Talking of apparel exports, here’s a flat question: what is the broad picture that you see?
There is a big company in Hong Kong called Esquel, which was doing 100 million shirts and has now run into problems. Their containers were not allowed into the US. They were a dominant player in the mid-to-premium segment. They had spinning mills in the Xinjiang region from where cotton has been banned (into the US), and they are in big trouble. People were alleging that they were using forced labour and so their goods were banned. Now, there is a huge vacuum of a 100 million shirt capacity that has to be replaced. Hugo Boss was buying 2 million shirts from them, and in another two years they want to get out of there (China). So, they were desperately looking for people like us.
After COVID-19, especially in the formal shirts segment, many shops in the West did not have a white shirt. People had not bought formal shirts because of work-from-home, but when everything opened up, there was a spike in demand. We are—perhaps for the first time—in a situation where customers are queuing up, begging us for capacity because of which our constraint is now about building up production capacity. We have been doubling capacity every two years.
Events like wars, etc, will affect demand and supply here and there. But the big picture is that China which was a dominant player is under pressure and buyers are desperately looking to diversify risks. India has suddenly become very important as it is the only place to have a large vertically integrated textile chain after China. Countries like Bangladesh were getting fabric from China and now people are turning to India—but India does not have the huge capacities. Plus, because of COVID-19 many factories have shut down and so capacities have obviously come down as well. Brands are looking at companies that have established themselves in the last 15 years in certain categories—a company like ours; they know our reputation. So, they are coming to us. This is the broad picture.
Where is it that India is missing out?
India is not equipped to meet the high demand. Some companies will ride on the opportunities and grow and establish themselves in the global market; some will slip. This window of opportunity will not last long. Other countries are also building up capacity quickly. People are realising that just depending on China or Vietnam or Bangladesh is risky. Sri Lanka too is in a financial crisis. Vietnam had COVID issues. China has been blacklisted, and so buyers want to diversify. Their thought is they were not buying much out of India, but let’s give 5% of our requirements to India which in itself is too much. So, the well-established who have capitalised well stand a very good chance to grow.
Opportunity India again, but India keeps on losing out on them. Do you think India will once again lose this opportunity or it will buck up and catch up?
Players that are well established like Arvind and Vardhaman do not know what to do with the demand. Say, the yarn business—because cotton from China is being blacklisted, there is a huge demand from India. Cotton growers don’t know what to do as they have run out of cotton. Prices have gone up dramatically. In terms of garmenting, many units—even of established players–have not fared too well. But the Eastmans of the world are well established in garmenting and so they are growing. Now, is there going to be an improvement? Yes. Because some of the capacity has come down because of COVID-19. Earlier, China and Bangladesh were dominant players and extremely competitive. They were giving prices we could not match. Now in spite of the competitive pricing, Bangladesh is choc-a-bloc and has run out of capacity. China as I have been reiterating is in disfavour. So, the pressure is high not only from the market, but from the environment too. I can’t predict what will happen in a few years, but we see it as a very good opportunity.
Cotton controversy. How is this going to impact India?
The cotton from Xinjiang is problematic. At the global level, retail customers are becoming more knowledgeable and demanding and asking for transparency in the supply chain. It is not that I just give you a shirt at a good value and quality. They now want to know where the cotton came from, where the yarn came from, was the labour at the yarn unit being exploited, is there a sustainability element—these things have become increasingly critical. Earlier at the retail level, there was a lot of greenwashing being done because people did not trace back. But now, controversies are erupting. So again, there is an opportunity. If a company is going to be proactive and demonstrate to the market and customers that they are serious about sustainability and traceability, and have the highest standards, they will have a cutting edge. People will say I don’t mind paying an extra dollar to these suppliers because I know they are honest and reliable suppliers.
