2012
(Published in “BusinessWorld SME Handbook 2012-13”, released on Oct. 29, 2012 in New Delhi, and “Indian Management”, the journal of the All India Management Association in January 2013, published by Business Standard.)
There are parallels between Christmas and the growth of modern retail. At Christmas much of the attention is fixed on Santa Claus, while the elves labouring away behind the scenes barely get any air-time. So also in the retail business, the focus very much is on the retailer; the bigger the better.
The Indian retail sector’s sales are estimated at about Rs. 26 lakh crores. Of this, more than 80% of the product requirements are estimated to be met by small or mid-sized businesses. We don’t usually think about these myriad manufacturing and trading companies that make up the retailer’s supply chain. Large branded suppliers – multinational or domestic corporate groups – are still able to make their presence known, but most others remain largely invisible. Many of these fall not just into the small-medium enterprise (SME) classification, but in micro-enterprises, even cottage-scale. Not only do the large retailers source from SMEs directly, those small suppliers in turn work with other upstream SME manufacturers.
Chicken or Egg?
Most of us are inclined to view the growth of modern retail as a precursor to the growth of the SME sector. Actually the reverse is equally true, perhaps even more so. Without a robust base of suppliers having taken the initial risk of setting up better-organised manufacturing facilities and supply chains, modern retailers would not be able to set up their businesses in the first place. We may view modern retailers as the catalyst for this development; however, they are first beneficiaries of SMEs, and only after they achieve critical mass can they catalyse further SME growth.
For instance, through the 1950s and 1960s, as the American and western European economies grew with the baby boom, it was the growth of manufacturing entities and brands – most of them SMEs – that led the charge. As these SMEs consolidated their growth, modern retail chains actually rode upon this. Subsequently, of course, retail chains have put most of their suppliers in the shade in terms of overall size and profitability. Japan in the 1960s and 1970s, Taiwan and Korea during the 1970s and 1980s, and China during the 1990s and 2000s also saw similar manufacturing-led prosperity and consumption, although their growth was driven initially by exports to the west.
In India, too, the tremendous social and economic changes in the last two decades have encouraged a resurgence of the entrepreneurial spirit. The consumer sector is specifically attractive to entrepreneurs as something that is tangible, provides visibility of the business fairly quickly and can be communicated and positioned well within the entrepreneur’s family and social circle, an important driver.
The Rationale for Supporting SMEs
We tend to ignore the fact that India has a workforce estimated at over 750 million, and which is growing annually by 9-10 million. Most of these people will not be employed by the government, or in large organisations or in the much-feted service sector. Allowing for a declining active employment in agriculture, it is manufacturing, trading and retail by small businesses that is needed to keep the economic engine running.
It is also important to remember that growth of SMEs raises prosperity rather more equitably than other sectors. Widespread growing incomes lead to growth in consumption, supporting retail growth, which in turn can feed back into further growth of SMEs. There are enough significant examples of such economic growth worldwide, whether we look at economies such as Western Europe and Japan recovering from the ravages of war, or at the Asian tigers, China and others emerging countries who’s GDPs are not overly dependent on extractive natural resources.
Innovation is another reason to nurture SMEs. Consumer needs are changing more rapidly than ever before in India’s history, with rising incomes, and evolution of life styles and social structures. Small companies are better at foreseeing or at least reacting to rapid changes. Large companies compete on the basis of their sheer scale and aim to maximise returns from every investment made, but small businesses have no choice but to be innovative in some way simply to enter the market or to stay in business. Experimentation with products, business models, service level and commercial practices is what SMEs thrive on. Differentiation is what makes small suppliers attractive to retailers. With the technology and tools available today, we should expect ever increasing amount of innovation to emerge from small rather than large companies in the consumer sector.
Small suppliers also provide diversification of supply risk for individual retailers, as well as for the market overall. Concentrating on a few large sources has, time and again, proven to be a risky approach, whether it is due to the balance of power tilting unduly towards a specific supplier, or simply the risk of product not being available in case the dominant large supplier’s business is affected. A mix of small suppliers is more like a supporting cushion – a bean bag, if you like – which can be adapted and moulded more easily to changing customer needs.
The Role of Modern Retail
There are three areas in which modern retail can be a significantly more important partner for SMEs than traditional channels.
Firstly, modern retail stores are possibly the most effective route to launch new products, or even entirely new categories. As a platform they offer a more consolidated and effective way to reach a new product to consumers, and to gain visibility and acceptability quicker.
As a follow-on to this, due to their innate need to scale-up successful initiatives, a product and or a service proven in one store or region would typically get included in buying plans for the retailer’s stores across the country. This provides a quicker and more efficient scaling up opportunity than the small brand or supplier trying to reach myriad stores across the country on its own.
Third, whether it is quintessentially Indian brands such as Fabindia, or Indian products through international brands and retailers such as Monsoon, Gap, Mothercare, Ikea, Marks & Spencer, these are but a few examples of the access route for small Indian companies to major world markets. In fact, B. Narayanaswamy suggested in an article titled “Opportunity Lost is Gone for Good” (July 2012), that the Indian government should negotiate hard with retailers interested in investing in India to open supply opportunities to the retailers’ businesses globally, rather than putting minimum sourcing requirements for the small Indian business alone which only act more as a constraint than an enabler. The government has, in the past, used such opportunities to allow investment in the consumer sector while enlarging the playing field for Indian businesses – Pepsi is a case in point.
