It’s a very unique period in the history of India and the Apparel Industry…, while the country comes to terms with the concepts of ‘limited cash holding’ and ‘digital India’, the industry is reconciling with the fact that orders do not come by themselves only on past performance, but constant work on many fronts is required to stay competitive and relevant to the buyers! Interestingly, exporters have stopped cribbing about fewer orders, and instead started talking about how to beat the competition… In our annual exporter survey, many significant shifts were highlighted that augurs well for the future of the industry…
The group that was surveyed in this year’s edition was the set of exporters below Rs. 100 crore. Most of us know that after reaching the magical figure of Rs. 100 crore turnover, the attitude of exporters are very different, and finding synergy in thoughts is not easy. But those aspiring to reach the milestone are people with similar issues and roots and the evolution of their thought process in the journey is an interesting case study in itself. Involving exporters’ pan-India, across almost all hubs, the survey clearly brought out the fact that on the macro level the concerns are similar and the change in attitude is more in relation to where they stand on the sourcing platform rather than where they have their factories.
Analysing some of the major findings, Apparel Online was happy to note that export companies, however small, are now very proactive in improving their capabilities and there is not much difference in how units perceive opportunities. But then again, certain questions evoked very predictable responses and it is obvious that the gap does remain, however narrow they are getting.
Of the total number of exporters surveyed, the distribution of participants was interesting with 29.6% responses coming in from the turnover group of Rs. 2-5 crore and Rs. 26-50 crore. 14.8% participation was from the turnover group of Rs. 11-25 crore and Rs. 50 crore and above segment. The least participation was from the group having a turnover between Rs. 6-10 crore.
The divide between the small and progressive bigger companies…
First we talk about the distinction between the small exporters and the bigger exporters…, while the companies at the bottom of the export scale are still looking at the Government for incentives, the bigger exporters have come to terms with the fact that now it is for them to take the business forward. As one exporter with turnover touching Rs. 100 crore said, “Government is providing good support; now it is for us to search ways to enhance our business.” Though a foregone conclusion, the survey cemented the view that smaller exporters are still looking for compliance endorsements from buyers directly, but as they grow, they slowly add on certifications like ISO and WRAP in an effort to brand their companies as sustainable. While 38.1% of the respondents have an ISO 9000 family certification and 14.6% have an ISO 8000 family certification, 23.8% are, WRAP-certified and 33% are buyer-certified.
Certified Companies…
38.1% of the exporters have an ISO 9000 family certification
14.6% of them have an ISO 8000 family certification
23.8% of the exporters are WRAP-certified
33% of these exporters are Buyer-certified.
Significantly, the type of buyers is also different. While exporters with turnovers of above Rs. 25 crore are happy working with buying houses and liaison offices, small exporters are largely working with importers, wholesalers and boutique stores. Of course the line is not ridged but the divide does exist. Of the total respondents, 63% and 29.6% are working with wholesalers and importers respectively, while 40.7% deal directly with the retailers. Boutique buyers account for 18.5% of the buyers, while buying houses are preferred by 29.6% of the respondents. Only 14.8% are using a mix of sourcing platforms for business.
Industry getting active on improvements and product diversification…
A real shift has been observed in exporters’ admitting to where improvement is required… Only 3.7% felt that quality and compliance were a focus area for improvement, while an overwhelming 96.3% opined that these traditional indicators of ‘good company’ are now taken as ‘given’ and the improvements are on a regular basis to remain in step with international benchmarks and norms. But according to 40.7% respondents, the real attention of factories is on methods to reduce cost; and interestingly all segments of exporters were almost similar in their conviction as to ‘cost cutting’ being the most critical area for improvement.
Focus is also on technology upgradation, with 37% voting the area as important to their growth strategy. What is equally significant is that the smaller companies are more inclined towards small changes, taking one step at a time; while as we move up the turnover scale, focus starts to shift towards automation and specialised machines for greater efficiencies.
Another very positive indication of the changing mindset of the exporters is the huge vote in favour of being proactive to grow instead of taking the traditional route of ‘wait and watch’. A strong 92.6% felt that waiting for change is not a good strategy. 63% shared that they are trying to explore new markets while 33.6% are focusing on product diversification to get the attention of the buyers. However, on probing it was found that product diversification is mostly within comfort zone and not many are open to completely new products.
