IOD SPECIAL TALKS - Competition is Global and Relentless in the New Era

It is a pleasure to be here talking to this august audience comprising of policy makers and leading members of industry.

The world which was trying to reboot after the devastating impact of the Covid pandemic, is now teetering with inflation – a by-product of the economic measures taken to combat the disease, and the energy and commodity crisis induced by the war in Ukraine.

As India seeks to develop and strive for a strong and consistent GDP growth in excess of 7%, we need to encourage the Indian economy to advance on the double engine of domestic consumption and export expansion. With deft management by the Government, India is already one of the fast growing economies of the world on the strength of our vast and burgeoning domestic market. I think the country now needs to increasingly focus on export development.

Our exports basket ranges from primary and resource-based exports to low and medium-tech manufacturing (like textiles), high-tech manufacturing, and services. While there is an evolutionary pattern here, India has leap frogged into services much faster than most other countries, leaving a deficit in manufacturing exports. Can we replicate India's remarkable achievement in software in its manufacturing sector?

India set a goal of $400 billion of merchandise exports in FY22 and accomplished it. With policy focus and sector specific targets, India can achieve a rapid growth in exports targeting $1 trillion, while continuing to grow its vibrant domestic economy.

I represent a company that is a leading apparel manufacturer in India serving global customers. We design, develop and produce high quality apparel for fashion, althleisure, outerwear and industrial wear. We employ about 32,000 people, of who over 25,000 are women. And we are growing at 25%. This is a sector that employs over a crore of people, has the potential to industrialise small towns, creates more jobs per unit investment as compared to any other industry and has a high share of revenue disbursed as wages. In short, it is a highly desirable industry for social upliftment. This is a low to mid-tech manufacturing industry that has the potential to drive employment growth among people with just basic education and bring about an industrial work culture in the country, providing spin off benefits for other industries.

Textiles industry is truly global in its outlook. The population of our world would soon be almost 8 billion, 50% of who will be the consuming class. Even as the population age in advanced countries, the consuming class is rapidly growing in developing economies. It will also be aided by a younger consumerist demographic. Today 50% of humankind lives in cities. 66% of total wealth creation is in top 600 cities. If you look at the consumer trend, you will find that they are:

(1) Always on – connected, shopping round the clock
(2) Better informed – online comparison
(3) More demanding – seeking personalisation
(4) More conscious – values oriented, seeking authenticity
(5) Connected – sharing experience on products
(6) More volatile – exercising alternate options which are available on fingertip; &
(7) Price sensitive – especially the growing newer consuming class

The whole rise of fast fashion in apparel is indicative of such trends. The growth in apparel consumption is being driven by mass consumption of cheap clothes, leading to higher apparel consumption per capita. This leads to huge global supply chain implications with more and more garments being produced in low cost countries in Asia and transported globally.

The retail industry, on which we are dependent, is seeing a seminal shift. E-marketplaces are growing at a meteoric pace. Discounters as a format are running up market share and continuing their steady rise across the globe. With mall and department store footfall challenged, all retailers are providing omni-channel options to customers and pivoting to digital market places for direct-to-consumer or buy online and pick up in store models. With burgeoning options, online customers are becoming brand promiscuous. These trends may throw new winners in the retail sweepstakes. Diversifying the customer base, staying closer to customers and being agile in the supply chain is the way to go for manufacturing suppliers like us.

China continues to be a dominant player in the textiles and apparel industry. Their export is valued at about $160 billion, holding around 30% of the global market share, while India at 3% is just 1/10th of China. Despite reduced availability and higher cost of labour, integrated value chain, high productivity and low commercial barriers has enabled China to lead in this sector. Shenzhou International, a vertically integrated manufacturer has a market cap of over $15 billion, comparable to H&M, a large global retailer.

Competition is global and relentless. Customers are fickle and fashion brands are ruthless in their search for product capability, scale, quality and cost. Apparel prices have stagnated globally for years and customers seek labour cost, productivity and import duty arbitrage. The competitive advantage of this industry is determined by the ability to produce trendy designs while maintaining cost-effectiveness. The apparel industry's dependency on labour cost is evident from the multiple shifts in industry base on a global level over the last 50 years to countries that offer cost advantage.

Our task is to create organisations that are sufficiently flexible and versatile to take our imperfect plans and make them work in execution. That requires a learning organisation, not a rigid, hierarchical or bureaucratic organisation.

China has lost about 8-10% of market share in the last 5 years. Higher cost of labour, an aging population and trade restrictions imposed by the US is rapidly changing the industry structure. China's apparel exports which peaked at $193 billion have fallen about 35% in less than a decade. In the last three years, China's share in US apparel imports has dropped from 30% to 23%. India has started picking up its share in the key US and EU markets.

