The Hindu Business Line : Stitching a new strategy

“Winners never quit; quitters never win” — the Indian textile industry may be well served to remember this pithy aphorism. The rapid appreciation of the rupee vis-À-vis the US dollar (in which exports are invo iced) in recent months has hit the textiles industry like an avalanche, squeezing margins, eroding competitiveness and generally unsettling what has been cosy business. The demand for ‘protecting’ the industry from the onslaught of the strengthening rupee has become shrill, but it is only under adverse conditions that the mettle of a competitive business is tested. Now is one such time.

Innovators do things differently. Some are renegotiating export prices (mainly on the strength of quality and track record), while others have turned to the domestic market (which is exchange rate neutral). The intrinsic competitiveness of the sector has always been suspect. The industry has operated under high-cost conditions — high cost of money, power and logistics coupled with modest labour productivity-- and needed a generally weakening rupee to buoy exports. Now, the firming currency should shake the entire textiles sector out of its stupor. While the industry may exercise little direct influence over continuing challenges such as rising interests rates and inadequate infrastructure, there are opportunities for cost-reduction, such as strengthening the supply chain, for instance. From cotton producers to fashion retailers, the supply chain is too long (too many intermediaries adding too little value) for comfort. Establishing backward linkages will help cotton textile mills access quality raw material and cut costs. Training workers will lead to productivity gains. The domestic industry should also be aware of the growing importance of non-clothing applications of textiles, also known as technical textiles. The leadership role of large retail stores around the world is sure to find an echo in India too. Therefore, product improvement and innovation to meet the dynamic needs of large organised retail is necessary.

In the global textiles sector capacity is migrating to the most-competitive developing countries. In the developed countries, suppliers have responded to competitive pressures by shifting production towards faster growth products, modernising equipment and adopting new working methods, such as outsourcing sewing activities to low-wage countries. The Indian textile mills can take a cue from this and examine relocation possibilities to low-cost rural areas within the country. The most important factor in favour of the textile industry is that Indians (110 crores and growing) are relatively under-clothed. With rapidly-rising incomes and changing lifestyles, the domestic market has a promising growth potential. The rise in the top line of major companies in recent times, despite pressure on export margins, simply proves the point.

Related Stories:
Rupee squeeze prompts textile cos to change tack