Creativity of values will be the dominating factors in the Indian apparel industry

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Orient Craft commenced its manufacturing operations for exports almost 40 years back and today has become one of the leading export houses, exporting over 95 per cent of its total production of ready-made garments globally. Orient Craft caters to the top world brands like GAP, Marks & Spencer, Macy’s, etc. Veteran exporter A K Jain who is currently the Associate Vice President- Commercial at Orient Craft Ltd, talks about the firm’s in-house logistics activities and supply chain management models while also focussing on the current scenario of the Indian apparel industry; why it is losing out on exports to Bangladesh, and many more least-discussed matters.

History and background

Orient Craft commenced its overseas export and manufacturing operations almost 40 years back. Today, we are the second largest exporters of ready-made garments from India. We have buyers from all the top brands.

We initially operated from Hauz Rani village in New Delhi, a small village back then. We steadily expanded our operations to various parts of the country like Okhla, Gurgaon, Noida, Manesar, Bhiwadi in Rajashthan and Ranchi in Jharkhand to name a few. We are also operating in South but we couldn’t focus much in that part of the country due to lack of sufficient trained manpower to manage the operations. We are now bringing up a huge manufacturing plant in Ranchi and we are expecting over 5,000 trained labour working in the plant from 2020 onwards.

Since inception, we have witnessed continuous growth. We are manufacturers of apparel and textile made ups for almost all the big brands of the world– JC Penney, GAP, ZARA, Marks & Spencer, Ann Taylor, as well as Uniqlo– Japanese biggest apparel brand. We do not sell our products in India. We export more than 95% of our production of apparel and textiles made ups mainly to the US, Europe, and other regions of Asia, especially Japan.

Global apparel industry

If you go by the facts, the history of the Indian apparel exports will endorse the facts and figures that apparel manufacturing industry, especially for exports is not meant for a developing nation. It has always been taking flight to the poorer nations. This industry will work well within the poor countries where the cost of labour is less. The moment that particular economy starts to grow, resulting in manufacturing of apparel becoming more costly because of rise in wages, companies shift to other poorer country where wage cost is less.

The apparel industry initially started from Italy, and then moved to Japan, Korea and Singapore. Today, the junk of the apparel industries is in Bangladesh and Vietnam and a few in Sri Lanka. In the next five years, you will see this industry growing in a big way in neighbouring Myanmar.

Indian market

India is a huge country, and aptly, the second most populous country of the world. The income segment of the population here is very scattered. Unfortunately, the Indian apparel industry did not focus on its uniform geographical development. They were destined or confined to few places like Delhi/NCR in the north and Chennai to the south. It’s not well-established in the far-east.

If you observe, the Bengali population across the border and within India, both enjoy similar weather and have the same kind of physique. There is hardly any difference, but the manpower across the border are nurturing the second largest apparel manufacturing economy. Sadly, in India, nothing significantly yields. We as entrepreneurs, policy makers, did not pay attention to the eastern and south-eastern part of the country. Now, we are starting to realise that the apparel industry would have had a better future if established in these parts of India, while providing employment to the rural population.

Challenges

Firstly, the Indian apparel industry experts follow the perception that people in the country perform best under the terrorised atmosphere which abates them to yield best of their ability. I don’t agree to it, that’s a very conservative type of mindset. The fact is that if skill and infrastructure development take place together in the adjoining areas in Eastern India, I see no reason for the country to compete with its neighbours.

Secondly, world economic structure. Bangladesh and Vietnam are entitled as least developing nations/poor economies, and their product doesn’t attract any import duties in the country of destination where their products are exported as they are exempted from the payment of normal duties. Their products land in the importing country with cheaper cost. But from India, goods land with high cost. Therefore, buyer’s preference shifts from India to that country.

The budget market is very big. If we look at the upper or middle markets, their size is very big compared to our country’s total export where people go for quality and for reasonable price, but not cheap cost.

Lastly, we have to develop very good roads connectivity from various manufacturing centers to the ports. If we really want to compete with China– the kind of infrastructure, road and rail connections they have needs to be replicated here.

Managing logistics network

We are in the export business and focus on global logistics. In our case, we have competition with Bangladesh but the logistics difference between both countries is not wide, it’s insignificant. However, it is different if we compare Indian logistics solutions with China’s.

Here, we face connectivity issues, there are very few ports which can provide berth to bigger (mother) cargo vessels. Ports in India are connected with feeder vessels, shifting cargo from one vessel to another vessel consume 3-4 days or sometimes 7 days. Ultimately, the rollover time throws us out of competition where faster deliveries is the key determinant.

