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.
[bleft]Corruption at buying offices has been a ground reality for many years. It is only now that the industry is openly talking about rampant corruption because of the global slowdown and pressure to control ‘cost’. [/bleft]
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 down, many on corruption charges. Even small regional offices of many bigger buyers have shut down as the parent company found it difficult to monitor the local operations effectively.
Sniffs of underhand methods to clear goods and allow deadline extensions to avoid expensive airlifts have been doing the rounds for many years; remember the infamous William-e-Conner case, but they were considered random cases and the impact was not far reaching, whereas the ground realities were the same as today. It is only now that the industry is openly talking about rampant corruption and 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.
