Can India Deliver?

WHAT BUYERS WANT Scale, before anything else Vertical integration - from yarns to garments. Very few Indian companies fit this bill, adding to coordination costs and delays Industrial engineering concepts - from planning a plant to measuring productivity Shorter lead times, because fashion seasons are getting over sooner Transparency in the way Indian companies work. That way, they can be a part of the buyer's global product tracking systems G. Sankar, Buying head at Tesco's Indian sourcing arm 'India is big only because the world needs an alternative to China'

Let's go across to Tirupur first, as most of the action is taking place there. (Clusters like Panipat and Ludhiana are yet to get their act together - see 'Cluster Blusters'). In Tirupur, Astro Apparel's Venkatasubramanian is not among those buying new machinery. In fact, Venkat has no plans to expand capacity. He believes the real issue is labour productivity. Without adding a single new piece of machinery, he believes it would be possible to grow his turnover from the current Rs 9 crore to Rs 15 crore in a year.

In October last, Venkat was part of a 32-member team that visited the Guangzhou province in China. Organised by the local office of the Textile Committee, the visit was meant to expose them to the best practices and the scale and sweep of Chinese garment factories. It was an eye-opener for Venkat. When he visited the factories, he found that Chinese workers didn't even look up from their work when a visitor came in. He also found that both the costs of labour and raw material were almost the same as back home. The crucial difference was productivity. According to Venkat, the Chinese worker had a 200-250% higher productivity using the same machinery.

Back in Tirupur, Venkat began to secretly monitor his workers' productivity levels. But once the workers got to know, they stopped working. They weren't keen on their wages being linked to productivity. Venkat is facing a peculiar situation today. Typically, his order flow is such that his factory operates at full capacity for eight months in a year. During this period, workers often have to work overtime, mostly till 9 p.m.

Last year, managers from Sara Lee, the leading global lingerie brand, visited his factory and were impressed by the facilities. Not only were they willing to make him an approved supplier, they were ready to place an immediate order that would keep his factory running for the entire year. The only requirement was that Venkat would have to shut his factory by 6 p.m. - in keeping with Sara Lee's good production practices. Now, this was a win-win arrangement. His calculations showed that his workers would earn far more if they worked fewer hours, but for the entire year. The workers couldn't see the point, so much so that Venkat had to eventually decline the order from Sara Lee. "The labourers' attitude in Tirupur is just not conducive. By stepping up productivity, we can produce 150% with the same machines and the labourers will also earn more. But it is just too difficult to convince them," he says.

Tirupur accounts for a fifth of the garment exports from India. But the 2,500 firms there need to solve two big problems: lack of productivity and lack of scale. Even after decades in the business, there are just about a dozen companies with a turnover of over Rs 100 crore. The biggest exporter in the cluster, Eastman Exports, had revenues of Rs 250 crore. It is largely into low-value knitted garments.

Garment making in Tirupur is still mostly a cottage industry, with factories in sheds and garages running on a few machines. There is no professional management in most of these firms; even the biggest companies are willing to air their views only through the powerful Tirupur Exporters' Association.

WHAT BUYERS GET A hopelessly fragmented industry. Even single orders have to be processed at several locations. That’s changing, but slowly. Some SMEs in Tirupur are collaborating successfully, but the trend hasn’t caught on everywhere The Nahar Spinning Mills plant in Ludhiana: The company is waiting to see if orders pick up after 1 January 2005 — fresh investments would come after that

This lack of professionalism breeds a myopic view. Take the pollution problem. Cotton fabrics have to be dyed using 'disperse dyes'. These dyes leave solid particles on the fabric that cannot be dissolved by ordinary effluent treatment plants. It takes a costly reverse osmosis process to completely eliminate the dye and re-cycle the water. The companies in the Tirupur cluster did not bother much with recycling the dye and simply dumped all the effluents into the adjoining Noyyal river. The Chennai High Court has now slapped a Rs 400-crore fine on the Tirupur dyers. Industry observers say that if the order is implemented, many small apparel manufacturers will go under.

