"The preamble to scalability has to be sustainable competitiveness"

Five entrepreneurs talk about what it takes for an SME to scale at Smart Enterprise Cluster Meet in Coimbatore – Part 1

Published 7 years ago on Aug 03, 2017 8 minutes Read

V Keshavdev, executive editor, Outlook Business: It’s my pleasure to be here for our first cluster initiative. For the past five years or so we have been visiting clusters, we have met a lot of small and medium size entrepreneurs, and we have seen them really scale up and go global. But we all know that the entrepreneurial journey is never as easy as it is made out to be. My discussion with these entrepreneurs, will have them share their experience and how they managed to go global.

Manoj, if we could start off with you, can you take us through your journey? How did you find your niche in the field of textile?

Manoj Kumar Jhajharia, joint managing director, Salona Cotspin: After the global economy opened up for India after 1991, there was a drastic change. There was a boom in the textile industry. A worldwide standardisation of price came in – earlier, India would set the pricing in terms of rupees, now it does so in dollars. This was a time when clusters such as Ludhiana and Tiruppurpicked up. This is the time when my own journey started in 1996. We are into yarn, fabric and apparel. Perhaps at present, disruption is taking place at a much faster rate. In those days, the rate of interest and profit margins were quite high. Now, interest rates are falling (though not for everyone) and profit margins have also gone down. The problem with SMEs is that that they don’t get financed at low interest rates such as 5-6%, that is true for the rest of the world.

Since the last year and a half, however, with the advent of Make in India, there have been substantial changes in terms of India’s brand name in the world, particularly in textiles. The Make in India label demands better premiums and better prices. So, despite other countries offering yarn, fabric and apparel at cheaper prices, we still have a good market globally. Let me narrate a funny incident. There is a general perception that China is a major exporter, but six months ago when I was in China, I saw a made-in-India t-shirt being sold in Shanghai! So that’s an achievement of the Make in India label.  

We have grown during these last 20 years. We started from cotton fibre, after which we further integrated into yarn, fabric, and now we are into apparels. We are into the domestic market as well as exports. We have a designing studio in London, where we design our range of ladies’ casual wear and Western outfits. We sell our fabric in India at an affordable price since there’s a good market here. And thanks to the service sector, there is a rise in people’s purchasing power.

Keshavdev: Hema, you started off in Singapore and that’s the place where you identified an opportunity for EV. You saw India as a manufacturing hub to cater to the export market. How did you identify that potential for EV in that export market?

Hemalatha Annamalai, CEO, Ampere Vehicles: I am basically a software engineer, and hardware manufacturing was completely new to me. But I used to travel a lot in China, and I realised that so many of the cars there were electric. A lot of provinces have also moved on to electric and I sniffed a big opportunity there. I came to India, toured around and found out that there were electric vehicles in some places, but the problem was its battery. Once we saw that we could solve that, the market opened up. One thing I’d like to share in this regard is that identifying a market is one thing, identifying an opportunity and making it work for you is another. You have to compete, scale and sustain. That is, competing against large players. In my case, automotive was dominated by large players, there was never a disruptive startup in the field of electric vehicles. There were very few, but most of them were traders, and when you trade, you cannot build a brand. We came with that foresight and we were clear that we wanted to be a technology company. So, there can be differentiation in the technology, and in how you can execute. The challenge that entrepreneurs are faced with is making the available opportunity viable, scalable and sustainable.

Keshavdev: Ramesh, don’t you work in a very niche foundry? 

Ramesh Muthuramalingam, MD, Alphacraft: I run an aluminium foundry and we cater to the automotive industry, supplying parts which are used for trucks and cars. We are a 20-year-old company. Not many companies were involved in exporting when we started exporting to Western countries. I started out without a vision, aim or ambition. Starting this foundry was more of an accident than a plan.

