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Textiles, BPOs & more... - Views on News from Equitymaster
 
 
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  • Sep 4, 2008

    Textiles, BPOs & more...

    Textiles in trouble, in India and China
    The fastest and the second fastest growing nations in the world, India and China, have more in common besides their populous demographics. These countries are both the largest manufacturers and exporters of textiles thanks to their skilled and cheap labourers.

    Over the past decade, as the divide between the compensation levels of workers in the East and the West became wider, there was drastic migration of textile production from the US, Europe and Japan to countries such as China, India, Pakistan and Bangladesh. This was also due to the fact that some of the latter were the largest producers of cotton and silk. Currently, more than 70% of world's cotton is consumed in Asian countries, with China holding a dominant share of 42%. China and India, particularly have become the largest exporters of superior quality fabrics and made ups and are also the sourcing destinations for some of the best-known brands globally.

    However, what started as an advantage is now becoming the reason for adversity as mindless and highly leveraged capacity expansions have landed the textile manufacturers into trouble. Particularly denim, which has a vast unorganised market, has lost its pricing power with global capacity (7.7 bn yards) far outstripping its demand (6.5 bn yards) per annum. While Indian textile manufacturers are bearing the brunt of high leverage cost and shortage of power supply, the Chinese ones are losing their competitive advantage of cheapest labour cost to other emerging producers such as Bangladesh and Vietnam.

    The revered Chinese textile industry is reeling under an 18% rise in the value of its currency since 2005, as well as higher costs of labour, fuel, electricity, chemicals, cut in domestic tax rebates and pollution curbs. Labour costs in China are now double those in Indonesia, Vietnam, Pakistan and Cambodia. Many mills have been forced to switch from exports to domestic sales, which now account for 79% of production. In addition, big retailers such as Wal-Mart have developed distribution channels around the world, which has lent them enormous bargaining power, thus squeezing the margins of manufacturers. Its time for Indian textile companies to do some rethinking before things get worse for them as well.

    Attrition rates mar BPOs
    Known as the back office of the world, India positions itself firmly amongst the fastest developing nations in the world due to its USP of offering high quality services at cheaper rates as compared to those in the developed nations. However, the BPO Special Sector Survey 2008 reveals that attrition rates in India's business process outsourcing (BPO) industry are about 7.8% higher than in other industries. The report states that in general, staff turnover in India is 15.7%, but in BPO companies, attrition rates are at 23.5%, followed by Communications (22%) and Retail (18%). The report explained that one of the factors of employee dissatisfaction is that the remuneration structure design is not as attractive when compared to other industries in India. This coupled with working shifts, lack of career development and monotonous tasks has led to high turnover rates.

    The BPO industry is a critical sector in the Indian economy, valued at approximately US$ 11 bn and employing over 2 m people. However, if the industry is to achieve the projected US$ 30 bn size by 2012, it will have to tackle this talent attrition issue more proactively.

    Life after Reddy
    Dr. Y.V. Reddy's replacement as the governor of the central bank has kept people debating as to whether the new governor will use the same monetary tools and have similar inflation handling strategies as the incumbent one. However, what is not being highlighted is whether or not the new governor will stick to the reformist measures adopted by the governor with regard to creating a roadmap for foreign players, consolidation of the industry and making the PSU banks more efficient and accountable. Thus, it is for us to see in which direction the new captain of India's financial governance vehicle steers the wheels.

  • Also read - A change in guard

     

     

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