<div>Tirupur, India’s ‘knitwear capital’, is a mere 25 sq. km in area, but accounts for a lion’s share of knitted garment exports. Garments worth Rs 21,000 crore a year are made in the town and its suburbs such as Kangayam, Palladam, Perundurai and Avinashi.<br /><br />Tirupur was like any other unassuming town in Tamil Nadu 10-15 years ago — no roads, water, sewage lines, good schools, etc. All that changed when the town became an important business hub for the who’s who of the fashion world globally. The transformation was made possible by the collective effort and business ambition of the 6,250-plus entrepreneurs of Tirupur. But now the town, and its businessmen, are facing a crisis. For the past four years, Tirupur has been experiencing the most prolonged downturn in its history. <br /><br />Business was booming till recession hit in 2008. For the first time in the history of the town, exports showed a negative growth at Rs 9,950 crore in 2007-08. Thereafter, exports have been flat at around Rs 12,500 crore. When exports had risen to Rs 11,000 crore in 2006-07, the exporters had set themselves a target of Rs 20,000 crore by 2012. But now that target seems a distant dream. <br /> </div><table width="250" cellspacing="8" cellpadding="8" border="0" align="right"><tbody><tr><td style="text-align: center;"><strong>LOOSE THREADS</strong></td></tr><tr><td><span style="color: rgb(255, 0, 0);"><strong>COMPETITION: </strong></span><strong>Bangladesh enjoys duty-free exports to EU while Indian exporters have to pay 25 per cent duty<br /><span style="color: rgb(255, 0, 0);">RAW MATERIAL COST: </span>Yarn prices, 40 per cent of production cost, have almost doubled from Rs 139 per kg in August 2009<br /><span style="color: rgb(255, 0, 0);">POWER CUTS:</span> Power cuts last 8-10 hours a day. Use of generators has increased costs by Rs 2 lakh a day<br /><span style="color: rgb(255, 0, 0);">LABOUR:</span> Getting labour from faraway states means paying middlemen, which further increases costs</strong></td></tr></tbody></table><div>The entrepreneurs, however, are optimistic. “The worst is over and we will be back to normal soon,” says A. Sakthivel, chairman of the Apparel Export Promotion Council (AEPC) and president of the Tirupur Exporters Association (TEA). “We are waiting for the EU-India Bilateral Investment and Trade Agreement (BITA), which will place garment exports from India on a par with those from Bangladesh, and India too will enjoy duty-free status in EU.” TEA has also asked the commerce ministry to extend duty-free access to Bangladesh only for garments manufactured out of yarn and fabric imported from India.<br /><br /><strong>Beset With Challenges</strong><br />There are several reasons for Tirupur’s dip in fortunes — the most prominent being competition from Bangladesh. While Bangladesh enjoys zero duty on its exports to the EU, Indian garment exporters have to pay nearly 25 per cent. Further, 46 textile items have duty-free entry into India from Bangladesh, resulting in dumping of cheaper products here. <br /><br />Apart from traditional rivals such as China, Bangladesh and Pakistan, competition is also hotting up from countries such as Cambodia, Vietnam and Indonesia. Net result: margins have thinned to 10-15 per cent from peak margins of 20-30 per cent.<br /><br />Another major problem is mounting yarn prices, which constitutes almost 40 per cent of the production costs. Price of yarn has increased from Rs 139 a kg in August 2009 to Rs 275 per kg in February 2011. Now, the price hovers around Rs 231. Garment manufacturers are demanding that they be allowed to import cotton yarn duty-free, which will reduce the cost of sourcing raw material. <br /><br /><img width="593" height="356" align="middle" alt="" src="/image/image_gallery?uuid=7e45808e-a566-491d-9d1f-52548b405fed&groupId=520986&t=1351249279343" /><br /><br />“At present, only 35-40 per cent of the machines in Tirupur are working and the rest are lying idle,” says S. Rathinasamy, president of Knit Cloth Manufacturers Association (KNITcMA). Around 10 per cent of the 900 knitting units have already closed down while another 30 per cent are on the verge of closure, even as 25 per cent are functioning at half their capacity, says R. Rajamani, secretary of KNITcMA.