Expansion is still on the mind of progressive companies…
Despite all the difficulties that exporters are facing, expansion is still on the mind of many exporters with 50% giving a thumps up for expansion in the near future. 21.4% declared that they have recently expanded their capacities while 14.3% of people were not so enthusiastic and an equal amount of companies relate their expansion to market conditions. These results are more directional when clubbed with growth expectations for this fiscal, indicating that companies are still growing and expansion is part of the growth strategy.
On Growth Path…
28.6% of the companies say no growth this year, but was same as last year
28.6% of them are expecting 16-20% growth
21.4% of these companies have recently expanded
50% of them have expansion plans in the near future
In an interesting twist, 28.6% of the companies are indicating turnovers to close this fiscal at same levels as last year and an equal number of companies are projecting 16-20% growth for the company. And contrary to expectation there is no pattern in which companies are likely to grow more and within the turnover brackets; the percentages are almost the same, so while a big company may have ticked on ‘no growth’, a small company is excited by its projections. Significantly, among the 17.9% of the companies that are looking at 21-30% growth, are mostly in the mid-bracket of turnovers between Rs. 11 crore to Rs. 50 crore. Noteworthy is the fact that only 3.6% of the companies are facing the prospects of negative growth.
Concerns are both internal and external…
The survey allowed respondents to rate certain major concerns on a scale of ‘Significant’, ‘Moderate’ and ‘Not so significant issues’… The resultant charts speak for themselves. The issues graded include price of raw materials, availability of skilled labour, lack of export demand, uncertainty of economic environment, and shortage of working capital. Though there must be many other local issues that are a constraint like power concerns in Tamil Nadu, or the consistently increasing minimum wages in the Delhi-NCR, the issues graded are indicative of a macro perspective.
Prices of raw materials are seen as a significant issue by 32% of the companies, while 44% grade it as a moderate issue of concern. A good 24% feel it has no major impact on their business. Here it is important to note that the grading has been influenced by the type of products being made, and also by the preparedness of the company is smart sourcing. Smaller companies are more susceptible to fluctuations in raw material process like cotton, while the bigger ones are taking measures to ensure that these fluctuating prices do not hamper production or margins.
Availability of skilled labour is no doubt a major area of concern and 57.1% graded the same. It is ironic that despite so many skill development programmes and initiatives for the garment industry, exporters are struggling to get skilled labour for effective production. Centres like Bangalore have been reporting dwindling number of workers interested to associate with the garment industry, which is pushing companies looking for growth and expansion to the outskirts and sometimes to the interiors. However a contradictory view is also presented with 32.1% of companies saying that finding skilled labour is not so difficult. These are mostly those companies working on niche products and having small set-ups. For bigger companies, running online systems and retention of labour is not so easy.
Order Bookings…
48% of the companies feel that there is ‘lack of orders’
The rest 52% do not look at it as a ‘big issue’
11% of the companies brush the order concern aside as ‘not significant’
One would expect that an overwhelming majority would vote for lack of export orders to be a big constraint in business, but only 48% of the companies feel that there is lack of orders, the rest 52% do not look at it as a big issue, with 11% brushing the concern aside as ‘not significant’. There has been a debate going on as to whether there are orders in the market or not…, and from the feelers that Apparel Online received, orders are floating around but not everyone is having the wherewithal to accept the orders. The reasons are many, and the concerns discussed here within are only a few of them.
When the survey forms were sent, the ‘demonetisation’ move had not been announced; neither had the US election results declared; so the feedback on ‘uncertainty of economic environment’ does not reflect views on these issues. In fact, the term was for the uncertainty in the global economic scenario, mostly concerned with the EU and Brexit concerns and not pertaining to the country at all. Analysing the results in the wake of the above, 36% of the companies thought the state of the global economy was a dampener to their growth, while 48% declared that it had not impacted their business. Again the results reflect the markets that the companies are working in. Those that are mostly working for the US market are relatively better placed.
Again only 7.7% of people felt that shortage of working capital was a significant issue, while 57.7% felt that working capital is not an issue at all. It has to be kept in mind that the results on this front may not be the same after the recent steps taken by the Government.
Expectation from Government…
As already mentioned, the expectation from Government is more from the small players. But what is really significant is that the demands are no longer centred on incentives and duty-drawbacks. The focus today is more on promotion and support to reach out to new markets and buyers. Among some of the interesting demands from the Government, the three that stand out are support for training of workers; request for simplification of export documentation; and creating platform for small exporters to present their capabilities to the international market.
