Small isn’t always beautiful.
Small-scale units, once the leitmotif of the Indian apparel
business - remember those mom-and-pop garment export units
dotting the landscape - are gradually going out of fashion.
Unable to cope with the stringent compliance norms being
laid down by global buyers or the heavy investments for
large-scale plants, more than 500 small exporting firms
have downed shutters across the country, say industry
players.
Global buyers including JC Penney, Target and Wal-Mart are enforcing strict compliance for areas like social audits and so on, ahead of the textile quota phase-out in January ’05, while at the same time bargaining for pushing prices down.
In Mumbai’s apparel production hubs like Lower Parel and Sion, small units that buzzed with activity till recently, now seem to have a tired and faded look about them. At least nine exporting firms, like Superb Creations, located at Sun Mill Compound in Lower Parel have called it quits in the past six months.
In Bangalore, at least 50 firms are understood to have quietly gone out of business. Bangalore-based Mitel Exports and Continental Exports are among the growing list of exporters which had to close down operations. Most of these units have only 50-100 machines, and cannot find a fit for the new global demands.
Most employees of these small firms, mainly workers, are being absorbed by their bigger brethren - which are on massive expansion mode. Some large firms have recruited as many as 10,000 people in the past one year. 'We have substantially increased our manpower in the past one year. This is mainly to cater to the rising demand,' said the director of large Chennai-based exporting firm. The shortage of experienced manpower keeps apparel export majors on the hunt, and they’re gobbling up all available talent in the market.
In some cases, small companies are approaching large ones to buy them out. Promoters of small firms are either venturing into new businesses or switching over to trading in apparel, using their industry contacts. 'After the closure of my apparel firm, I am trading now. Overhead expenses are very low and I can work on the internet,' said a Mumbai-based former promoter of a mid-size export firm.
'Small firms cannot survive due to strict compliance norms. Only large players will have capacities to cater to increasing demand from global suppliers,' said Rahul Mehta, director, Creative Garments, a leading export firm in Mumbai. Global retailers, who have stepped up outsourcing from India, are imposing non-tariff barriers in the form of security and social audit norms. Leading players like Wal-Mart impose stiff conditions, which cost a lot to implement. For instance, social audit firms charge $1,000-1,500 per audit.
Compliance firms are proving to be too expensive for small firms. These days, global buyers do not hesitate to cancel contracts if they find 'gross violation' of compliance norms. A Mumbai-based firm recently had to take an undertaking that it would fund a child’s education for having allegedly violated the child labour norms.
'The child came to the factory with foodpackets for her father. The global buyers, who were present at the factory, took her photos and turned it into a case of child labour. We tried to explain the actual position but in vain,' said an official of the exporting firm.
Product pricing is also a major factor squeezing small firms out of business. 'Global buyers are asking for low prices and this cannot match the expenses on compliance and expansion, said another exporter. Global buyers are demanding 10-15% reduction in prices after the quotas go. This is mainly due to the attempt made by the Chinese firms to drive down prices.
Source: Economic
Times, August 9' 2004 |