</div><div> </div><div>break-page-break</div><div><br />The mounting debt burden as well as the inability to repay loans is another issue for the unit owners. Tirupur has some 6,000 imported knitting machines that cost between Rs 10 lakh and Rs 1 crore per machine. While most manufacturers used low-capacity domestic knitting machines made in places such as Ludhiana, with capacities in the range of 50-60 kg a day, till the 1980s, they have now migrated to imported machines that have a capacity of 300 kg a day. European machines are 25 times costlier than local ones, while the Chinese and Taiwanese variants are around 15 times more expensive. A decent-sized unit generally has 10-12 imported machines and 20-25 domestic ones, bought with an investment of over Rs 2 crore.<br /><br />The other problem haunting Tirupur is one that is present in most textile clusters — pollution. Earlier, most of the 700-odd dyeing and bleaching units were allegedly discharging waste into the Noyyal river, a move that farmers protested against. The Madras High Court ruled in favour of the farmers in 1996 but the dyers appealed against it in the Supreme Court. The apex court sent the case back to the high court which, in January 2011, ordered closure of all the units unless they were able guarantee zero discharge. The closure caused the industry a loss of Rs 50 crore a day. <br /><br /><img width="242" vspace="8" hspace="8" height="291" align="right" alt="" src="/image/image_gallery?uuid=dc181092-92dd-47bb-afea-37846d0579b2&groupId=520986&t=1351249455640" />But Tirupur managed to find suitable technology to escape the crisis. “Based on the customised technology we use now, 174 dyeing units attached to common effluent treatment plants (CETP) and 48 dyeing units with individual ETPs are now running on trial-run permission,” says S. Nagarajan, president of the Dyers Association of Tirupur.<br /><br />According to him, 484 dyeing and bleaching units have 18 CETPs and another 154 have their own ETPs. He is hopeful that the current technology, which has shown zero discharge possibility, will help bring the garment processing industry back on track.<br /><br />“We don’t have the resources to develop high-end technologies that can help to achieve zero pollution discharge; either the government or the pollution control board should have taken that initiative,” says G. Karthikeyan, general secretary of TEA.<br /><br />Like most other industries, the Tirupur garments industry is also plagued by labour issues. Half of the industry’s 350,000 direct workers are from outside the town and its suburbs. If the monsoon is good, they return to their home towns, resulting in high attrition. Garment exporters are forced to source manpower from faraway states such as Bihar, Uttar Pradesh and the North-east, paying commissions to middlemen which, in turn, leads to higher costs. <br /><br /><img width="114" vspace="8" hspace="8" height="315" align="left" alt="" src="/image/image_gallery?uuid=bce5131b-277e-43c1-a621-9832a2a8e26e&groupId=520986&t=1351249498611" />Leons Christie, a gatekeeper at the Netaji Apparel Park — which showcases the town’s global production standards to visitors and buyers from overseas — sums up the gloomy scenario: “Earlier 1,000-1,200 buses carrying workers came in every morning and left in the evening; now, not even 300 buses come in and go.”<br /><br />Alcoholism among workers is a major issue affecting productivity. The town has over 360 Tasmac outlets (the state government-owned liquor retail chain), the largest concentration in Tamil Nadu,” says J. Gnanavelan, who runs Vedic Cultural Academy, a manpower skill enhancing firm in Tirupur.<br /><br />A shortage of skilled workers is another issue. “Now we are planning to introduce skill enhancement courses among workers,” says Raja Shanmugham, chairman of the NIFT-TEA Fashion Knitwear Institute.<br /><br />M.P. Muthu Rathinam, president of the Tirupur Exporters and Manufacturers Association (TEAMA), says orders are drying up for small exporters. TEAMA, which represents such exporters, claims to have 1,000 members. <br /><br />Rathinam’s firm Sankaray Exports employs 90 people. Formerly a worker for seven years, he has been exporting knitted garments mainly to France, Belgium, Canada, the US, Mexico, Germany and Spain, for the past 18 years. While his annual turnover used to be over Rs 12 crore, it has come down to Rs 2-3 crore in the past three years.</div><div> </div><div>break-page-break</div><div><br />The same is the case with R. Rathinasamy, owner of RVR Exports, which employs 40 people. He is a merchant exporter, and executes orders on behalf of exporters from places such as Mumbai. If RVR was doing business of over Rs 3 crore annually three to four years ago, now it does just over Rs 1 crore.