Shape Up Or Ship Out

Updated: Oct 29 2002, 05:30am hrs
Why are ready-made garments (RMG) exporters losing competitiveness in the American and European markets Well, loss of share in these quota markets is a direct consequence of the quota phaseout underway since 1995, to be completed in 2004. The Multi-Fibre Agreement regime essentially rewarded inefficiency because market share was a function of quota availability, not competitiveness. But trade liberalisation has led to a shakeout among international supplier nations. Removal of this entry barrier (quotas) has led to emergence of new suppliers abroad and declining quota rents at home, and therefore, export prices which include quota premia have tended to fall. As a result, margins have declined and high-cost producer-exporters are taking a hit. The bottomline for Indian industry is this: Those wholl shape up will swim, those who dont will have to ship out.

Essentially then, production inefficiencies are Indias bane. Of course, attempts by the Americans and Europeans to protect their domestic interests in the form of preferential trading with Mexico and the East European countries and laying down of non-tariff trade barriers have worked to Indias disadvantage. But to lay the blame for our deteriorating export performance solely on those factors or, for that matter, on Indias high transaction cost economy as sections of industry are wont to do would be to miss the woods for the trees. Cast an eye toward China: Preparing for 2005 and beyond, Chinese strategy was multi-pronged. Industry focused on technological investment, upgradation and product innovation while government policy ensured a flexible labour market, attractive finance and top-class infrastructure. Today, the dragon has outclassed India on price and quality in many sub-segments. The lesson is clear: Even as India must improve infrastructure and iron out labour market rigidities, Indian industry too must grab the opportunities there for the taking. We can be competitive in lightweights and cotton knits. We also have a huge labour force. More importantly, even as existing, inefficient firms close down, they free up valuable resources for new firms. Investment in plant and machinery (at both, the mill and factory level) and product design which will together enable economies of scale and uniform quality and give rise to smart fabrics is the key. As is desi ingenuity, evident in relocating base from high cost metros to low cost production centres and developing marketing and distribution efficiencies. Complacency will have to give way to thinking big and thinking smart.