Customers worldwide are no longer looking at sourcing in compartments as trade becomes seamless and without boundaries. Today, the four countries in the Indian subcontinent – India, Bangladesh, Sri Lanka and Pakistan – are considered by most buyers as one identity and together they are the fastest growing sourcing hub in the world. Highlighting why the future of garment sourcing is bound to centre on the sub-continent, Deepika Rana, Executive Vice-President and Country Director, Li & Fung, India is very upbeat of growth, despite the current market slowdown…
On the outset, Deepika openly admits that sourcing from India without including Bangladesh is unviable. Quoting from Shakespeare, Deepika says, “There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune…” Equating the current market scenario to a flood, Deepika is confident that the ‘time’ for the industry has arrived. “Behind all the doom and gloom stories that we hear, there is a fundamentally strong and resilient economy, which is conducive to both consumerism and production,” she says. However, there are challenges, but not ones that are unsurpassable and there are processes and disciplines that need to be adopted.
[bleft]“The region as a hub is a paradise with each country having core strengths. While India and Pakistan are fully integrated with India scoring on design, Bangladesh has cheap labour and Sri Lanka the efficiencies.” [/bleft]
Today the Indian subcontinent is the fourth largest economy at US $ 5.5 trillion GDP, behind 27 EU countries, US, and China with strong financial regulatory systems in place and controlling 35 per cent of world cotton production, of which 25 per cent is coming from India. Also present is a vertically integrated supply chain from fibre to finished product with capabilities to do a product range from basics to high-fashion in various product categories. “The region as a hub is a paradise with each country having core strengths. While India and Pakistan are fully integrated with India scoring on design, Bangladesh has cheap labour and Sri Lanka the efficiencies,” says Deepika. Between the countries there is labour cost advantage, GSP advantage, raw material availability, product strength to do almost any category including home furnishing and leather, articulation on design, and to top it all the communication skills to understand and feed the buyer.
Yet there are many challenges, the two most important being poor infrastructure and the reliability factor with vendors in India and Bangladesh, particularly overbooking and failing to meet deadlines. “It has almost become a culture; this has to change,” argues Deepika. She is also critical of the transaction approach to business as against a more strategic approach where business is not build from ‘order’ to ‘order’ but as a basket of key products, wherein the profitability is on the basket not a product.
Going forward, Deepika emphasizes that changes are happening; in India, she points out that roads between cities are almost at par with those found in western countries. Also, more and more factories are moving towards self-certifications, fully committed to issues of sustainability. However, she does point out that the buyer is yet to fully participate in the evolution, though they are leading the change, but to some extent she blames the ‘lowest cost module’ for the chaos. “In a meeting held recently, some exporters from Bangladesh wanted buyers to give them better prices so that they could increase the wage rates, while some progressive brands did agree asking the vendors to quote the ‘first lowest cost’, it was found that the same varied from vendor to vendor,” avers Deepika.
“How can you expect the buyers to pay more when vendors themselves are undercutting. There is need for all the vendors to get on a common platform and work out a universal ‘costing’ system so that the buyer is compelled to pay the price,” reasons Deepika. She gives the example of the time when rising yarn prices made costing impossible and all sourcing destinations across the board demanded a revision of the price structure and buyers had to comply.
“The buyers have to come to us, but we need to be united,” she stresses.
Interestingly, in the last three years 50 per cent of the technology sold in the garment industry has been bought by the sub-continent, which clearly shows that vendors are improving their factories. However, the emphasis now needs to be on efficiencies and Deepika urges the industry to look into this area. One way to become cost-effective is to move ‘inward and outward’, which means that vendors need to either move inwards within the country to be nearer to the labour or move their production outward to cheaper destinations. “Many Indian vendors have opened factories in Bangladesh to offer basics to their buyers, many others are looking at Africa as an option,” says Deepika.
Talking particularly of India’s strength she underlined the design capabilities and advised the industry to look beyond product development and offer product engineering and innovation, more flexibility and liquidity, better service that includes deeper involvement with retail sales and VMI (Vendor Managed Inventory) modules. “Customers want to go narrow and deep with fewer vendors and who will be the chosen one, is in the hands of the vendor,” she says.
For countries that are offering differential products, buying is not about ‘lowest first cost’ but ‘lowest value cost’. The critical question is how to determine value… “Value is not necessarily what you do on the garment, it is also the activity cost that includes how long did it take for approvals; what was the rejection rate; how efficient is the factory; turnaround time; quality, etc… all of which add to the cost. So what is important is the lowest activity cost, which actually is lower than the lowest first cost,” concludes Deepika.
