There is a marked change in the mood in the Tiruppur cluster since our last visit in December 2011. Back then, plummeting retail sales in Europe had led to a slump in orders in the textile town. To make matters worse, a January 2011 Madras high court order led to the closure of nearly 700 bleaching and dyeing units accused of releasing effluent into the Noyyal river, with local exporters losing business to Bangladesh. Garment manufacturers without integrated facilities dispatched fabric to dyeing units in other parts of the country. Units which couldn’t take the heat either scaled down or shut down. Back in 2011, Tiruppur had resembled a ghost town in the middle of a work week.
Four years on, there’s been a complete makeover. With factories up and running again, exporters are targeting a 15-20% growth rate next year, with big players investing in integrated facilities covering the production spectrum — from spinning, weaving and dyeing to finished goods. Nearly half of Tiruppur’s yearly export stock goes to Europe, while the US and the rest of the world split the other half equally.
In FY14 alone, the local industry saw a growth of 40% to ₹18,000 crore. “Going by the export figures so far, we expect to end the year at ₹21,000 crore,” says A Sakthivel, president of the Tiruppur Exporters’ Association (TEA). With exports growing 17% to touch ₹15,000 crore in the busy cotton harvest and clothes production cycle — the first nine months of FY15 — TEA is close to achieving its target. Sakthivel believes that if the industry sticks to the growth path going forward, exports are likely to touch ₹36,000 crore in FY17. That would translate to a growth rate of 42% on the back of 30-40% growth for two consecutive years. What’s behind this ambitious estimate?
In perhaps the most literal examples of schadenfreude, Tiruppur’s luck changed because producers in neighbouring nations ran out of luck. “Orders that were going to China and Bangladesh began finding their way to India due to compliance issues over workshop safety and labour rights,” says TR Vijaya Kumar, managing director, CBC Fashions. Multiple tragedies in Bangladesh, including a factory fire in 2012 and the collapse of Rana Plaza, meant that brands distanced themselves from the situation. Most leading Western brands either cut down on exports or looked for alternate locations such as India, Vietnam and Cambodia.
CBC Fashions is representative of the Tiruppur story. The company, which kicked off exports a decade ago, clocked 15-20% growth between 2004 and 2008, before the recession hit. “Times were so tough that we had to shut down one of our factories,” says Kumar. After four years’ worth of losses, CBC finally saw its fortunes improve in 2012, with the company clocking revenues of ₹50 crore and a rise in orders from Europe. It hopes to end FY15 with revenue of ₹125 crore and a 20% projected growth rate for the future.
While its units have a capacity of 500,000 pieces a month, the company — which supplies to Primark in the UK, Women’secret in Spain, Sergent Major in France and Obermeyer in Germany — has got enquiries of up to 7-8 lakh pieces a month; CBC set up a sourcing office to bridge the order gap. Kumar is working to expand CBC’s knitting capacity over the next year and will invest in a dyeing unit in 2015 to become an integrated player.
The 6,000-odd units in Tiruppur are divided as per capability into knitting, dyeing, printing, garment-making and embroidery operations, with garment-making accounting for the largest chunk at 40%. Most firms specialise in one activity and outsource the rest. But larger firms are investing in integrated facilities to speed up order execution. Take the case of KM Knitwear, which started exports in 1997 and supplies primarily to Europe. In 2012, KM invested in a state-of-the-art 20-tonne dyeing facility that complies with the state’s zero-discharge norms.
“We wanted to ensure timely delivery and decided to develop the capability in-house instead of outsourcing our requirements,” says KM Subramanian, MD, KM Knitwear. The company — which clocked a turnover of ₹50 lakh in its first year of exports — hopes to finish FY15 at ₹220 crore and touch ₹250 crore in FY16. KM Knitwear specialises in children’s clothing and was one of the earliest suppliers to Primark. Its growth has mirrored that of the UK-based retailer, which has nearly 300 stores across Europe. Primark sources ₹1,000 crore worth of garments from India and is looking to up its sourcing by 30% over the next year.
However, a growing order pipeline has meant that Tiruppur is struggling with an acute labour shortage. While raw material costs are stable and power tariffs have not posed a problem so far, shortage of skilled labour has hit them hard. Migrant workers account for 25-30% of the 600,000-strong workforce employed in this industry.
“These workers from north and east India are helping us save face in front of customers. Our suggestion to the government: use the funds set aside for generating employment to provide infrastructure to develop the cluster and set up much-needed housing for migrant workers. We can generate employment by ourselves,” says TEA’s Sakthivel.
Exporters fear that this shortage will halt the growth that the cluster has experienced in the past couple of years. On the policy side, the industry is also seeking the restoration of the 3% interest subvention scheme on export credit offered by the government. In the past, when exporters applied for loans to meet their working capital requirements, the government would pay 3% interest to the bank and the company would pay the rest. In FY14, this resulted in savings of almost ₹300-400 crore for the industry.
However, this scheme lapsed in March 2014. Exporters also want the government to build on the current growth momentum by signing a free-trade agreement (FTA) with the EU, along the lines of the one it signed with Japan.