When we had started, I met a top-level employee of John Deere India, who had just come to India. At the time, I was only making tools for aluminium casting. The person asked if I would make castings. I said yes. That’s when we decided to go for a foundry. Then a person from Germany’s Siemens asked if I would make tools as well as castings, and sell them to him. And I agreed. I don’t know how it happened, it just did. We never had a marketing team, there was no digital platform available then. So, I think it’s about taking up challenges and grabbing opportunities at the right time, which is what I did. We found there was a dearth of capable foundries that could cater to the automotive industry in Germany, so we started working along that course and the market opened up. Till date, we don’t have a marketing team – we go from our one customer to another one, and a third customer comes to us! We have been delivering goods since then, and have faced five recessions so far. But it’s a different scenario today. When it comes to finance, SMEs are the worst affected. We talk about the GST, but it pertains to the big industries. There is a lot of confusion for SMEs – we don’t know where to ask for clarifications. Then a big company such as Deloitte comes forward and provides you with information even before you ask for it…

Keshavdev: But don’t you have your associations? Shouldn’t they be helping you out?  

Muthuramalingam: That is true, but the association should have the information in the first place. Not many people can even become members of these associations. Coimbatore is full of SMEs. We need the information [about finance] and formats online, where we can download this information. Some of the small companies here don’t even receive Rs.50 lakh as working capital. Nobody believes them, even if they might have the potential. So it’s very difficult here [for SMEs]. 

Keshav: Ram, you are part of Bannari Amman group and then you branched out on your own. How did you find your niche?

SK Sundararaman, executive director, Shiva Tex Yarn: I run a company called Shiva Textile, which is more on the M side of the MSME than it is on the S side. For 30 years now, we have been a spinning company, which already had its own legacy before I stepped in. The entrepreneurial part that I started in 2005 is the technical textile side of the business. I did have to go through most of the challenges that Ramesh mentioned, except, at that point in time, capital was a little more freely available.

At the time, we were trying to invest into a forward processing unit, into fabrics and then processing. A technical consultant in Mumbai told me that there were several other people doing processing, why did I want to go into it? My father asked me if I was ready to go to Europe, where he would put me into some processing factories there. It sounded like a great opportunity, and so I went. Once there I observed what was being done, and I saw a whole new world of products that were not visibly textiles as such. Figuratively speaking, you could take something like powder and throw it on a fabric and it would look like a carpet. You could make carpet out of things you didn’t think you could associate with a textile product. That was interesting to me. Someone there told me, ‘value is created when the perception is more valuable than the reality.’ This was a roundabout way of saying you shouldn’t go into the commodity business. That stuck with me, and I decided to follow that. The advantage [of opting for the technical side of textile] was that the technical textile machineries were relatively much less expensive as compared to the spinning capacity we were normally used to putting up. We started the business, brought in the machinery and then realised that there was no market for this.

But we persevered, put in time and effort, innovated. Our company has now progressed to different kinds of products and technical textiles. Although we are not large, we are growing pretty fast. We have a good margin and our growth rate is 30-40% year-on-year. When it comes to scalability, I think the preamble to it has to be competitiveness. You need to have some kind of sustainable competitiveness to scale up – whether it is in your ability for innovation, to hold the raw materials, hold the markets, or in being confident that you will constantly innovate to scale. You need to find out where you fit into that curve, before you even start thinking about scaling. I think competitiveness is the base. If you are able to define that and are confident about it, only then can scaling come into the picture. 

Keshav: Raja, you come from Tiruppur, which is a small town that has 25,000 crore of knit yarn exports, and there are about 5,000 units, you being one of them, you also run a business. So, what have those units got right and how have they made their mark on the global platform?  

Raja Shanmugam, president, Tiruppur Exporter's Association: I represent the Tiruppur cluster on the whole. Our cluster goes by the phrase ‘go global’, and that itself is an epitome and a standing testimony of this fact. This is because around three to four decades ago, Tiruppur was a miniscule village. When the textile industry was sowed in the soil of this town, the entrepreneurs of the region had very limited scope, knowledge and facilities. With this, the industry has grown to be the knitwear capital of India. So I proudly say that Tirupur is a standing testimony for the entire cluster’s growth. The prevailing phenomenon is: yesterday’s labourer is today’s owner. There are no exceptions. Now the entire cluster is gaining a turnover of more than Rs.40,000 crore, in which Rs.26,000 is earnings from foreign exchange. We have set a target of reaching Rs.1 lakh crore in 2020. The reason is that, this is an ever-growing industry, and the demand for textile keeps growing. Global concepts are catching up here as well, and there is an exponential growth registered in the industry.

This is the first of a two-part series. Read the second part here