People wanted”, announced the nondescript signboard in Tamil. We found one outside every textile factory in Tiruppur with vacancies and salaries listed. The remuneration offered for entry-level positions were on par with that in metros. For India’s largest knitwear cluster, this year has been a problem of plenty. “The order pipeline is not a problem. Finding people to execute the orders has been a huge challenge,” says N Sreedhar, partner, Danavarshini Exports. Sreedhar started the company along with two partners in 1995 with 20 machines and clocked a revenue of Rs.2.20 lakh in the first year. Twenty years and 600 machines later, the garments exporter clocks revenues to the tune of Rs.150 crore and supplies to European clients like Dutch fashion retailer C&A. He continues about the prevalent labour shortage in the cluster, “Some of the workers go home for the harvest season and if it happens to be a good one, they don’t return to work soon enough. It is difficult to manage the production schedule then. Non-availability of labour is definitely limiting Tiruppur’s growth potential.” Migrant workers form almost 30-40% of the 500,000 workforce in the textile industry.
P Moghan, who established Anugraha Fashion in 1988 with 12 machines attempted to resolve the labour shortage by hiring people from nearby villages. But unlike some of his peers, he doesn’t offer transport facilities. “Transporting employees back and forth was a cumbersome affair. You end up managing a fleet of 10 buses and that takes your attention away from the core business. Also, with high real estate costs here, it makes sense to set up integrated facilities with residential quarters away from the city,” he explains. Moghan, who has managed to scale his business to a Rs.250-crore entity, has set up an integrated facility in Kangayam. Situated 30 km from Tiruppur, the facility comes equipped with residential quarters for 1,500 employees (50% of his workforce). It gives the company the flexibility of running two shifts if demand increases.
In the larger scheme of things, labour shortage isn’t something that the resilient lot in this cluster can’t handle. Tiruppur was a victim of the 2008 global crisis. Back then, exports suffered, and several units recorded heavy losses. And if battling with a global slowdown wasn’t bad enough, the Madras High Court ordered the closure of close to 700 dyeing units after they continued releasing effluents into the Noyyal River in January 2011. Exporters lost out to global players as garment manufacturers, who didn’t have integrated facilities, sent fabrics to dyeing units across India. A number of players scaled down operations and the smaller ones had no choice but to shut down. So the cluster went through a period of pain from 2008-2012.
However, today the cluster is weaving an impressive growth story. Almost half of Tiruppur’s exports are finding their way to Europe, with US taking up about one-fourth of the share and the remaining being taken up by the rest of the world. Exports from Tiruppur have grown from Rs.12,500 crore in FY12 to Rs.22,000 in FY15 and it is expected to touch Rs.24,000 crore in FY16. Domestic sales during the same period have also increased from Rs.6,000 crore to Rs.12,000 crore. This is because the cluster has benefitted from the diversion of orders from Bangladesh and China. With compliance issues, factory safety and high labour costs making the global textile exporters less attractive, Tiruppur stands to gain.
Eyes on growth
Textile plant owners here are leaving no stone unturned to ensure they can handle more orders. The cluster comprises 7,068 units that are divided into knitting, dyeing, printing, garment-making and embroidery, with garment manufacturing accounting for 40% of all units. Most firms specialise in one or two activities and outsource the rest of the work. Like Moghan, many exporters are now building integrated facilities to improve their fortunes. Currently there are only 25 firms with fully integrated facilities that overlook the entire spectrum of production — spinning, weaving, dyeing to finished goods — which helps them honour order timelines. SRG Apparels is one such company with integrated facilities. “I began operations in 1989 with only six machines and now we have 1,500 machines and 3,000 workers. For the past 17 years, we focused on four to five large clients, who gave us business all around the year and that helped us save marketing costs. The integrated facility and adherence to global compliance standards is what has brought in the bigger clients,” says R Govindraju, managing director, SRG Apparels. The firm supplies to British retailer Mothercare (its largest client), UK Next, Ralph Lauren and Debenhams. These big names helped scale the company’s turnover to Rs.230 crore, with SRG registering a growth of 15% in FY15 and 35% in the previous year.
In addition to setting up integrated facilities, textile firms are also investing to expand capacity. KPR Mills, which owns 2,500 machines plans to buy 3,200 more in the next one year. Similarly, SKL that runs 600 machines in its facility hopes to increase the count by another 1,100 machines. Another textile exporter, MSK plans to add 900 machines to its existing 500. On an average, an investment in 1,000 machines would require Rs.120-140 crore, generating employment for 2,000 people.