<br /><br />Fortunately, labour unrest is not an issue in Tirupur as the six dominant trade unions have traditionally been on good terms with the industry. TEA signed a four-year wage agreement with the trade unions in February this year, which is valid till 2016.<br /><br />Tirupur’s units face another problem that all industries in India do — lack of power. On an average, the town faces power cuts of 8-10 hours a day (as does the rest of Tamil Nadu). Running units on generators has increased costs by Rs 2 lakh a day for some of the larger units.<br /><br />To add to all their woes are credit issues and mounting debts. However, timely support from the state and Centre has eased the situation to an extent. The Tamil Nadu Industry Investment Corporation (TIIC) recently announced a 3 per cent interest waiver on new loans to micro, small and medium enterprises. The Foreign Trade Policy 2009-14 also offers a breather to Tirupur with the continuation of the technology upgradation fund scheme and debt restructuring for the knitwear sector.<br /><br />Tamil Nadu chief minister J. Jayalalithaa recently announced a Rs 200-crore interest free loan for Tirupur to resolve its pollution issues.<br /><br /><img width="225" vspace="8" hspace="8" height="314" align="right" alt="" src="/image/image_gallery?uuid=f6a446d4-7ac3-42d6-9ce9-6d77427f8d24&groupId=520986&t=1351249606261" />However, not all infrastructure initiatives by TEA have been successful. While the Tirupur Export Knitwear Industrial Complex (TEAKIC) generates Rs 800 crore in turnover, a similar initiative at Kanjikkode near Palakkad in Kerala did not take off due to labour and other issues. TEA has exited this joint venture with the Kerala Government. The TEA Lemuir inland container depot for streamlining cargo from Tirupur to various ports has also not become functional due to the lack of demand. <br /><br />The financial health of the New Tirupur Area Development Corporation, a joint venture of TEA, Tamil Nadu government and IL&FS, to supply water and sewage facilities to Tirupur is also precarious. Another TEA initiative, an e-Readiness Centre to help the Tirupur units implement hi-tech ERP solutions with Microsoft and some other leading domestic software companies, has also failed to take off.<br /><br /><strong>The Domino Effect</strong><br />No one in Tirupur is immune to the slump — be it a garment exporter or a logistics company, a hotel or a car showroom, movie hall or even a liquor shop. The anatomy of Tirupur’s business is such that all its entities are connected — a cluster business that involves knitting units (900 of them), dyeing and bleaching units (700), fabric printing units (500), garment-making (2,500), embroidery (250), compacting and calendaring units (300), all supported by about 500 ancillary units that help get the final garment ready for shipment. Only 15-20 exporters have integrated manufacturing facilities; the rest rely on specialists.<br /><br />A slight delay in promised delivery schedules in this chain can break the back of any millionaire, reducing him to penury. Buyers normally set a delivery schedule of 120 days for an exporter. If a small exporter fails to deliver on time, his entire investment can be wiped out. And such cases are common in this town. <br /><br />The largest exporter’s turnover is a little under Rs 1,000 crore a year; two other units have a turnover of over Rs 400 crore; two are just above Rs 200 crore in revenues, 10 units net over Rs 100 crore annually. The rest are small- and medium-scale exporters. Overall, there are about 700 exporters in Tirupur. Though no one is ready to reveal exact numbers, but Eastman, SP Apparels, Dollar, Poppy’s, Prem Knit, KPR and Meridian are some of the names that are considered to be the largest ones.<br /><br /><strong>Moving With The Times</strong><br />Challenges are not new to Tirupur. Its tryst with knitwear started way back in 1929. Locals say one Kalam Khadir Sahib had gone to Calcutta that year to buy a film projector with the idea of starting a cinema hall in Tirupur. But he returned with a knitting machine that worked on a bullock cart-like wheel. He and his brother Satar Sahib started Baby Knitting Company, which made vests. By the middle of the 1950s, many knitting factories had come up in Salem and Madurai. A series of strikes in these factories led to the opening of more knitting factories in Tirupur. By 1960, about 230 units came up here and by the 1970s, these composite mills were targeting the domestic market. Tirupur turned to exports in the 1980s and started subcontracting production.