Buying Offices Under Stress
Disclosures Make Matters Worse
Many buyers at the beginning
of the year had anticipated that
buying, particularly from the US
would pick up post-May 2012,
when inventories with most
of the retailers would be over.
However, many events in the
global and Indian scenario since
then have changed the situation
and buyers are still slow in
placing orders. Unfortunately,
even as the economic conditions
in the US and EU remain difficult,
the image of India as a country
and as an industry has taken a
beating. Amidst the demands for
cost cutting at liaison offices and
consolidations at Indian buying
houses, sourcing offices are
struggling to impress upon their
clients that India is still a ‘good’
supplier country.
The situation for global
businesses is not specific
to the apparel industry, as
the business environment in
the country is at an all-time low with
even the IT industry, which has been
at the forefront of exports from India
over the last decade, looking worried.
Wipro Chairman Azim Premji recently
lambasted the Government for week
policies and said, “We are working
without a leader as a country.”
Reacting to the string of corruption
disclosures, Premji’s fellow IT rival,
NR Narayana Murthy of Infosys,
lamented the fact “that over the last
three-four months, India’s image in the international arena seems to
have suffered.” Indeed, as the world
watches closely, the clean image of
India has repeatedly been tarnished
as one scam larger than the other
makes headlines. Once considered as
reliable and trusted partners, Indians
are now increasingly being looked at
with skepticism.
What is even sadder is that the roots
have seeped so far into the system
that even the garment industry is
feeling the heat… first Adil Raza and
nine others were asked to step down
at the JCPenney Sourcing office in
Noida on corruption charges, and
more recently German sportswear
and equipment maker Adidas filed
a criminal complaint against the
former chief of its India operations
and another senior employee for
alleged financial and commercial
irregularities.
Already struggling to get business,
many buying offices are now facing
credibility issues, not only the bigger
offices, which have long-term relations
with their buyers, but even the smaller
ones are answering a lot of questions
too. Reportedly, many of the buying
offices that had cropped up over the
last decade in Tirupur have closed buyers are facing the consequences
because of the global slowdown and
pressure to control ‘cost’.
Many in the industry believe that the
inspection and audit procedure that
was being followed for vendors could
be extended in a re-worked format for
the buying offices too in coming times.
Global companies are asking to share
financial details and have advised
him to ‘have a leaner organization’.
Corporate governance is at a stake
and compliances are bound to be
implemented on the buying offices.
In fact, another major hit for the
buying offices is that the slow order
position has forced offices to cut cost.
While Indian agencies are doing it
voluntarily, budget of liaison offices
have been slashed, and they are
finding it difficult to work within the
new budget, which is nearly 15% less
than last year, more so as inflation
is on the rise in the country and
their role and responsibilities over
the years have expanded requiring
more manpower.
With the US and European clients
becoming very demanding on price,
many of the buying offices are
finding it difficult to comply even if
they lower their own margins. Even with the Indian rupee getting
weaker, many buyers are
unhappy that exporters are
still not ready to give at lower
prices; this has also become a
bone of contention for many,
particularly in the UK market.
The buying offices are trying
to talk to their vendors that
immediate correction of prices
is required to get business at
this time.
On the positive side, some of
the retailers who want to work
with India are lowering their
own margins and working
closely with the Indian offices to
find practical solutions on how
to meet all the requirements
without putting too much
pressure on the vendors. With
the bigger exporters having
direct access to retailer
headquarters, many buying
offices have started to develop
smaller exporters who are more
flexible. Bigger exporters are
perceived by many as arrogant
and difficult to work with.
One of the first areas to be hit
is recruitment… many bigger
buying offices including Li
& Fung and Taffles have not
recruited in the last six months
and did not even participate
at institute placements. Two
buying houses that did recruit in
large numbers from NIFT
this year – Transent,
Gurgaon and
Avalon,
Bangalore –
have backed
out with
Avalon
claiming that
it is shutting
operations
due to difficult
business
environment. Many
buying offices have
let go of ‘weak’ performers and
appraisals are tougher and more
demanding. A merchandiser at
a leading Indian buying office
claims that never before have
they felt such constraints on
finances, with every expenditure being closely looked into.
For buying offices, this is one
of the most difficult phases and
each buying office is working
on its own strategy for survival.
Consolidation of operations,
less travel, more responsibility
to fewer people, developing
smaller vendors to
keep down prices
and saying no
to orders that
will disturb
the ‘value
ratio’ (how
much effort is
required and
the reward
thereafter) are
now common
practice.
Many buying offices
are now also exploring options
to offer their services to the
domestic retailers. What was
once considered a no-no is now
a lucrative option… However,
offices point out that working
with the domestic retailers is more difficult than it seems.
More so because the brands
have sensed that the offices
need business, so they are
dictating terms. Payment terms
of 92 to 120 days are being
asked for and services like PD
facilities and flexible order sizes
are in great demand.
Of course with the Euro zone
crises deepening and the
US recovering slower than
expected, the situation is getting
tense and a recent report that
33 export-oriented units have
actually closed down in Chennai
has rung the warning bell. Yet,
the buyers are not negative and
feel that despite everything,
sourcing from India is a must
for all major buyers for the
strengths that we hold in the
‘mass fashion’ category. Not
many countries are as flexible
in order sizes and multiple
value additions remind the
buying offices’ confidence that
business is bound to bounce
back, once the current volatility
calms down.
The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Apparel Resources Pvt. Ltd.