Now, the government-run local Textile Committee is trying to help the small companies work around their weaknesses. The Committee, through a dedicated cluster development agent (CDA), is asking companies to work collectively to solve their problems. For attaining adequate scale, it is goading smaller companies to form consortiums - pool their manufacturing capacity and solicit orders together.

Pradeep Kumar of Knitcity Exports, a consortium of four manufacturers, says that the joint effort has yielded some large enquires. Now, 180 companies are coming together to set up a windmill project that will bring down power costs by 35%. They are also trying to upgrade the eight ordinary effluent treatment plants into reverse osmosis units to help use the water resources better. Says Kumar: "In the long run, we expect that sharing a common platform will help us reduce costs in areas like marketing and hiring consultants to improve our business systems."

It's the increasing size of orders in the past two years that's forcing the change. If they aren't signing up for a consortium, producers are increasing capacity. Two of Tirupur's largest exporters - Eastman Exports and Centwin Textiles - have doubled capacity in the past two years and plan to do so again in the next two. A measure of the growth: 30% of India's textile machinery orders last year was from Tirupur.

"Tirupur's exports will double in the next three years to Rs 10,000 crore with all the new initiatives in the cluster," says a beaming A. Sakthivel, chairman of both the Tirupur Exporters' Association and the Apparel Export Promotion Council.

But unplanned growth is putting severe pressure on infrastructure. So much so that some firms feel it may be better to make a clean start elsewhere. Fortunately, in the 2002 Budget, the Union government allowed state subsidies for setting up new apparel parks if at least 20 players come together. Such an apparel park is now nearing completion about 25 km from Tirupur. Over 52 manufacturers have invested Rs 300 crore in it, and the government is chipping in with Rs 17 crore for infrastructure like roads and water. Says Textile Committee secretary Reddy: "There are government schemes that can generate up to Rs 500 crore for development of each cluster through various agencies. We are helping one cluster tap these funds." There's hope that Tirupur could make the leap - at least those players from the cluster who embrace change.

There are still several who like the old order too much. Most have steadfastly refused to allow foreign investment to come into the cluster and stuck to outdated practices. Contrast that with Bangladesh, where Koreans and Sri Lankans have set up huge factories and scaled up exports to India's level in about five years. Reddy agrees the existing players should 'think out of the box'.
To help the case, Reddy will accompany the head of the Treviso cluster to Tirupur in end-March and discuss the possibility of setting up a mini-Italian cluster there. For the Italians, whose business has shrunk in the face of the Chinese onslaught, India offers a low-cost manufacturing base. For Tirupur, such a move would help bring in global practices quickly.

Showing The Way

Adopting international practices is already helping others like the Bangalore-based Fibres and Fabric International. Their chairman and managing director Anupam Kothari hired an Italian technician a few months ago to look after the high-tech machines in his factory. The result: the downtime in his critical operations is now negligible. Says Kothari: "The Italian technician did not come cheap, but we raised our efficiency a few notches almost overnight. We understood the difference between buying technology and using technology."

A. Sakthivel, chairman, Tirupur Exporters' Assoc., 'There is no need for foreign investment in Tirupur. We have enough capital'

Kothari is sparing no efforts for his next expansion. Soon, he will decide who will construct his factory, L&T or Gammon. The machines will be imported and he plans to set up a state-of-the-art water recycling plant costing Rs 6 crore. That would increase his water costs five times, but would ensure a high degree of social compliance - a selling proposition to his eco-friendly buyers from the Netherlands and Germany.

On the face of it, Kothari is going against the grain of cost-conscious manufacturing. But in reality, he has cracked the pricing code. By focussing on the fashion denim market, Kothari has carved a niche for himself. He commanded an average price of 14.43 euros for each of the 2 million jeans he sold last year - more than double the industry average of 7 euros. He commands a premium in the high-fashion jeans market too. Here, a dress would typically retail at 200 euros and above. Now, given the high inventory holding costs, most European retailers prefer to deal with suppliers who can replenish stocks in short lead times. Kothari's flexible manufacturing system allows him to cut lead times to just two weeks - unheard of in the Indian industry. Costs are understandably higher, but then it earns Kothari nearly 35 euros per pair - almost twice the price commanded by some Chinese manufacturers who are unable to offer the same level of service.

