Flexibility to the fore

Written by The Financial Express | Updated: Dec 29 2007, 04:01am hrs
Year 2007, among other things, has been the year of the Great Export Groan in India. The rupees rise brought with it familiar wails of demand for sops to the export sector to aid efforts to neutralise the impact. Some of this was aimed specifically at the Left-supported governments soft spots. Labour-intensive sectors such as textiles and apparel, went the cry, have borne the brunt of the export slowdown, and job losses could create waves of pain even in sectors as diverse as gems & jewellery and auto components. There were numbers to corroborate this, too. The worst affected, with a substantial fall in rupee export figures, were leather manufactures, textiles, carpets, sports goods and handicrafts. Even in terms of specific goods traded, as many as 10 of Indias top 25 export commodities registered a fall in the first four months of the fiscal. Outward bound readymade cotton products, the largest component of textile exports, for instance, took a battering in the US, UK and Germany, major markets all. Without help from the commerce ministry (if not the RBI, which let the dollar slip earlier this fiscal from Rs 44 to about Rs 40 without batting an eyelid, and then held the peg only lightly after that), went the warnings, some of these sectors may not be able to recover. What to make of all this

When the going gets tough, as the clich goes, the tough get going. Export market diversification is one strategy that has held some enterprising exporters in good stead. In textiles, several players offset their losses in traditional markets by finding buyers in The Netherlands, South Africa, Belgium, Iran, Pakistan and even China. Readymade product exports to these seven markets rose nearly threefold, taking up their share in this segments exports from around 7% to 22%, even though the total fell by 17%. Several textile and apparel exporters have also taken to global sourcing with gusto, helping keep input costs down, even as they sought high-margin business opportunities within India, marketing apparel brands. This is reminiscent of what Indias leather exporters did once their Soviet markets crashed in the late 1980s along with the Berlin Wall. Strategic flexibility can prove the saviour. Today, having been through that experience and having clawed its hard way up again, leather footwear exports continue to boom, rising at almost double the pace of total exports, and the products are higher margin ones, too, and therefore less price elastic. Technology and productivity levels are so high that the worlds biggest brands have no qualms outsourcing shoe production to India. In terms of geographical reach, leather footwear exports to the US and UK have declined, but other markets have more than made up for that.

In any case, a smart strategy should involve a domestic market component to confront the cyclical trends that global markets tend to undergo. The business potential within India is vast, with the share of the countrys population with an annual income of more than $2,000 expected to go up from about one-third now to nearly half by the turn of the decade. Global studies show that markets for apparel, shoes and other on-body products are among the very first to see explosive growth once a country emerges from deprivation. Changes in the countrys demographic profile and urbanscape should boost the phenomenon, with organised retail acting as a key enabler.

On the whole, what would serve businesses well is a fresh orientation away from commodities to brands. While commodities have their prices set for them by market conditions, brands can actually command premiums for the fulfilment of intangible consumer needs. The objective is to escape extreme price sensitivity so that there is a buffer against shifts in economic conditions. In fact, if the government does not shirk its responsibility towards the easing of infrastructural constraints, it is possible at this juncture to envisage a large strategic thrust that involves entering high-margin brand markets overseas, rather than just commodity markets as low-margin suppliers.

Take textiles & apparel. Despite Indias heritage and pre-industrial dominance of this sector, the country exports stuff worth only $19 billion in a global market estimated above $450 billion and set to touch $700 billion by the end of the decade, thanks largely to highly populated emerging markets. Incentives for Indian exporters to move up the value chain have been few. But this crisis ought to focus attention on possibilities beyond the obvious. With demand for apparel and other fabric products in the world beyond the US and Europe growing rapidly, and Indias soft powera hearty combination of fashion and entertainment industrieson the ascent even beyond the immediate neighbourhood now, it is entirely foreseeable to have high-margin brand plays that originate here. It will, naturally, take a closer feel for consumer motivations in other parts of the world, with some universals as the basis. The current crisis calls for new strategies, not wails.