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Industry should go for ways to minimise operating costs

Jan 01, 2019
Industry should go for ways to minimise operating costs

Avinash Mayekar, MD & CEO, Suvin Advisors

As we stand at the entrance to 2019, how do you think the textile industry in general and particularly the segment you are involved in has done in the last one year?

In the year 2018, textile industry has seen some improvements from the setbacks faced due to demonetisation and GST. Now each and every textile manufacturer, trader and entire value chain have accepted and understood that GST is now a part of the system, and they have to move forward with GST as applicable for their sector. This has led to a more effective business environment, especially for the complete value cycle. In case of cotton right from fibre to garmenting each and every segment is completely aware about the percentage of duty applicable to them and how the business needs to be handled.

Coming to the performance in 2018, the textile industry has seen different waves across all the segments right from fibre to retail. As far as natural fibre cotton is concerned, the prices were fluctuating drastically; however it is expected that the total production achieved this year will be satisfactory and MSP being already imposed and regulated by the central board the prices of cotton fibres will be maintained.

From retail perspective, the actual off take is not increasing in volumes drastically whereas the prices are going down or stagnant. This is a major challenge for manufacturers as they have to lower the cost of production and try to maintain it at a minimum value. Thus the only solution to manufacturers is to lower the operating costs. Power plays a major role in cost factor and is almost at Rs 7/kwh in most of the States. It can be reduced by adopting green solutions like solar where power cost is as low as Rs 3.5/unit. There are also models where companies are offering solar energy at reduced prices on OPEX model. Recently the manufacturers are also showing inclination towards automation to reduce the cost and dependability on labour.

So Indian textile industry should understand the ways to minimise the operating costs as I feel we are doing over engineering while manufacturing textiles. Most of the apparels produced are excessively engineered from quality prospective. All positive things are happening in innovating textile technologies like compact spinning, etc., but we need to study ‘consumer perspective’. These over engineered garments life span is so high that it remains in the wardrobe for years thereby reducing the cycle of purchasing of new garments. Thereby killing our own volumes of market. We are really competing with ourselves by increasing life cycle of apparels.

Globally, have you come across some extraordinary scenario in the textile industry of other countries, particularly from Asia? Give a comparison with trends at home.

When we speak about the performance of global textile industry, our great neighbour Bangladesh immediately comes to my mind. They have done extremely well in garment sector currently having No. 2 position in export of garments.

We should analyse Bangladesh as a case study and understand that more than 85 per cent employment is generated by this industry. They are having very good average efficiency in garment business. Basically they are well trained and have complete know-how of how to run a garment business despite not having any backward linkages. They are having very large factories and are quality conscious with good marketing tie ups with European brands and are exporting mainly to US and Europe.

Some of the Chinese brands have also setup their plants in Bangladesh. Other countries like Vietnam, Cambodia and Sri Lanka are performing extremely well as their shares in global market are increasing despite being small countries. China still has retained its status as a giant and shown some signals that it may reduce its manufacturing capacities in manufacturing textile goods.

Which do you think are the Indian textile industry's strength and which are the weaknesses?

Our biggest strength of having glorious history in textile industry and vast experience has now started becoming our biggest weakness. In recent past, we have been doing business only supplying yarn to the global market, our strength is of processing only 100 per cent cotton. Our another strength is of having multi-skilled labours and highly educated textile engineers graduating from renowned institutes, we are also the largest producers of fibers, No. 1 of viscose, No. 2 of cotton and have big capacities for synthetic fibers. Despite having so many strengths for years we have not been able to increase our share in the global market.

Apart from that, we are also importing a lot of textile goods from other countries for our own domestic consumption. This shows we have yet not done value addition which is our biggest drawback. We hardly have presence in technical textiles, being a developing country the demand for technical textiles products is very high. The other weakness is lack of innovation. We are great sellers but not that good in marketing. Our understanding of consumers demand is not that accurate as we are not able to produce value added products.

Almost 50 years back, we were reputed global finished goods suppliers to the entire world in the British era where many composite units existed in India. During 1980 there was a big strike from where the deterioration started. We were then fragmented into just major suppliers of yarn. Our huge population is our strength but not able to cater their needs is our weakness.

For Bangladesh, despite all going well, they are facing certain issues with the labour cost and also the power cost, which have increased drastically. Also, global brands have imposed infrastructure improvements on the factories for upgradation. The third major issue is the interest cost, Finance interest rate, which was always in single digit in Bangladesh is now 12-14 per cent. These costs will increase the problems of Bangladesh but still, will be at par with India because of the FTA with the EU and US.

What are your suggestions for the industry and also the Government for improving upon our performance, related to domestic issues and also exports?

Industry should understand the over engineering part and also the ways to minimise cost of operation as well as how they can be more apt as far as norms are concerned. They must think of controlling the norms as per consumer’s expectations. The focus should be to keep the consumer in center of all activities. E.g. if a consumer buys shirts for a span of two years then the life should not be more than 2 years. This way the volumes of goods will increase drastically.

From government perspective, I feel, it is necessary to do a country study before announcing any policy. We must chalk out how new investments will take place?

For new investments how can the government help the investors? There must be no policies for the lobbies so that everybody who is going to invest will get certain part out of it, on the benefits offered to the country. Hence basically, there should be a merit system. If the country is getting some benefits, in return the investor should get the benefits in proportion to the percentage of benefits to the country and so forth.

The policy should be framed by meeting investors across the country to understand their problems and expectations. There has to be representation form each segment from ginning to garments and even retailers, various mills from different geographical area, representation from various fibres, government units, economy of scale, etc.

How do you sum up the current situation?

So first and foremost, the country should have its own textile policy derived by a good international consulting firm in collaboration with an Indian firm. The Indian counterpart will know the roots of all the problems and international firm will provide the knowledge and experience how to solve these problems and road map of where to go. Next step will be to en-cash our capabilities and find out what the world wants from us.

So it is important to strike a balance in between the demands and our capabilities. We need to chalk out target markets with strategic alliances with other countries. We should have our milestones for 5, 10, 15 and 20 years. We should visualise our immediate goals which can be achieved in 2020 but after that we should have plan for 2030 and even 2040 for better clarity.

I am sure we have all inherent capabilities to mark our presence with distinction and can catch up with time to build a very strong brand image with a larger pie in global market. New India will rule the world.