Rising of India

(column by Angshuman Paul)

Six decades have now passed since Independence. And the textile sector has had a key significance for India, even before Mahatma Gandhi launched the revolutionary Swadeshi movement. But while liberalisation & organized retailing have enhanced the prospects, Indian apparel is yet to achieve its rightful place on the world map. Will we ever be able to catch up?

Think of the word ‘apparel’ and you are pushed back into a psychedelic state of mind, with your highly intensified receptors almost blinding you with the fl ashy, theatrically lit ramp. Then you could feel overpowered by the razzle-dazzle brought forward by the troupe of bedazzling models (not forgetting those goose bumps) & struck dumb (and deaf) by the overwhelmingly stupefying proceedings. The applause follows them all – and there you’re left wondering if there could be a better showcasing opportunity to the hundreds of beauties that just passed by… leaving you in a trance (well, almost)! At the end of it all, something plays on your bewitched mind; a question – “did I miss something?” And it’s already the next day before you realise that it was in all sincerity meant to be a fashion parade to showcase something which can crudely be referred to as ‘textiles talent’!

Think what you want to, but textile honchos around the world take advantage of this craze with the case in the Indian context being no different as the real ‘models’ of India Inc. gear-up fast for a ‘creativity-filled’ autumn ahead. And with multi-million dollar game plans, the industry is teeming with players ready to create a splash, well realising the potential of the fiercely growing Indian textiles market – a fact corroborated by global equity giant Blackstone Group’s 50% stake buyout in Gokaldas Exports on August 21, 2007 for a handsome Rs.6.76 billion. The fact of the matter is that, currently, one can only witness ‘growth’ smeared all over the Indian textile mart as Ravi Thakran, President (Asia-Pacific) of Louis Vuitton Moët Hennessy (LMVH) justifies, “Today, India stands first in terms of setting up production units... To top it all, it also enables the investing party to have a grip on the fast growing home market...” All this only further testifies why more and more foreign entities are sensing bright prospects for their investments in garments manufacturing & outsourcing business in India.

As per CRISIL, the Indian textiles sector is forecasted to touch a sprawling $110 billion in net revenues (domestic sales & exports) by 2012 – a dazzling appreciation of 479% when compared to the $19 billion during 2006-07. Exports, too, are predicted to escalate to a breathtaking $50 billion by 2010! Keeping in mind the immensely fertile development, it comes as a little surprise that Indian textile titans are relentlessly upgrading their manufacturing infrastructure and pumping in resources on a large scale to make India the world’s next fashion capital. Sure enough, India will have to bite the bullet in order to achieve this feat as there are various challengers even in this regard. However, Gianluca Bollani, Fashion Coordinator of Corneliani votes for India as far as offerings are concerned as he maintains, “Compared to other Asian countries, India has a unique offering in the textile world and those are value added products like special cotton yarns, fabrics, made-ups et al. Most Italian fashion houses today resort to India for these value added products.”

Well, whether it makes it to the top is still a question subject to many constraints, but there’s still another carrot and that’s the domestic haute couture market, which is currently steaming ahead at an annual growth rate of a noteworthy 10% (as per CII). No wonder, the Ambanis and Wadias are fast getting their acts together with primo brands – Vimal & Bombay Dyeing, respectively. But with other relatively smaller players already capturing a major share of the market – although in a fragmented fashion – both globally & in Indian sub-continent, the question remains – “Isn’t it an act too late?”

Well, ill-strategies and utterly discouraging government norms forced many textile mills to close shop during the 1970s & 80s, which was also considered a rampant fragmentation period in the textile industry as D.K. Nair, Secretary General, Confederation of Indian Textile Industry (CITI) exclaimed, “Many textile mills in the mid-1980s couldn’t even dare to diversify. Then there were labour laws at that time, which always supported the labourers (unions) and never looked at the problems faced by manufacturers...” However, what ultimately resulted was a plethora of unorganised players coming together with their aggressive growth strategies... And today, these are the very entities which are minting colossal profits, promising to take on the world of textiles by storm & challenging global titans!

In The Footprints Of Time
Carrying forward his textile dreams, Mukesh Ambani is charting out strategies to revamp the Vimal brand which is all set to don a new logo in September 2007. The Wadias too of late, have shown much enthusiasm about their Bombay Dyeing brand and are currently scouting for strategic tie-ups. Even the globally fashionable brand Louis Vuitton – a part of the LMVH Group – has chosen Pondicherry as the location for its first manufacturing unit in Asia. Surely, with the domestic market estimated to be worth a spanking $45 billion by 2012 (as per CRISIL), all organised players, too, will have reasons enough to smile where returns are concerned.