Clearly, skill-intensive manufacturing could be a way to compete. India's biggest exporter Orient Craft has also begun to realise that. Till a year ago, the company's chairman and managing director Sudhir Dhingra dreaded the idea of setting up huge factories - all for the fear of strikes. Today he is spending Rs 40 crore on a new factory in Gurgaon that would employ 2,000 people. The centrally air-conditioned facility will combine all the stages of garment manufacturing, design to finishing. Says Orient Craft's executive director Anoop Dhanda: "For the next few years, we will have to invest in new capacity every year if we have to keep pace with the industry."

Orient Craft and Fabric & Fibres are among a few who have been pulling ahead of the pack. Others include Gokaldas Exports of Bangalore, Meru Exports and Richa Exports of Delhi, and Shahi Exports. The turnovers of these exporters range from Rs 100 crore to Rs 250 crore. Most are family-run. But what distinguishes them is a relatively larger scale, and smart use of technology. But soon these players will have company.

That's because a new breed of players are jumping into the fray, albeit somewhat belatedly.

From Half Steps To Full Measures

In February this year, over 70 Indian textile manufacturers were displaying their wares at the Texworld Fair in Paris. Fabric buyers from all over the world converge at this fair twice every year. This year, nearly 10,000 buyers attended.

"This time, nearly 70% of the Indian delegation came home with the same message: their buyers wanted them to make apparels instead of making textiles," says Clothesline editor Arun Roongta, who was present at the fair. Roongta says this isn't new - for the past two years most textile manufacturers have been hearing the same refrain from their buyers. But it's only now that the message is sinking in. Past Indian regulations are partly to blame. Till 2002 only small-scale sector firms with a capital of Rs 1 crore or less could make ready-made garments. So none of the big players really invested in garments. The government realised its folly and lifted the small-scale restrictions in the 2002 Budget. Since then, textile mills have begun shifting to a vertically-integrated model. "There is no other alternative for textile mills but to integrate vertically into more value-added services. At Arvind, we believe that's where our future lies," says Darshan Mehta, president, Arvind Fashions.

R.C.M. Reddy, secretary, Textile Committee 'Our new role is to enable private enterprise to become more market-driven'

To start with, textile mills like Arvind believe that they have a clear sourcing advantage. Nearly 85% of India's garment exports is linked to cotton. Since Arvind manufactures denims at competitive rates, Mehta believes it can make denim-based apparels cost-effectively too. He expects his scale to be an important source of competitive advantage. Nearly every denim maker in India - Raymond, KG Denim and Aarvee Denim - is using the same logic to set up apparel units. Even the cotton textile mills around Coimbatore - Premier Mills, Loyal Textile Mills and Super Spinning - want to focus on woven garments now.

But not everyone is as confident as Arvind. Aarvee, for instance, is going easy on its garments business, which contributes about Rs 10 crore-12 crore out of its total turnover of Rs 170 crore. Suresh Parikh, financial director and company secretary at Aarvee, says he doesn't expect the share of garments to expand beyond Rs 25 crore-30 crore. "The two businesses are very different. There are pitfalls in getting into garments. Fashion changes. Inventory is a far bigger problem. It's a business better suited for the small-scale sector." So Parikh plans to do only the designing and cutting in-house; assembly would be handled by job workers initially. In contrast, Aarvee says it is far more bullish about 'made-ups' like towels, home furnishing, etc. They are starting a business in made-ups and expect that to be worth Rs 90 crore in the first year itself.

Clearly, making garments calls for lots of flexibility. That's not something the textile mills have. Says Sreeram Sreenivasan, MD, Indus-League Clothing, "A garment maker has to keep scanning the market. He can switch from fabric to fabric, product to product. But by having made such large investments in the manufacturing process, the options before the textile company can be limited. The world over, garment companies are pure-plays. I'm not sure they can hack all of it."

Sreenivasan has a point. But till they go through the experience, it's hard to say whether the mills will make the cut. At the moment, few are thinking of what could go wrong - be it tiny garment units in the traditional clusters, or large exporters who have found strong niches. The attitudes have changed - the industry is trying to grow up. All hopes are pinned to that magic date - 1 January 2005.