But even as growth gathers momentum in Tiruppur, India remains a tiny player when it comes to knitted garments exports, contributing just 3% to the overall market. Raja Shanmugam, member of the CII-Tamil Nadu State Council says, “China constitutes almost 37% of the global trade, Bangladesh that procures raw materials from here makes up 12% of global exports. Even Vietnam and Cambodia, which are new entrants to the business have a higher market share at 4%.” Leading a faction away from the existing Textile Exporter’s Association (TEA), Shanmugam and the local CII team have prepared a detailed report called ‘Vision 2020’ that envisages the turnover of the cluster to touch Rs.100,000 crore in 2020. According to him, this can be partly achieved by adopting lean manufacturing practices. He adds that the current investments would be enough to earn Rs.50,000 crore in revenue.
However, A Sakthivel, president, TEA, contends that it seems like an ambitious target. He believes that more can be achieved if the government signed a free-trade agreement (FTA) with Europe. “It isn’t easy to triple revenue in the next four years. But we are pushing for the FTA with Europe to come through and that would give a huge fillip to exports and will allow us to compete with countries like Bangladesh, Cambodia and Vietnam whose products are cheaper by 10% due to their trade agreements with Europe,” he says.
While signing the FTA would bring India on par with global competitors, Moghan cautions, “Unless we solve the labour shortage issue, we won’t be in a position to fulfill the orders. Since the buyers now avail of prices that are 10% cheaper, the volume will go up and unless we have an adequate workforce to back it up, it will lead to execution delays.”
Tiruppur, thus, is looking to enhance worker skills. As a first step, NIFT-TEA, a college that trains people for the knitwear industry, set up 200 training centres across Tamil Nadu in September 2015. Each centre was adopted by an exporter with an aim to train 10,000 people by March 2016. “It takes about 45 days to train the workers about the basics after which they are employed by the company that has adopted the centre,” explains Moghan.
Also, some companies are making their manufacturing processes more efficient. Companies like CBC Fashions and Ragam Exports are switching to lean manufacturing principles. TR Vijaya Kumar, MD, CBC Fashions, says, “Using the same machinery and no additional investments, we can improve the ROI by adopting lean manufacturing principles which reduces time and material wastage, thereby improving the overall efficiency and margins. A lot of the manufacturers in Tiruppur are still unaware of this concept. CBC Fashions has reduced its production cycle from 95-120 days to 60-75 days and the ultimate goal is to achieve 45-60 days. This has helped improve margins by 4-5%. In FY16, they hope to clock revenues of Rs.150 crore and grow 20% more in FY17. Rather than ramp up capacity to meet increasing demand, Kumar has set up a sourcing subsidiary that has helped secure clients such as UK-based retailer Primark and Disney. CBC is hopeful that its subsidiary, Award Associates, will double its turnover from Rs.100 crore to Rs.200 crore in the next one year.
Innovate to survive
About 90 km away from Tiruppur, Karur, the hub for home textiles exports, hopes to re-create some of its neighbour’s magic. Until now, Karur’s economy primarily depended on home textiles including bedspreads, curtains, kitchen linen, cushions, etc. Karur currently manufactures and exports textiles worth Rs.5,000 crore. “The home textiles industry has not seen significant growth in the last couple of years. As part of a CII initiative to grow Karur’s economy four times by 2023, we decided to foray into garments since both have similar processes and only the finished goods are different,” says P Sudhakar, chairman, CII-Karur.
Currently, a team led by the local CII chapter and the Karur Textile Exporters Association is working on developing a textile cluster that would be in line with international standards. An initial batch of 20 companies would share a common facility for cutting, knitting, embroidery and packing. These firms would set up their own satellite factories investing Rs.1 crore-Rs.3 crore where they would carry out sewing and inspection before it is sent to the common facility for packing. The common facility for which an SPV has been formed will be set up from a government grant of Rs.15 crore. The cluster is working towards commencing production from April 2016 using 1,000 machines.
