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Tirupur exporters pinching garment orders from the Chinese

National,Business, Sun, 09 Nov 2008 IANS

Tirupur (Tamil Nadu), Nov 9 (IANS) After praying for a Barack Obama win and getting it, there is additional cheer in this knitwear exporting town. Some of the exporters here are pinching orders from their Chinese rivals.

 

The knitwear industry of Tirupur - about 400 km from state capital Chennai - has been hit hard by the global economic slowdown with orders from the two biggest markets of the US and Europe shrinking fast. Last year Tirupur saw a fall in export revenues and exporters fear this year will be worse.

 

 

The 600,000-odd people working in about 7,000 knitwear exporting units and ancillaries of the town had been praying for an Obama win in the belief that a Democrat-led US government would be good for Indian business.

 

 

Now, with the Chinese currency, renminbi, appreciating against the US dollar and Chinese costs going up for other reasons as well, some US buyers have begun to shift their orders to Indian exporters, especially as the Indian rupee has been depreciating against the US dollar.

 

 

'Some of the US buyers are shifting orders from China to companies like us. While Tirupur exporters will probably suffer an overall reduction in volumes this year, some units like ours may end up seeing volume growth,' S.K. Vivekananda, managing director of Shakthi Knitting Ltd, told IANS.

 

 

'Apart from the appreciation of the Chinese currency against the dollar, Chinese labour and input costs are also shooting up. This is forcing buyers to consider derisking their sourcing strategy,' Vivekananda said.

 

 

Now with the Indian rupee hitting a low against the dollar, Tirupur has emerged as an attractive sourcing destination, he said.

 

 

'Earlier we were at least 25 percent costlier than the Chinese players but this is now being bridged. We are only constrained by capacity,' Vivekananda said.

 

 

Despite this heartening development, Tirupur garment exporters are not sleeping easy.

 

 

Export revenues of the town came down to Rs.99.5 billion ($2 billion) in 2007-08 from Rs.110 billion the previous year. Now with the global financial meltdown drying up US and European orders further, the chances of growth this year too have disappeared, exporters say.

 

 

'We had earlier expected growth this year but going by current trends, that will not happen as new orders are not coming in,' A. Sakthivel, president of the Tirupur Exporters Association (TEA), told IANS, adding: 'We will probably close this year with 10 percent negative growth over last year.'

 

 

As a result, as many as 10,000 knitwear industry workers are facing the threat of losing their jobs.

 

 

Besides market shrinkage and falling prices, the margins of knitwear exporters are also getting pinched by low productivity and higher input costs.

 

 

Prolonged hours of power cuts have hit productivity hard. Running units with captive generating sets using diesel is far too expensive; so the only option the manufacturers have is to shut down production when there is no power.

 

 

Interest costs too have shot up, exporters and ancillaries say. After the US quota regime ended in 2005, many had expanded capacity using borrowed funds at very low interest rates.

 

 

Now interest rates have gone up and many are finding it difficult to service even the interest cost, leave alone repay the principal.

 

 

'At that time banks lent us at 8-9 percent interest rate. With four percent interest subsidy from the Textile Technology Upgradation Fund, the effective interest rate came to five percent,' Azhill M.S. Mani, president of industrial lobby Tirupur Industrial Federation, told IANS.

 

 

Banks have now increased rates and now most units are paying interest of as much as 14.5 percent, he said, also because the central government has not released the interest subsidy for the past two years citing lack of funds.

 

 

But not all have given up. 'We have to consolidate, diversify markets, cut costs and improve efficiencies,' said M. Ravi, managing director of Network Clothing Company Pvt. Ltd.

 

 

One way of cutting costs would be to adopt Japanese manufacturing practices, said Dileep Kulkarni, senior management consultant at TBM Consulting.

 

 

'The units have to first do value stream mapping - map all their production activities. Many Indian knitwear units have high level of rework which actually adds to the cost,' Kulkarni told IANS.

 

 

As for other markets, the problem was getting the right volumes. 'It is costly for us to accept orders for less than 1,000 pieces per style,' Ravi said, adding while Russia and African countries may offer volumes, access to their markets/buyers is an issue.

 


Read More: Tirupur

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