`You have to produce the best value to survive' -- Mr Anees Noorani, Managing Director, Zodiac Ltd

Reshma Krishnan

ZODIAC is a leading brand name in the readymade garments business. Mr Anees Noorani, Managing Director, Zodiac Ltd, spoke to Business Line on a range of issues regarding the readymade garments industry.

Excerpts from the interview:

What is the overall state of the textile industry?

The textile industry is in bad shape, particularly the cotton textile industry, for various reasons. Money has not been spent on modernisation, pricing has been opportunistic and the industry has enjoyed a monopoly for far too long. Even after having signed the WTO, members of the industry have successfully lobbied Delhi to bring in specific and other duties to protect themselves. So although the import duty should be 40-odd per cent, while importing you actually end up paying 74-100 per cent as it is linked to the weight of the fabric. This only delays judgement day, since we are nurturing uncompetitive units... nursing them for nothing and eroding the country's competitiveness by protecting such firms.

How do you read the readymade garments industry now?

Our readymade garments industry comprises of the domestic Indian market and the international export market. Since the early 1970s, India has been riding one wave after the other in the international market. First, there was the demand for Madras garments, cheese cloth, crepe, and Madras checks. Then in the mid-1970s, there was demand for natural fibres such as cotton handloom, and then demand for clothing with the Indian `look'. The situation has come full circle and will now mean the survival of the fittest. This will depend on the competence in technology and a price-value relationship. You do not have to be the cheapest, but you have to produce the best value to survive. At present, India has only a 3-3.5 per cent share of the global clothing trade, while China has 30 per cent. Why? The answer lies in the end product. At what value are you able to deliver to the end-consumer.

If we have the same strengths, why are we not on the same level?

We are not delivering a world class product. There are exceptions in the industry, people like ourselves or a few units in the South. However, a few players and a few 1,000 crores of rupees do not make an industry. As a whole, the industry is delivering an inconsistent product. We are not delivering products of internationally acceptable quality, not delivering it consistently or at the price it ought to command. Part of this problem has to do with the raw material base, which depends on our domestic mills that have not upgraded technology. We have archaic labour laws, infrastructure problems and major productivity problems. This is related to `cheap' Indian labour. Indian labour is not cheap. Because of the poor quality and low productivity, the manufacturing cost of a shirt or garment that is being exported is as high as that of a shirt being manufactured in Ireland. This is partly because the law does not allow for performance-related pay, is where the problem lies. Our labour strengths are not being enhanced by quality.

What will be the impact of the WTO agreement to take effect in 2005, and how will the industry handle this?

We are doing everything in our power to prepare ourselves for the onslaught. It is a very tall order. We are facing competition not only from China, but Vietnam, Thailand, Indonesia, Eastern Europe and Turkey. There are several components to quality -- the fabric, the sewing and the fashion content. But the most important is the price-value relationship. Service, innovation and dependability are a necessity. Quality is hard to define and implement, but the industry will have to improve if it is to compete.

Is there a lack of interaction between fabric and readymade garment manufacturers?

Basically, our fabric manufacturing industry is sick. At least the cotton textile industry. The man-made fibre industry is underperforming and overpriced because of the taxation. It is a shame that we can buy cotton fabric produced with Indian yarn from abroad more favourably than sourcing it from within. Countries such as Taiwan buy our cotton, weave it and deliver it to us at better rates.

How is the industry coping with this pressure?

The Government's role in the industry has to be kept to a minimum and the industry must stand on its own its feet. We should not look to the Government to continue subsidising us, but create the conditions to fend for ourselves. If our textile industry cannot deliver cloth of the quality and price we require, we must explore outsourcing opportunities atleast for export purposes. More than 50 per cent of the cloth we use is sourced abroad.

Also, the use of technology is subjective. If we use sophisticated computerised equipment, what would be the difference between our cost and that of Northern Ireland or Eastern Europe.

So how do we balance it?

By leveraging labour and other systems. As the labour cost in India is relatively low, if we use the same amount of mechanisation and technology we will have the same interest costs and depreciation costs. So where is the competitive advantage? This advantage can only be derived by leveraging labour. We need to find out how far to modernise so that we can deliver quality. Mechanisation should involve leveraging the labour strength and not replace it.

How big is the readymade market in this country?

Though figures are being bandied about, there is no real data available. The problem stems from the fragmented nature of retailing in our country, and the opportunistic and short-sighted policies of our retailers. They are unwilling to disclose their earnings or share data, and any information they provide is debatable.

What are the prospects of the small players in the market?

The small players have a long way to go and possess potential. They are the companies doing things right. They have sound manufacturing bases and various quality components. I think very highly of some of these companies.

Is the transition to semi-formal wear here to stay?

There are three classifications for clothing -- formal, semi-formal and casual. It is very important to distinguish between three. I do not think the transition to semi-formal wear is hyped-up. The formal wear segment is stable and growing at a normal pace of 10-15 per cent. Due to its late introduction into the Indian market, the semi-formal wear segment is growing at a faster pace than the formal wear segment. The quoted 30 per cent is an exaggeration, the growth is nearer 20 per cent. The real growth is in the casual wear market, which is booming. For instance, we launched a casual brand in April -- the wrong time to introduce a product -- and the response from the trade and market was overwhelming.

Do you think the country is lacking in product development and innovation?

Definitely. While there is a lot of potential in the industry, a `me too' philosophy is holding us back. Companies do not spend money on innovation and product development. Large companies such as ourselves spend a fortune developing products. Product development is company-specific and it is in the interests of every company to develop its products. We need to take a cue from what is happening in the West. This industry is not serious. There are large risks and investments involved in R&D.

What do you think is the industry's Achilles heel?

The raw material base. Not every small player can source from abroad the way larger players do. The consumer will benefit from the WTO, but the small players may not benefit as much. We have the advantage of economies of scale. Our orders are large and we can source the fabric at better rates.

Do the smaller players not have the advantage of being more flexible to changing fashions?

Not really. Modernisation has made it possible for the large players to build modular units and be flexible. Inventory is not a problem as we manufacture against a firm order. We pre-sell for the Indian market. From the point of view of the industry, there is a lot of wastage as few manufacturers can afford to follow this philosophy. We have tried to reduce the response time and speed it up. Take orders from the trade, produce against it and sell. The tough part is to make the retailers accept it. Because of the fragmented nature of retailing, we have to have this system. Now that there are corporate retailers such as Shoppers Stop and Pyramid, it is easier to formulate strategy.

What is happening to the industry's profitability and where does the potential for profits lie?

With all this competition, margins are getting squeezed. Profits will only be seen in the long-term. Even as we speak the industry is witnessing a shake-up. There are brands going through a rough phase because they chose to stock-and-sell.

Do you foresee a time when Indian retailing takes on the lines of London's Marks and Spencer?

I see a revolution in retailing in this country. I see itinerant retailers slowly disappearing. This does not mean that there will not be independents. There are well-run independents and will continue to be. The fly-by-night operations will be forced out over a period of time.

What are your views on the stock market perception of this industry's stocks?

The companies in this industry enjoy poor discounting. Even a company such as ours, which is consistent in financial performance and fundamentally strong, is poorly discounted. The public perception of the industry is poor and it will take a while, as the industry becomes more professional, for that perception to change.