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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.
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How to combat recession in the face:- |
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Written by Deepa
Sachdev |
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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
“” |
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