However, what we cannot overlook here is the vital entry and market capture element that bigwigs have clearly missed out on – the fact that relatively smaller players like Arvind Brands (with their foreign collaborations) and retailers like Biyani have already stolen the show in the Indian market. On the global front too, it’s the smaller fish that rule the global seas (with organisations like Gokaldas Exports stealing the show) as Nair testifies, “These small players from the beginning were much focussed and their core strategy has been to capture the global apparel market... and they’ve done well...”

What, however, makes the picture ugly is the fact that while on one hand, we talk of the Indian sub-continent being conducive for textile manufacturing units, on the other, we have stood silent spectators to the blow inflicted to this very industry, through closure of 92 mills in the 10-year period 1995-2005 (as per Ahmedabad Textile Mills’ Association) which includes one of the largest mills in India, belonging to Mafatlals. At the same time, as surprising it is, big Indian conglomerates never thought of either backward integration or offering other products (like moving across the value chain to include handloom, silk et al). Little wonder why Vimal & Bombay Dyeing are not referred to as ‘power brands’ today!

On the contrary, there were smaller players like Gokaldas, Alok Industries, Rajasthan Spinning & Weaving Mills (RSWM) et al who never banked on just one category of products. Explains, Vivek Hinduja, CEO–Marketing, Gokaldas Exports, “We generated huge funds from export of silk yarn & products made out of such yarn, as silk was the prime revenue earner during the pre-1980s years. However, my grandfather & father realized that it’s not always safe to keep all the eggs in one basket. So we moved up the value chain and when the demand for Indian silk yarn started falling in global market, we already had equipped our self with power looms...” No wonder, with clients like Nike, Adidas, Reebok, Gap et al, Gokaldas produces 2.5 million garments per month and is the largest apparel exporter in the country. Surely today, it’s reaping the fruits of long term vision.... So while McKinsey in its ‘Apparel Trade’ Report has forecasted $16 billion in domestic sales by 2008, one aspect becomes clear – ‘apparels’ in India are shining brighter post-quota regime.

Draping The Indian Sleek
Ernst & Young has envisaged a growth of 19% in apparel exports by 2010 and with 20% annual growth figure for the ready to wear clothing segment, Indian market also looks well-knit. Add to it, the retail revolution taking place in the country, which has successfully infused some fire in the belly of deep pocket players like Ambanis, Tatas & Bhartis. However, Tarun Joshi, CEO, Brand House of S. Kumars, rings a warning bell as he forecasts that, “Retailing success will not necessarily come by retailing apparel in big marts. This plan might help the big players to garner profits in rural areas and towns, where the market is still dominated by dress materials, but not in metros & semi-metros. Here, the success for apparel lies in retailing ‘brands’. For that you might even have to tie-up with foreign brands...” So does this tantamount to the fact that the Biyanis, the Tatas or the Ambanis latest penchant in nurturing their in-house textile brands alone not adequate? Well, ‘not really’ as Pavas Bhatia, Analyst, Technopak, asseverates, “It works only if you are ‘only’ into apparel retailing and not into retailing other products. Specially, in the metros, since apparel retailing has the highest margins, these players should focus on exclusively retailing apparel, only if they are off erring their own products. But the moment they mix retailing other products with apparel, then they must act as ‘pure retailers’ and not create their own levels or brands.” Fuelling their growth through international brand tie-ups is another ‘musthave’ – a condition which Arvind Brands Ltd. fulfils with its tie-ups with more than 20 foreign brands (taking advantage of 100% FDI allowance).

FDI in the sector will also ensure that our standards are at par with the best around the globe as S.P. Oswal, Chairperson of Textile division of CII opines, “On a greater perspective, FDI will help in technical upgradation. And I feel that if the government had taken such an initiative like encouraging FDI, India would not have had to bother about any other country’s presence in the global market...” So there lies the success mantra for the big retail boys of Indian Inc. who are offering alien brands too. Today, as Oswal points out, there are countries like China and other Third World countries (like Bangladesh & Thailand), which prevent India’s ride to the top. Points out, Ajay Sahai, Director General, Federation of Indian Export Organisations, “Of course, among all these countries, India definitely produces more yarn and cotton and we need to make ensure that they meet the right market demand at the right time.”

