The smaller units are applying both strategic and tactical shifts to fight the slowdown.
The micro, small and medium enterprise (MSME) textile cluster in Ludhiana, Punjab, has rewritten some of its practices to adjust to the global recession according to the findings of a study commissioned by the International Labour Organisation (ILO). The study was conducted in June by the Federation of Indian Micro, Small and Medium Enterprises (FISME) in association with Market Insight Consultants.
The study found that the cluster suffers from a serious shortage of labour. Anil Bhardwaj, secretary general of FISME says: The key finding of the study is that there is a serious dearth of employable people.
The labour shortage was found to be a result of the National Rural Employment Guarantee Scheme (NREGS) which led to reverse migration of labour to the rural areas. About 5-15 per cent of the workers are from eastern Uttar Pradesh, Bihar and West Bengal and prefer to work closer to their villages. The study notes that there is a need to enhance the Ludhiana textile cluster s attractiveness, to attract migrant labour from other states.
Other factors causing labour shortages were the growth of SME clusters in Kolkata, and growing demand for manpower in Uttarakhand. Machinery at the units was lying idle due to the insufficient availability of skilled labour, the study says.
The cluster has sought to cope with the recession which led to cancellation of orders and a pile-up of stocks of both raw materials and finished goods, uncertainties in future contracts, and delays in payments for goods exported, the combined effect of which was erosion of profits through both strategic and tactical responses.
The strategic shifts have taken five forms. The first is a higher focus on the domestic market. Second, those with diversified businesses began investing more resources in other ventures and reducing their focus on textiles.
Third, the larger units in search of higher margins are attempting to build their own brands in the domestic market, though few have yet managed to gain competencies in retail marketing. Fourth, cost-cutting initiatives through process optimisation have been set in motion (this, too, is restricted to the larger units in the cluster). These efforts have taken the form of de-bottlenecking, mechanisation, multi-skilling and target enhancements.
The fifth strategic shift was an effort to train unskilled workers especially the unskilled female workforce. The study observes that the enterprises effort to invest in the training of young females is apparently facilitated by the female workers desire to save money for their weddings; however, infrastructural inadequacies and the high payback time are acting as impediments.
Tactical shifts have taken four forms, according to the study. Firstly, wherever possible the SMEs have countered the pressure of delayed payments from their customers by merely delaying their own payments to their suppliers. Secondly, they have shown a willingness to renegotiate contracts, trading in profitable contracts for assured orders.
Thirdly, textile units have changed the formula for bonus payments from a fixed basis to a per-piece, productivity-linked basis. Fourthly, they have seized the opportunity offered by the recession to downsize manpower levels, retaining only the more competent personnel (though the respondents never openly acknowledged this).
The study recommends that the industry, its representative associations and the government should come together to educate, train and promote local labour to reduce the dependence on migrant labour. There should also be special schemes for female trainees, including subsidies to recognised NGOs. The government should make significant investments in local training institutes and open PPP model-based institutes for developing highly skilled labour, the study suggests.
The cluster s overall dependence on exports is a moderate 15-20 per cent, with only about 25 per cent of the MSMEs involved in direct exports. That s why, says Bhardwaj of FISME, the impact of the recession has been very brief on Ludhiana, compared to the Tirupur textile hub in Tamil Nadu.
The vast majority of textile units in Ludhiana comprise contract manufacturers that supply only to larger firms or the domestic market. The cluster consists of about 10,000 units (of which fewer than 50 are large) and has total revenues of some Rs 10,000 crore.
The study was based on face-to-face interviews with a cross-section of 20 micro, small and medium enterprises; employer networks and associations; worker groups; banks, financial institutions and government agencies; and support service providers such as transporters.
