Global Recession – The Unduly Blamed Phenomenon & How To Combat It

A lethal cocktail of the falling sales, rising inflation, increasing input costs and drying cash flow topped with US economy slowdown is hurting India’s garment industry hard. India is not de-linked from the world, and the financial meltdown has certainly impacted us. While some of the impact is real and direct - a lot of it is wild overreaction.

Recession will have its plus point and minus points. The minus points are that, there will be job scarcity, retrenchment will be all time high, liquidity in the market will be low, export market will be severely hit etc
The plus point is that cost of living will come down. Things we were exporting will be forced to be sold locally, bringing the price of products down. Real estate which was out of reach for the common man, will be within his reach.

Pointing out the employment intensive nature of the garment industry, FICCI said that for every 1 unit of capital in textiles industry 7 people are employed whereas, in case of steel and auto sector only 1 and 2 people are employed respectively for every unit of capital. So diminishing investment in the textile sector could have significant impact on the employment front.

The government has to ensure that the fiscal and monetary policies ensure confidence in the economy. The Haryana government has shown some initiative in supporting the exporters. They have raised the FAR for the 6000 textile units that employ about 1.2 lakhs persons . However the govt needs to provide more deep rooted solutions and not band aid solutions.

THIS RECESSION is more GLOBAL than any of the previous recessions. However we cannot generalize the recession. The slow down is product driven. (Clothes are less affected than accessories. ) It is location driven. (Areas where with high real estate cost and labour costs are much more affected). It is a cause for high concern for companies who have not been stringent about operating on high efficiencies- while smarter companies can go on with business as usual.


How to combat recession in the face:-


  • Recession is not synonymous with downturn. It is more in line with a slow down. It is the reason to cut costs and become more competitive. Hence more need to outsource and offshore. For Instance, design and development is function which when outsourced may be more cost effective without compromising on quality.

  • Product Diversification- The exporting community should venture into newer products and markets . Factories that specialized only in one type of product say underwear should now try to look at Night wear also. Shipments of goods such as food and clothing, classified as necessities, aren’t expected to be as badly affected as accessories such as jewellery or handicrafts that are the first to be axed from a consumer’s shopping list when money is tight.

  • The chunk of our exports is to the US and Europe. Nearly 40 per cent of Tirupur’s exports go to the US, where big players such as GAP are cutting orders. The chunk of the business is handled by US importers, who in turn deliver to the stores. Such importers were unwilling to establish Letters of Credit (LC) and instead sought deferred payments 60 days from shipment. Exporters are unwilling to accept non-LC business as this would force them to deploy their own funds or borrow at a steep cost. We need to get more aggressive withmarkets like Russia, Brazil, Poland , South Africa and Argentina.

  • Build and develop strong employee teams . There are a lot of start ups and unprofitable businesses that have exited the market. There was trend for the last 2 years for exporters to dabble in the Indian retail market. A lot these noble thoughts have been put on a backburner- thankfully freeing a lot of good talent in the market. The best part being that the talent is available at reasonable costs. We can look at replacing non performers with proven performers from outside. Give high priority to creative thinking . AFterall tough times warrant ingenious solutions.

  • Analyze internal efficiencies and systems. Use available time to invest in savings into system up gradations, MIS, Training of employees etc. This will amount to a time cost saving as the opportunity cost of time is low right now. The training will contribute to a motivations and uplift the sentiment of the organization. One of our export house clients has converted to a 5 day working . Since the load is less, they are able to manage easily on reduced hours. This has signalled to its people that the company does not intend to downsize , only re manage production.

  • Work out alternate locations for operating business . Haryana is credited with about one fifth of the total readymade garments exports from the country. Over 100 companies had then packed up their units in Gurgaon and shifted to other states like HP and Uttaranchal where electricity and land rates are cheaper. Also, industries in these states are exempted from excise duty for 10 years.

  • Education and Healthcare are 2 evergreen sectors which are least affected by economic recession. We can align our business to service the same and seek safer havens for example- institutional clothing, uniforms, technical finishes etc.

  • Have realistic expectations. Both buyers and exporters are wary of the fluctuating financial conditions. Therefore we need to support each other, so we will have a better future. Do not expect bigger profits, survive with lower margin or at breakeven.

Yet, Indian services vendors have an opportunity waiting. There are factors in their favor. The dollar has swung very hard in the other direction now. India's brand image and reputation of services expertise in a area of Design, Development, Craft ( and now entertainment ) is more and more on the rise.

Let us keep the workers intact, support the buying in a competitive way, and we can all enjoy the fruits when the scenario changes.


Written by Deepa Sachdev


Leading Executive Search Consultant for Apparel and Fashion Industry.

Deepa runs a successful recruitment practice for the last 10 years. She is the founder of Humancapital head quatered in New Delhi. An alumni of NIFT 1993 batch from the AMM stream, she is an Economics topper from the Lady Sriram College . Today she is accredited with a deep understanding of the apparel export market in India and its nuances .

“I credit my success to the strong business relationships that we have been able to build and maintain , thanks to the great team at Humancapital “”


Copyright © 2010, - All Rights Reserved