For some companies, modern retail is in fact a launch pad for wider ambitions, as they evolve into building brands themselves. Mrs. Bector’s has grown from a contract supplier to the likes of McDonald’s to launching its branded products not only in India but also in international markets targeting Indian expatriates. Genesis Colors went from being a Satya Paul licensee for ties to being the owner of the brand, and then further to being a partner for many internationally established premium and luxury brands who want to be part of the India growth story. Others become growth vehicles for larger businesses after being acquired by them, such as ColorPlus by Raymond, Fun Foods by Dr. Oetker (Germany) or Anchor by Panasonic (Japan).
Making Business Easier
India is one of the few countries to have a Ministry dedicated to SMEs. However, India’s SME sector is very far from competing effectively with SMEs in other countries.
The German Mittelstand employs more than 70% of Germany’s workforce and is acknowledged to be at the leading edge of technology and efficient business management. Other western European countries such as the UK and Italy also have vibrant SME sectors. All these countries have not only been competitive globally as exporters, but have also co-opted into the growth of industries elsewhere including the BRICs.
Three enormous obstacles stand in the way of the growth of India’s SMEs, as a huge amount of entrepreneurial energy is wasted tackling these areas. The government certainly has a large role to play in all, but one of these is also the responsibility of large corporate groups.
The lack of adequate infrastructure is arguably the most recognised obstacle, followed by compliances that can hold SME operations hostage under outdated laws, many of which have not been reviewed since India had an Empress! Entrepreneurs and businesses lose millions of manhours annually managing these two areas.
However, the one area in which not just the government but large retailers can play a role is in ensuring that SMEs are funded adequately. Bank sources in the form of term loans and working capital limits is only the start. The rest comprises of actual cash flow, much of which are limited by the long credit period demanded by retailers. Payment can stretch as far as 6-8 months, and include sale-or-return terms which squarely place the burden of funding the retailer’s business on the SME supplier. Unless we can mandate better payment practices, the boom of retail giants will be created using millions of dead or barely alive SMEs as building blocks. And what we don’t realise is that the retailers’ own health is also at stake, because lazy payment terms create a maze of poor practices, from product planning at head office all the way to the retail store. For instance, products that will not sell get stocked for short-term margin through placement fees, and block shelf-space and cash flow that affects other suppliers. Promptness of payment to SMEs must become a metric to measure the health of retail companies – after all, what gets measured gets tackled. And for the proponents of “Corporate Social Responsibility” – what better way to promote CSR and wide-ranging economic well-being than by ensuring the the smaller businesses in the ecosystem are not starved of the funds that are rightfully theirs!
SMEs are not just the foundation, but also the beams and pillars on which the glass and steel cathedrals of modern retail are built, and a vital indicator of the economy’s overall health. The sector needs to be tended to proactively and holistically, both by government and by large businesses, as an investment in India’s economic future. Perhaps we will even create some world-beating companies along the way.
Chandni Jain
August 9, 2010
India’s traditional skills in textiles, intricate craftsmanship, and creativity in producing a range of design-intensive products have enticed buyers from all over the world. India retains a strong and sustainable position among the top five exporters of textiles and clothing in the world.
India’s textile exports are currently weighted in favour of raw materials and intermediate products leading to ‘value-leakage’, which is a major concern from the long-term competitiveness perspective.
Within India, Delhi holds a position of prominence and can play a significant role in capturing additional value within the country. As a sourcing destination and as a gateway to the rest of India’s textile and apparel sector, Delhi provides unique value in product development and design, and a tremendously flexible supply base.
This capability is especially critical in an unpredictable market where retailers and brands are looking to source ever-smaller quantities of product, increasingly closer to the season.
According to the Director (Merchandising) of one of the largest US retailers sourcing from India, “Delhi scores high on responsiveness, and is more enterprising. It has the capability to handle extraordinary fabrics and is strong in interpretations of artwork.”
The apparel cluster in Delhi-National Capital Region (Delhi NCR) includes locations across four states, and accounts for about twenty five percent share in the country’s current apparel exports. If Delhi’s apparel cluster were to be treated as a country, at US$ 2.6 billion (Rs. 12,000 crores) of apparel exports, it would fall within the Top-20 list, ahead of countries such as El Salvador, South Korea, Philippines, Peru and Egypt. Moreover, being a labour intensive industry, apparel cluster offers immense employment opportunities in NCR, already with current direct employment of over 1 million as per Third Eyesight’s estimate.
A study carried out by Third Eyesight has identified an additional growth opportunity of over US$ 5.5 billion (Rs. 25,000 crores) both in its current markets and products, as well as new product opportunities.
For many buyers, sourcing from Delhi NCR cluster is still restricted to beaded, sequined, and tie-dyed blouses, dresses and skirts. While Delhi remains strong in these products, it now also sells funky denim and jersey wear to young fashion brands, men’s tailored suits to American brands, and women’s undergarments to Europe.
Delhi now offers a base both to international buyers looking at buying finished products, and to Asian, European and American manufacturers looking at setting up alternative manufacturing locations that can tap international as well as the Indian market.
Going forward, the key stakeholders of the Delhi NCR apparel export cluster – individual companies, industry associations and the government need to urgently undertake adequate action steps as the competition is gearing up and the perceived strength of Delhi NCR cluster at the moment may not remain a USP of this cluster in the future.
The Delhi NCR apparel export cluster strategy report along with action steps and key implementation areas was presented at an industry seminar ‘Discovering Growth’ in New Delhi. The seminar was hosted by GTZ in partnership with Small Industries Development Bank of India (SIDBI) and Apparel Export Promotion Council (AEPC). The seminar was attended by the key stakeholders of the Delhi NCR apparel cluster including leading apparel exporters, buying agencies and retailers.
admin
January 1, 2006
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