“Costs are nearly 8-10% higher in India compared with Bangladesh thanks to the FTA the latter has signed with the EU. While India scores over its competitors when it comes to compliance and reliability, the cost difference between the two countries gives Bangladesh an edge. Textiles is a very price-sensitive business,” says Raja Shanmugam, partner, Warsaw International. “We are the largest supplier of raw material to Bangladesh and it still manages to produce cheaper clothes than us.” While China holds a 26-28% share of the global textile market, India accounts for 3% and Bangladesh 6%.
Warsaw International, which supplies exclusively to German retailer Tom Tailor, employs around 1,000 people and drew revenue of ₹85 crore in FY14. Unlike his peers, Shanmugam decided to — in 1996 — cater exclusively to the different departments of the Tom Tailor brand. “Given the ups and downs in the industry, we felt that it was better to stick to one customer. Though it goes against conventional business wisdom, this strategy has worked well for us,” he says. Leading a faction that split from the existing TEA management, Shanmugam is also the president of the local CII chapter and is preparing a detailed report to help the government make necessary policy interventions for the growth of the cluster.
While Tiruppur makes for a successful case study on how an industrial cluster can scale up, not all clusters have achieved this level of growth. About 90 km from Tiruppur lies Karur, a hub of home textiles exports. Be it bedspreads, curtains, kitchen linen or cushions, they all get shipped out of Karur. But unlike the situation in Tiruppur, home textile exports bring in only around ₹3,500 crore, with domestic sales adding another ₹1,000 crore.
“While Tiruppur has moved on in the spirit of Chinese growth, we have lagged behind like India,” says P Sudhakar, managing director, Synthesis Home Textiles. With a turnover of ₹100 crore, Synthesis is one of the larger players in Karur, supplying to Kohl’s and Bed Bath & Beyond in the US and Carrefour, John Lewis and Hema in Europe. Started in 1999, the company outsourced most of its orders as job work before it decided to invest in its own facilities in 2004; it now has three factories across 300,000 sq ft.
Most of Karur’s exporters have a turnover in the ₹25 -75 crore range, with players such as Synthesis and Asian Fabricx being the exception. “Unlike Tiruppur, Karur has not made the transition from being a cottage industry to a professionally-led industry. Most orders get outsourced as job work and exporters go after smaller orders rather than chase the big guys,” says P Gopalakrishnan, managing director, Metro Fabrics.
This strategy ensures limited competition, since big players in China and Bangladesh don’t go after the same business. The firm started exports in 1994 and ships 80% of its goods to Europe and 20% to Japan. With around 400 employees, the firm — which outsources most of its orders — clocks revenue of ₹30 crore.
One firm that has successfully breached the scale barrier in Karur is Asian Fabricx, one of the biggest suppliers to Swedish furniture retailer IKEA. Its association with the latter dates back to 1982, when Asian Fabricx first started supplying to the Swedish major. The company, which started in 1974 with 15 employees, now employs 3,500 people and clocked revenue of ₹400 crore in FY14. While IKEA contributes to around 65% of its revenue, clients such as B&Q, Castorama and others account for the rest. The advantage of supplying to a company like IKEA is that while you have to cater to a newer product range, the company also repeats a successful product range over several years, ensuring volume growth.
Getting manpower in place when there is a surge in volumes is a problem for the company. So, it has switched to auto looms and improved the overall efficiency by adopting lean manufacturing principles. “While the automotive industry has successfully embraced lean manufacturing, we are trying to adopt the same in our factory. This is the first time something like this is being implemented in the textiles industry. Earlier, there would be a single person responsible for any garment that we manufactured but under line manufacturing, one worker is responsible for the entire process and there is a check at the end of the belt to ensure that there are no defects in the final product,” says Ashok Ram Kumar, managing director, Asian Fabricx.
Apart from a dedicated IKEA factory spread over 12 acres, the company has its own dyeing facility and another factory for other buyers. The company will start its own printing facility in 2015 — the missing link that kept Asian Fabricx from becoming a fully integrated player.
Unlike Tiruppur, Karur has more to offer — it is known for its bus body-building and mosquito net businesses as well. But, unlike home textiles, the bus body-building business is in bad shape. Uncertainty over regulations and safety norms have led to empty yards and dried up order pipelines. Take the case of Royal Coach Builders: each year, around this time, it has an order pipeline of around 35-40 vehicles but has to contend with just seven orders this year.
“We have around 70 bus body-building companies in Karur. Not only do we have to compete with the big guys such as Tata Motors, Ashok Leyland and Volvo, uncertainty about regulations has put many of the smaller players out of business,” says KP Ramesh, director, Royal Coach Builders.
Royal Coach Builders’ revenue is down to ₹12 crore from ₹20 crore a few years ago and the future is not looking bright. In a trip marked by much enthusiasm, Karur was the dark cloud. But perhaps a silver lining is not far away — we left Tiruppur and Karur with the feeling that things have improved in comparison with the past and that the coming year would only be better. But, there is no telling how long the feeling will last. As long as it does, you are bound to see more shiny Jaguars, Audis and BMWs on the narrow streets of Tiruppur.