The Battle Ahead
As mentioned earlier, India’s offerings are considered ‘rich’ to say the least. No wonder, India exported fabrics worth a terrific $213.03 million for the period April- February 2006-07. However, before you conclude that the road to leadership on the global front is as smooth as silk, let us warn you – there are hurdles galore! The so called Indian labour welfare policies (which discourage FDI), high import duties & complex labour laws (which prohibit hiring people on contractual basis thus preventing higher productivity) are playing havoc as Subrata Siddhanta, Business Head, Century Textiles & Industries Ltd. confesses, “The labour laws don’t help us to recruit more people during the peak hours for both domestic and global market. Then there’s also the high import duties to be paid by textile manufacturers!” For instance, while Man Made Fibre (MMF) textile is dominating total global consumption, India cannot thrive in this regard as a high 10% import duty is levied on the same. FDI, (like we mentioned earlier) alone can provide the huge Rs.1,500 billion needed to make India the world’s top textile hub by 2012 (as per CITI’s Vision 2007-12). Th en there are other reasons to blame as elaborated by H.P. Singh, MD, Indus Clothing Ltd., “Lots of reforms are now being made and they’re quite similar to those in other major textile manufacturing countries. But this could have been done earlier and even if it’s happening now, strangely coordination with industry people has been lacking while framing policies. Then there are also basic infrastructure problems we face, like inadequate shipment facilities and the like!”

However, having come so far, it’s only but obvious that the Indian textiles sector is looking to make a big mark on the global platform. So what if the big players have made a late entry? So what if the government has just started realising the need to accelerate sectoral proceedings. So what if we’re still not No.1? At least, the realisation has dawned upon parties in question, just like you realised what the fashion show really ‘showcased’, though a day late. For the moment, ‘better late than never’ seems the right war cry for the Indian textiles industry, eh?!

(End of Angshuman Paul column)

When being ‘half-indian’ is critical!

How has your experience with the organisation been & what changes do you see in Indian textile sector?
The experience with the Birla Group, rather the company has been awesome. We have certain values like integrity, commitment, speed, passion et al. And I think the overall industry growth has been phenomenal in the past two years.

Why do you think major Indian textile manufacturers have failed to create a brand in the global market? What success strategy have you followed?
I think the business is more profitable when you become a supplier to global brands. But to dominate in Indian market, you need to have a strong brand image & that’s what I have done with Grasim. I made it a Grasim Brand, which has a 15% market share today. In our case, 50% revenues come from domestic market and the rests from exports – that’s because we have focused on both the markets. We might not have created a strong brand name and are invisible in global markets but our revenues are equally distributed.

Designed to last long... Beyond the first generation!
Christian Dior, Versace, Giorgio Armani, Hugo Boss, Pal Zileri – these are the bon ton brands that have emerged from the Meccas of fashion industry – Italy & France, and this we all know. But what most of us haven’t known for long is the strategic and long term planning done by these designer brands which Indian brands lack. In simpler terms – these global brands have from the very start grown under the umbrella of a ‘professional group’ with deft vision and aggressive expansion plans, much of what has resulted into them becoming legendary names. Affirms Manuela Miola, Director Marketing, Pal Zileri, “Good designers are the intellectual property of a fashion house. But only on the basis of them, you can’t create a global market. It requires a professionally managed team who could handle everything – starting from the logistic to the front end global operations.”

No wonder these designers have created big organised fashion houses, which live on, even ages after the person who created them perished. Now consider the Rs.2 billion Indian designer industry (as per Ernst & Young’s 2006 estimate), there is no denying that Indian designers like Satya Paul , Rina Dhaka, Manish Malhotra, Raghavendra Rathore & Rohit Bal are creating waves globally, but question arises – what after they cease to exist? Would their brands live on? Well, the answer for now sadly is – a big “NO”! “I think we lack funds as compared to global designers,” is what Manish Malhotra gives as a reason. Sure enough, but lack of professional management beyond the first generation ensures that the brand dies with the founder. The need of the hour is therefore to rope in professional management, who can handle financial and logistic-related issues, something which Satya Paul is currently doing by roping in Genesis Colors Pvt. Ltd., a professional management group.