The main port for the exporting community is Chennai port (for import inputs of export products) and the maximum cargo is sourced via Shanghai port, Hong Kong port and other adjoining ports of China. The transit time between Shanghai to Chennai is 14 days. If we establish ourselves in Eastern India, the only port available is Calcutta, and Shanghai to Calcutta transit time is 22 days because of non-availability of mother vessel calling at Calcutta port. Besides, the shipping companies have their own interest, they don’t go with destination country’s interests. So, impediments everywhere.

Sea or Air

The cost of air transportation is much more than sea. Air transport is used in the garment industry only for the delayed shipments. They are not even 5 per cent of what is generally preferred as air cargo. This smaller per cent is booked as air cargo in India due to high cost.

Most of the orders are placed for transport via sea routes. If there are delays in execution of sea cargo in time, delayed shipments are air lifted to the destinations.

Procurement

At present, we are in the situation that buyers don’t give much lead period, we have to complete the project within the period of 40 – 45 days. And we waste 30 – 40 days in sourcing the inputs. Sourcing of apparels by the global buyers from Bangladesh cost lesser. They can give more lead time to them or reduce the cost through various disguised incentives, but with India, they are very strict in following the compliance laws, such as delivery commitment of justice under social law. All these are more sincerely implemented in India and not in Bangladesh, because it involves the buyers interest in that country. Here, in India, they create camouflage in the eye of their nation or sensitive consumers.

Fashion is an item which lives the shortest life, it is highly volatile. However, since the inception of the online trend/business, I think there has been a lot of diversification in the logistics models itself and in the next 10 years, we will see cross-border business growing without cumbersome paperwork and heavy duties on inputs. Then, it will definitely change the scenario. Creativity of values will then be the dominating factors in the Indian apparel industry.

Expectations

It majorly depends on whom you are competing with. We are competing with the poorer nations like Bangladesh. Though the competition is very severe. We definitely need better and economical logistics solutions. We cannot afford to move our cargo by air as it’s very costly. Even though Bangladesh has become the second biggest apparel manufacturing economy in the world, they don’t have big airports with world-class infrastructure. They only have Shah Amanat International Airport at Chittagong, Bangladesh. But, they have easy connectivity with Singapore port, and that’s where they win the race.

Scope of LSPs in the business

We are strictly observed under the foreign compliance law of US CT-PAT (Custom Trade Partnership against Terrorism). European Unions also have such strict laws, and now India has also decided to grant status of Authorised Economic Operators (AEO) to service providers. To avail this status, we as manufacturers cannot afford to have large number of logistics partners. Either, we should follow our own logistics solutions or we have to have limit the scope of LSPs.

Besides, when we operate within the radius of 50 kms or 100 kms as far as airports and ICDs are approached, we don’t depend on the business associates to large extent as they are not very much ready to operate as organised LSPs eligible for least status claimant under AEO. We might have to rope in one or two business associates as far as logistics solutions are concerned.

Warehousing tactics and strategies

Warehousing is significant when it comes to manufacturing led by storage and distribution. Our strategy is entirely different. An apparel manufacturer exporting company needs a warehouse to store manufacturing inputs for maximum 30 days, but it doesn’t need a warehouse to store the manufactured goods ready for distribution. The storing period of manufactured goods is not more than 7 days. Therefore, we don’t see the need for outsourcing of warehouses. We follow ‘Just In’ and ‘Just Out’ concept. Warehousing is not at all a significant component for the apparel sector for exporters at present. It may, however, become significant when the volume of exports sale from business to consumer increases through e-commerce.

Future

In order to compete globally, the Indian apparel community has to work very hard. The primary reason for the stagnant growth of the Indian apparel market is mainly because we are not able to compete.

Also, there is a lack of demand– our inputs and shipping costs are very high. For instance, if we sell a garment for US$10, 30% of it comprises labour cost, which is much higher in India as compared to overseas. I am not advocating that Indian labours should earn less but I mean to suggest that the country’s government should focus on creativity of skilled labour, provide subsidies to entrepreneurs to increase employment of unskilled workers and convert them into skilled or semi-skilled.

The decision makers must create viable economic policies so that manufacturing units are equipped with skilled labours honing the use of the best technologies which are available at cheap costs.

It’s high time the nation must come up with a compatible textiles/apparel policy.

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