“The idea of having a common facility is not to re-invent the wheel as the companies do not have to individually invest in these machines. Since some of the 20 companies do not come from a home textile background, it would be overwhelming for them to learn the entire process. So, maybe in the first two years there will be some hand-holding after which they can proceed on their own,” explains Sudhakar. The common facility will overlook employee training, marketing and ensure adherence to global standards. The plan is to have many more such batches and common facilities that house companies once the cluster commences operations. According to him, the cluster in its first year of operation is targeting Rs.100 crore in revenue and Rs.5,000 crore by the end of 2023.
Sudhakar’s company Synthesis Home Textiles is one of the bigger players in Karur, with a turnover of around Rs.120 crore, supplying to Kohl’s and Bed, Bath & Beyond in the US and Carrefour, John Lewis and HEMA in Europe. According to him, bigger firms have managed to grow faster than the industry since they added new products to their portfolio. For instance, Synthesis currently makes packing bags and accessories for designer handbags such as Gucci, Prada, and Chanel.
Since the home textiles market is fragmented with more number of products and lower volume, there aren’t too many players that have scaled up. Of the 400-odd exporters, there are only about four companies that have managed to breach the Rs.100 crore-mark. Also, as products that customers source differ from season to season, companies plan production cycles only once they receive orders. “Another reason why Karur probably has a more subdued growth compared to Tiruppur is because some of the products such as table mats, floor mats and curtains have found substitutes and repeat purchases are not as frequent as garments,” explains M Nachimuthu, chairman, Atlas Export Enterprises. His company was one of the earliest exporters when they began operations in 1975. Currently with a turnover of Rs.120 crore, the company counts some of the biggest retailers such Zara Home, ASDA (Walmart UK), Primark, Debenhams, Lidl and Leroy Merlin as its clients. “Earlier we had about 50 clients in countries like Norway, Denmark and Finland. But we spend the same effort servicing all our clients so we decided to stick to larger customers and prune our client list,” he adds.
Nachimuthu reminisces about purchasing a Rs.6,500-plane ticket to attend his first trade fair. “I didn’t know anyone nor could I speak the language. I just landed with my suitcase full of samples. We managed to get orders from a couple of buyers and the rest as they say is history,” he says. The company that once exported via agents, deals with customers directly now, besides collaborating with them and advising them on latest trends. The firm, which has 12 members on its design team, just added Target to its client list.
Another firm that is making a niche for itself by focusing on designing is Mallow International, which sells to European clients. Unlike most players who simply follow the designs provided by the clients, Mallow’s design team presents original designs based on rare historic paintings and works on special fabrics to create exclusive collections. “The margins are better for design-oriented products since customers don’t bargain on price. Once you develop a design, it goes on for years,” says R Arul, managing partner, Mallow International, which has an annual revenue of Rs.42 crore. It is looking to grow business by about 20% in the next one year. In the future, Arul plans to generate additional revenue by licensing his designs. “Some of the designers in the US and Europe have proven that licensing is a great way to make money,” he adds.
The growth story in this cluster is also witnessing a change with the entry of second-generation entrepreneurs. Take the case of Vasanth Kumar, director, Prem Textiles, who joined his father’s business in 2000. “One of the first things I did was to make the business process-driven,” he says. As a result the company’s turnover in textiles doubled from $5 million in 2000 to $10 million in 2015. Post the financial crisis, the company shifted its focus from the US market to Europe, which offered better prospects by supplying to clients such as Aldi, Carrefour and Castorama.
Karur’s largest textiles player Asian Fabricx is another example of how the introduction of new processes helped scale the business significantly. The company, one of the largest suppliers to Swedish retailer, Ikea, began operations in 1974 with 15 employees. It currently employs 3,500 people. While the company was started by his father, Ashok Ram Kumar, who is current managing director, joined the business in 1996. The company has since resorted to automation by deploying auto looms and adopting lean manufacturing practices in addition to investing in solar (6 MW) and wind energy (20 MW). He brings up the persistent labour problem when he says, “As we scale, we will continue to increase our dependence on automation as it becomes more challenging to find new people.” Rather than foraying into garments, he feels that there is enough headroom in home textiles if only new products like terry towels and bedding were added. While new product additions may still be time away, he is focusing on acquiring new clients in the near term.
As we conclude our second consecutive visit to the textile clusters of Karur and Tiruppur, there is definitely a sense of optimism. Both the clusters have set themselves an ambitious target and it will all come down to how well they execute them. The feasibility of the targets though is topic for another debate all together.