The dragon’s attack on the elephant’s pants!
The dragon nation has been always proved to be a major hurdle when it comes to India’s onward march – be it any industry! Sure enough, with the question of FDI coming in textiles front too, this becomes yet another instance of how China prospering could well mean India losing out! And so the question arises – how big a hurdle is China in India’s way of becoming a major apparel supplier to global prêt-a-porter market. Well, although India steals the show from China in producing cotton and several other textile materials, it has missed out big time in mass production as compared to the dragon nation. First of all, China has more manufacturing plants and infrastructure facilities, which are thrice superior to what India has today as per CITI (in terms of shipment and roads). Add to this the flexible labour laws (reformed in favour of both the labourers & the manufacturers) related to textile industry and we have a perfect picture of why China is a better textiles investment hub. So it’s no surprise that Chinese textile industry attracts 15% of the total FDI in textile industry, whereas the Indian textile industry attracted a mere 1.05% of total FDI (as per Northern India Textile Mills Association, NITMA). “FDI is required for value addition for export and it also helps companies to create market abroad,” feels, Shisir Jaypuria, President of NITMA. Thankfully, the Indian policy makers realised the need of the hour and thus allowed 100% FDI in the textile sector during 2006. However, there are not all smiles as S.P. Oswal, Chairperson of Textile division, CII, asserts, “That’s too late! It will take us more time to reach where China is today. They are a major competitor in India’s way of dominating the world’s largest apparel market – USA.” So it’s a no surprise that China exported an extensive $23.80 million of fabric to Uncle Sam’s dominion (during the period January-July 2007). On the contrary, India exported only $4.87 million worth of fabric to USA for the same period (as per OTEXA). Huge difference?! Well, let’s better ask – when are we reaching there?

Global markets are changing – is India following suit?!
The market for textile products is witnessing significant changes. Competition from Asian suppliers has been increasing even in Western markets, whereas participants in their Regional Trade Agreements are losing ground. Domestic production in North America & Western Europe has been declining consistently during the last few years and their textile industries are projected to shrink mostly into high tech segments in the coming years. In India, the industry has experienced an impressive growth in terms of installed capacities. Exports have also recorded significant growth after abolition of bilateral quotas. However, certain developments during the last few months such as the rupee appreciation and increase in interest rates seem to have dampened the enthusiasm that this industry has witnessed during last few years.

The current retail boom is bringing large distribution networks to the domestic market, necessitating production facilities that can meet their demand for volumes. We are the second fastest growing economy in the world, with the second largest population. The problems being faced by this industry in the international markets could also turn out to be an opportunity for strengthening supplies to the domestic market. After all, competitive exports can come only from an efficient industry. Given the poor R&D activities and traditional ways of carrying out business that most segments of our industry are accustomed to, our response to the current changes in market trends has not been adequate. Adding value to commodity type products, scaling up production facilities in order to reduce cost & branding to climb up the value chain are major areas that need attention.

We have made sufficient progress on the raw materials front. Productivity of cotton has gone up from about 300 kg per hectare a few years back to over 500 kg per hectare and cotton production has reached an all time high record of 280 lakh bales this year. In garments and home textiles, organised production has been picking up, though not fast enough. In the case of fabrics, however, we have not been able to keep pace with the changes in demand trends. Organised weaving does not have a share of even 5% in our fabric production. The processing segment has been seeing some increase in investments. But again, a major portion of our fabrics continue to get processed in the hand processing segment. With increasing pressure on prices, cost reduction assumes extra importance. Scaling up production facilities is the key for optimising cost through effective utilization of modern technology. The Scheme for Integrated Textile Parks and TUFS are positive policy inputs from the government for making this feasible. Power at affordable prices as well as acceptable quality and workable labour laws are the important inputs still lacking.

When re-structuring becomes the key!

Your focus has been the global market. Do you think Indian textile market doesn’t offer enough?
Prior to 2000, the home market was not as profitable as it is today. So we were more into exports as 50% of our revenue accrued from exports. This was perhaps the reason. Mayur as a brand lost its popularity and our business in the country wasn’t doing well too. But now, with the domestic market growing at more than 30%, we are coming out with various ways of diversifying an capturing more domestic share.

Like other textile giants, you too did not diversify at right time. Does this matter to you today?
I agree that it took us some time to find out the potential areas. But I do not think it’s too late as the Indian market is growing and we have an advantage of our manufacturing plants and logistics. We have fixed up a target of Rs.12 billion and we did a lot of management re-shuffle to achieve the same. During the last four years, we have been focussing to achieve this target and thanks to the growth in domestic market, in 2006 we crossed a turnover of Rs.10 billion.