<br /> </div><table width="200" cellspacing="8" cellpadding="8" border="0" align="left"><tbody><tr><td><strong><img width="200" vspace="8" hspace="8" height="343" align="right" alt="" src="/image/image_gallery?uuid=203a1374-be48-4918-ab8f-be7fd010bc83&groupId=520986&t=1351249686846" /></strong></td></tr><tr><td>HEAVY LOAD: Businessmen carrying fabric on their mopeds was a common sight earlier</td></tr></tbody></table><div>Verona, a garment importer from Italy, came to the town in 1978 to buy white T-shirts. Realising the town’s potential, the company sent skilled workers the next year to teach the locals how to make coloured garments. In 1981, European retail chain C&A came to source from Tirupur. In 1984, Tirupur exported undergarments worth Rs 9.69 crore. Soon, from producing low-value undergarments and summer wear, exporters moved to high-value winter garments. Exporters, about 30 per cent of whom are originally from north India, now organise two global fairs every year in Tirupur — for summer and winter wear.<br /> <br />While Tirupur was turning into a major textile hub, the town’s infrastructure remained substandard. Ten years ago, it had only two tarred main roads. There were no proper drainage or sewage lines. Small businessmen carrying almost a mini truck-load of grey fabric on small TVS 50 mopeds were a common sight. So were the 500-odd tankers that used to ply to supply water from the faraway Bhavani river to the units.<br /><br />But as the town’s fortunes improved, so did its infrastructure. Now Tirupur is run by a corporation and its roads are tarred and well-maintained. The TVS 50s have given way to mini-trucks and pick-up vans. Tankers have vanished; water comes through a pipeline from the Cauvery river 55 km away and, en route, more than 30 villages are supplied water. Crammed shops selling undergarments by the kilo in narrow lanes have made way for gloss-fronted shops selling branded garments and export rejects. The numerous ISD booths in each lane (where exporters used to queue up at nights to talk to overseas buyers) have also vanished. Multiplexes, luxury car showrooms and good hotels are aplenty.<br /><br /><strong>Overcoming Odds</strong><br />The recent reverses notwithstanding, the town’s entrepreneurs are determined to keep the rosy picture alive despite the challenges. “My feeling is that by early next year, we will be back on track,” says Karthikeyan, a veteran exporter and general secretary of TEA.<br /><br />Sakthivel says they are now devising strategies to move ahead. “Tirupur is dependent on EU and the US for 75 per cent of its business. But there are big opportunities in many other countries and we are going to tap them.” In future, the ideal business mix should be 40 per cent from Europe, 25 per cent from the US and 35 per cent from non-traditional countries, he adds.<br /><br />In July, around 150 exporters from the town went to Japan, a knitwear market dominated almost entirely by the Chinese. “The response is good and the Japanese market is promising as after our Comprehensive Economic Partnership Agreement, garment tariffs have been reduced to zero,” says Sakthivel.<br /><br />About 25 exporters also visited the Magic Fair in Las Vegas and the London Garment Expo in August. There are signs of a revival and Tirupur hopes to get orders soon.<br /><br />In September, Sakthivel and his team went to Israel, a country largely unaffected by the recession. “That market is promising and we have got orders,” says Karthikeyan. Latin America, Australia, New Zealand, Russia and South Africa are the other new target markets. <br /><br />“We have been through many crises and we will prevail; that is the resilience of this determined town which we made from nothing,” says 74-year-old Karthikeyan.<br /><br />Confidence and optimism are essentially what put Tirupur on the map. It’s not for nothing that the town is nicknamed ‘Dollar City’ and ‘Kutti Japan’ (small Japan, drawing from how Japan rebuilt itself after World War II). <br /><br />p(dot)jayakumar(at)abp(dot)in<br /><br />(This story was published in Businessworld Issue Dated 05-11-2012)<br /> </div>
