Marketing strategy of partnership with Beijing may do the trick

Silk industry reels under falling exports, China threat

Rajeev Jayaswal

The Indian silk industry, which is yet to arrest the recessionary trend in exports, is fearing a Chinese onslaught after Beijing’s entry into the World Trade Organisation (WTO).

The situation is alarming, according to the industry. Silk exports have declined by around 23 per cent in dollar terms at $193 million in the first half of the current fiscal compared to $251 million during the corresponding period in the previous year. The recession in the sector is likely to continue unless a new strategy is evolved to contain the slowdown.

The industry needs life-saving measures, or immediate attention in terms of fiscal incentives. But in the long run, it is in the interest of the domestic industry to re-think and re-design its market strategy, both in the domestic as well as international fronts. One of the positive factors in favour of industry is the support of the ministry of textiles in their endeavour to face the global challenge.

In the short-term, the government has already taken a positive measure by re-introducing the Duty Entitlement Passbook (DEPB) scheme to the embroidered silk garment exports. The government’s decision to scrap the DEPB scheme on silk exports had hit the industry adversely, which lost its export share of over Rs 400 crore in the last 13 months.

“We have already lost about 20 per cent of our Rs 2,200 crore export market in the last 13 months to countries like Indonesia and the Philippines and it will take over three years to reach to the same level,” says the president of the recently created Silk Exporters Association and former chairman of Indian Silk Export Promotion Council (ISEPC), P Jacob Samuel.

Silk exports have registered a high-negative growth of 18 per cent in rupee terms during April-September 2001 compared to the corresponding period last year, which was 7 per cent lower than the target set by the government.

While the global slowdown did have its impact on the silk exports, the main reason for negative growth has been attributed to the sudden withdrawal of the DEPB scheme on embroidered silk garments, which constitute a major share of the export basket.

The threat ahead is not restricted to the export sector. Chinese silk may soon flood the domestic market. The survival of the Indian silk sector now depends on quality, efficiency and technical edge over their Chinese counterparts.

As immediate measures, the government may give some fiscal incentives, including extending the DEPB scheme up to 2005, removal of value caps on various silk products, introducing interest rates on export financing for silk sector at 6 per cent, reduction of import duty on silk, duty-free import of processing machines for silk industry and increase duty drawback on excise from 3 per cent to 13 per cent.
According to the ISPEC chairman, Subhash Mittal, the government is considering some of the industry’s demands in the forthcoming Budget. But the industry feels that only fiscal incentives are not enough for their survival. “We need to change our strategy, especially keeping in view the changed global market and the entry of China in WTO,” Mr Samuel says, adding that China controls 90 per cent of the $2.3billion silk export market. Compared to China, India’s position is quite weak even though it stands at the second position. Hence, there should be a policy of co-operation, rather than confrontation, he adds.

While India lags behind in producing silk fabric of good quality at relatively economical rates, it has an edge over China in made-ups and value addition. A mutually beneficial partnership can evolve on this basic premise, the visiting Chinese silk expert and senior lecturer at Hong Kong Polytechnic University, Chau-Lam Chong says. Mr Chong is visiting India on a joint invitation of the Pearl Academy of Fashion (PAF) and ISEPC.

Interestingly, this is the first time a Chinese silk expert has visited India with the intention of imparting technical knowhow and to explore possible co-operation between the two countries in this sector. “It is for the first time the Chinese experts have opened up their trade secret specially in the silk sector. This marks a change in their rigid attitude and is a positive sign,” says Mr Samuel.

There is no doubt that the Indian silk industry needs China’s upgraded technology as well as access to its market. But China seems interested in exporting silk fabric to India and is not eager to form joint venture partnership or impart technical knowledge, says a silk exporter.

Apprehensions on both sides are quite genuine as both the countries are competitors. But the Chinese industry is dynamic. They see a future in joint ventures as India may become a centre for silk made-ups and embroidered work.

However, the seeds of such business co-operation have already been sown. Acknowledging the fact that China and Hong Kong have an edge over India in sericulture production as well as process innovations in finishing of silk fabrics, Pearl Academy has already forged a tie-up with the Hong Kong Polytechnic University to provide technical assistance to the Indian silk industry. The industry has already initiated a dialogue for technical and trade co-operation.
“Many domestic company has taken keen interest for technical collaboration and equity partnership with their Chinese counterparts, says PAF executive director AKG Nair.

One of the Chinese companies, which is the part of the visiting expert team, has shown interest in Indian companies. “My company is scouting for an Indian joint venture partner,” Frances Szeto, technical manager, High Fashion Garments Ltd said. According to her, in collaborating with Indian manufacturers, her company will synergise the strengths of Chinese and Indian silk industry essential to garner a larger share of the global market.

It is true that in the changed global market, China can be a right partner for India, but is not the sole source of silk technology. Japan is traditionally a master of silk technology and the Central Silk Board is already applying Japanese technology to improve the quality of raw material as well as finished goods. The board is also using Japanese technology in sericulture and has also brought in weaving technology to improve finished products. “But the efforts of the board are not enough to resolve the crisis. Industry needs to meet the challenges of globalisation by forging partnership with China,” say experts.

Understanding the need of the hour, the Silk Exporters Association has planned a business delegation to China. “We are planning soon to take a trade mission, which is likely to be headed by textile minister Kanshiram Rana,” says Mr Samuel.

Surprisingly, China, which controls 90 per cent of $2.3 billion global silk market, does not have a domestic market. Indian companies must, therefore, understand that they need China as much as China needs them.