India has a well-developed textiles eco-system which needs to be nurtured. There is hardly any other country to take up the opportunity that could potentially be vacated by China. There are several factors which support a rapid growth of Indian apparel export industry: Global sourcing moving away from China, supplier consolidation towards efficient and well capitalised players, Government initiatives for labour intensive industries, and bilateral initiatives like FTAs.

The mantle of growth needs to be taken up by the key players in the India textile industry. A vibrant industry in India can be created by evolving into top-tier manufacturers globally. For this, we need to:

(1) Keep track of design trends worldwide to co-create products for our customers;
(2) Deliver quality products consistently on time and in full. This calls for a highly efficient manufacturing capability and a supply chain management ability to manage the large number of SKUs that we produce. At any point in time we are producing over 100 different styles in different colours and sizes;
(3) Relentlessly seek cost effective solutions - apparel prices have stagnated for decades and the value chain needs to combat inflation through relentless pursuit of efficiency and accessing structural advantages through production in lower cost locations. Lower cost could be through labour or import duty arbitrage.
(4) Continuously improve lead times to market as fashion cycles are shrinking and production is happening closer and closer to the consumption period. Supply chain and logistics play a critical role in this;
(5) Adopt new practices which are demanded by discerning global customers like sustainability in the value chain - zero discharge, recycle polyester, organic products, sustainable labour practice.

All this while competing with the best in the world and carving out a business space.

So what are the learnings?

The current era is being marked by four significant trends that are disrupting traditional organisations: heightened connectivity, unprecedented automation, lower transaction costs, and shifting demographics. These trends are challenging traditional hierarchies making it critical for organisations to adapt to survive. The fundamental principle of leadership these days is that our task is not to try to make perfect plans. Our task is to create organisations that are sufficiently flexible and versatile to take our imperfect plans and make them work in execution. That requires a learning organisation, not a rigid, hierarchical or bureaucratic organisation.

To thrive, organisations must embrace an entrepreneurial mind-set that promotes experimentation, continuous learning, and collaboration. Organisations that are more entrepreneurial deep down in its DNA will be able to spring back from any setback and prosper.

To thrive, organisations must embrace an entrepreneurial mind-set that promotes experimentation, continuous learning, and collaboration. Organisations that are more entrepreneurial deep down in its DNA will be able to spring back from any setback and prosper.

Organisations should develop a clear and compelling purpose that is meaningful to its employees, customers, and stakeholders. The greatest impediment to achieving a goal is not the obstacles on the path, but the availability of clear paths to lesser goals.

Future-ready companies need to have a clear value agenda, enabling the organisation to have clarity on where value is created within the organisation and what sets it apart from its competitors, leading to powerful results that are hard to replicate.

Companies that thrive in the new normal will distinguish themselves by their culture — the how of any organisation. Culture is critical to creating a cohesive, long-lasting organisation, and it is not something that can be copied. The culture is embodied in the people. So treat talent as extremely scarce.

The world is a difficult place, it is people who make it easy; and that is the new age leadership mantra.

Create micro-enterprises within in the organisation by moving away from complex, hierarchical structures and adopt an agile and flexible organisational structure. The emphasis is on the importance of empowered and connected teams enabled to make decisions in real time. Ultimately, future-ready organisations are designed around people and activities, rather than boxes and lines, giving employees agency and accountability. Organisations that make decisions quickly and with high quality are more likely to outperform their peers, clearly establishing the need to downsize decision "spectators" and right size decision makers.

It is important to embed entrepreneurial spirit in the organisation. One needs to encourage risk taking at various levels and make the organisation risk tolerant. Ideas need to bubble up faster and people need to be empowered to pursue them. The job of a leader in such a scenario becomes that of a champion who fosters creative and entrepreneurial people and put them in charge of various projects, while the leader focuses on removing the roadblocks for the teams to operate.

Embrace enablers like digital transformation. A data rich environment is the fuel for an enterprise. It allows the organisation to sidestep inconsistencies and drives efficiency. And finally, build resilient behaviours that are vital to enduring success – bottom-up innovation, transparency and knowledge sharing within the organisation.

The world is a difficult place; it is people who make it easy; and that is the new age leadership mantra.

Thank you.

*Excerpts from the 'Special Address' delivered by Mr. Sivaramakrishnan Ganapathi, Managing Director, Gokaldas Exports, India at the Opening Keynote Session of (Tristar) Global Convention 2023, held from March 14 – 17, 2023, in Dubai.