To understand the core issues that are plaguing the industry today, respondents of AO Top 100 were asked to mark, in order of significance the different issues that affected their business over the year. Based on market feedback, the 6 core issues defined were – prices of raw material/fabric, availability of skilled labour, lack of export demand, uncertainty of economic environment, deficiency of power and shortage of working capital finance.
The difference in responses from different companies was reflective of the size of the company and the region of operations.
Availability of skilled labour
Skilled manpower is one of the biggest requirements for any garment export company to manufacture quality products productively. With labour becoming expensive and also scarce due to increase in alternate opportunities in other industries both in the metros and at native villages, it has become increasingly difficult for garment manufacturers to find skilled labour and that is one of the major reasons that skill development has become one of the biggest agendas for the industry today. The difficulty in finding skilled labour is clearly reflected in the responses received from the Top 100, with 57 exporters admitting that availability of skilled labour was a significant constraint to business in the last year. Added to that is another 20% exporters who say that it was a moderate constraint.
AO analysis: Significant constraint
Prices of raw materials
Before making the analyses it is important to mention that 10 exporters did not fill up this domain. The most significant constrain of the year is no doubt the price of raw materials/fabrics, which has over the last two years impacted business in a big way. 39 exporters feel that the prices were of moderate constraint to their operations. Interestingly 12 players admitted that the issue of ‘price’ for raw materials was not a significant constraint on business.
However half of the exportes (45%) felt that cotton price fluctuation significantly impacted their business.
Looking at the companies that were unaffected by prices of raw materials, it is obvious that companies which are having very specialized or high-end products have not been as affected, because the list includes names like Eastman Exports, which has integrated operations, Orient Clothing, which does more high value garments, Laguna Clothing that is a specialist manufacturer in shirts and Jiwanram Sheoduttrai again a specialist in industrial wear.
Interestingly, even big companies like Gokaldas Exports, Gokaldas Images, SCM, Arvind, KPR, Madura Garments to name a few, admit that the prices of raw materials have had a significant effect on competitiveness. Companies like Orient Craft, House Of Pearl Fashion, Bombay Rayon Fashions, Mandhana Industries, Best Corporation, Go Go International, Indian Design and Cotton Blossom feel that the impact was there, but the affect was moderately constraining. There were no regional influences on this critical issue.
AO analysis: Significant constraint
[bleft]Despite all the constraints that the industry is facing, the top 100 exporters on this year’s list are projecting growth of 8.47% which reflects the confidence of the industry to whither the storm, be it from internal reasons or international pressures. We hope to see next year’s list even more positive. [/bleft]
Lack of export demand
The whole of last year, particularly after July, exporters continuously reported that orders were not coming in from the international market. It was obvious that lack of export demand was a major constraint for growth. The situation was even worst as the season which suffered was Spring/Summer 2012, the season which has been the traditional stronghold of the Indian industry. In all 33 respondents found the decline in export orders, a significant constraint, while another 28 found it a moderate hindrance for growth, which implies that 68% of those who responded were affected by the lack of export demand. Those significantly affected include big names like Texport Overseas, Pratibha Syntex, Modelama, Madura Garments, BL International, Celebrity Fashions to name a few.
Of the 26 companies that say there was no significant impact of the lack of export orders, most of them are making niche products or high value garments going to very specific buyers. They include names like Mallcom India (industrial wear), Laguna Clothing (high-end shirts), Meenu Creation (high value garments), Orient Clothing (designer wear), Orient Craft (high value garments) to name a few.
AO analysis: Moderate constraint
Uncertainty of economic environment
The uncertainty in the global economic situation is a reason for concern and is directly responsible for the lack of export demand. Also the global slowdown is being seen as a long term impact and even those who were not impacted by the lack of orders feel that this is an issue that is a constraint. No wonder 39 respondents find the uncertainty of economic environment a significant constraint, while an additional 38 term it as a moderate factor affecting business. Only 13 companies feel that it has not been a constraint for them. It would not be presumptuous to assume that these companies have prepared themselves for such situation and are geared for competitive prices, which is the demand in such conditions. These well prepared companies include Mandhana Industries, Orient Craft, Meenu Creation, Laguna, Eveline International, Paragon Apparels, Dhruv Global and Akriti Apparels to name a few.
AO analysis: Moderate constraint
Deficiency of power
This constraint is slightly tipped regionally with factories in the south facing more difficult times than the ones in the north, though many companies in the NCR have also marked this issue as a constraint to business. Of the 90 companies that responded, 26 respondents said that power shortage impacted their business significantly, while another 35 did see shortage of power as a moderate constraint. Most companies of Tirupur fall within these 61 companies, with many from Chennai, Noida and Faridabad also on the list. Of the 27 companies who did not feel that power shortage affected their business, companies from both Bangalore and Mumbai are in majority.
It is indeed sad that the industry has to suffer for infrastructural problems in June this year the Tamil Nadu Chief Minister urged the Central Government to allocate an additional 1000 MW power from the central pool for one year starting June 2011 to tide over the shortfall as the industry was suffering. The situation was equally bad in Andhra Pradesh and companies have been forced to work with generators adding to the cost of production.
AO analysis: Significant constraint for players in South India
Shortage of working capital finance
Working capital does not seem to be a significant constraint to business and it is heartening to know that the industry is financially strong. Only 15 respondents felt that they were facing shortage of working capital and 24 termed the constraint as moderate. A good 45 respondents did not see shortage of working capital finance as a constraint of any significance. However, surprisingly two big companies Bombay Rayon Fashions and Gokaldas Images did term shortage of working capital finance as a significant constraint.
There is no pattern as to the companies facing shortage of working capital finance and it would seem that it is a very internal matter. Yet on the whole the industry is not constraint by shortage of working capital finance and feedback from the industry indicates that more than working capital it was the fluctuation of the currency that led to uncertainty.
AO analysis: No significant constraint
