Gaining Lost Ground

Lakhan belongs to that genre of industries which have been caught between a wedge of slow moving high-cost infrastructure and progressively increasing competition. Unfortunately, a holistic national approach is lacking for the Indian textile industry. The Textile Policy, as announced in 2000, is an expression of good intent, but does not have the mechanism for the deliverables. The absence of such an integrated policy approach makes companies like Lakhan highly vulnerable.

However, at the micro-level, Lakhan must become competitive. There is simply no choice. And it can do so only by moving into value-added niche markets through the route of joint ventures and strategic tie-ups with world-class, cost-effective Asian producers: access to global technology is imperative in enhancing product quality.

Lakhan should also leverage the brand name of its JV partner to enhance its own brand value at home and abroad. The company should specifically target the high-end niche market segments in order to exploit some of the advantages it has already built-up, such as focusing on cost-reduction, concentrating on value-added exports, modernisation, and serving value-added segments. It is only through these options that Lakhan would be able to hedge the risks involved in entering into head-on competition with the low cost producers of South-East Asia and China.

But it is not enough, in the changing business environment, for a company to be competitive. It must be ''competitively WTO compliant''. This can be achieved by starting a systematic campaign of WTO awareness within the organisation and conducting a WTO Audit by a qualified external agency.

While WTO awareness will lead to an all-round understanding of the uncertainties arising due to WTO imperatives, the WTO Audit at a company level would confer on the company a Global Competitiveness Score. This will eventually lead towards a strategic action plan aimed at increasing its competitiveness over a given period of time. In fact, such exercises should be of the nature of a 'rolling plan', without which the company would not be able to target its achievable parameters.

Lakhan's approach must have a long-term focus since tariff barriers in India will be progressively reduced. The two-pronged strategy outlined above will build upon the company's strengths, leverage its JV partners' technology and brand image, and help it to develop its domestic and external markets. It would also help Lakhan to focus on improving its core business processes and gain competitive advantage by producing quality products, which at the same time would meet WTO stipulations.

• Lakhan Mills faces a crisis. But it should work towards converting this into an opportunity. I suggest the following course of action.

• Cotton is a commodity in which we have a natural advantage. Lakhan should seriously examine changing its product mix towards cotton-intensive products.

• The supply-chain for the company's domestic-market offerings must be strengthened. It would be worthwhile to leverage the partnership concept here. When you work closely with your partners, you can identify several areas where costs could be minimised on both sides. The same approach would be applicable towards managing dealers and distributors.

• Lakhan should fully exploit its competitive advantages in flexibile manufacturing and shorter production cycles. Reduction in response times would bring down the cost of inventory.

• Niche markets do not remain niche for long. Competitors are bound to catch up. Innovation should therefore become an integral part of company operations. This can be done in many ways. For instance, Batliwala must ensure that new products comprise 20 per cent of the product portfolio every year. The product mix must be changed so as to create a value-perception for new products. In fact, a large chunk of profits must be generated from newer products every year.

• Quick turnaround of inventory must be set in motion at all levels of manufacturing and distribution to reduce pressure on working capital. This will bring down interest cost. It will also eliminate the need to reduce prices of old and dead inventory.

• Batliwala must initiate regular training programmes aimed at changing the mindset of people at Lakhan. This is particularly required for middle-level managers and workers. They must be trained to look beyond the routine and develop a global perspective of the company's business.

• It is equally important to track new market opportunities in terms of changes in fashion trends. Each change must be not only foreseen, but acted upon quickly so as to reap the advantages of being there first.

• Alliances are important. But they must be confined to mass production items alone. Care should be taken to ensure that each alliance with a competitor in the Asian region safeguards Lakhan's own backyard. There is no way the company can compromise on its domestic turf. There should be a restrictive clause that prevents the alliance partner from invading the company's designated markets and territories. The partner should be given local market expertise in exchange for new product ideas.

• TQM initiatives are continuous processes. They may be time consuming, but they should be ongoing. Lakhan needs to focus on timely delivery and shorter cycle time; smaller batch sizes (to be accepted only at higher margins); and larger number of SKU (stock keeping units).

• Fabric loses identity when converted into garment. A branding exercise may not help much, but moving up the value-chain in ready-made garments does. This is a time-consuming exercise and cannot be a quick solution. The move towards retailing should be gradual. It should be undertaken so as to gain margins and reach customers faster. Global aspirations at higher end of value-chain can then be initiated with products based on cotton (which comes with a natural factor advantage).

It looks as though Batliwala and his team feel they have exhausted all possibilities for cost-reduction at Lakhan. This is wrong. In an ongoing business, opportunities for cost-reduction present themselves every day, and in every single operation. What if the management's perspective of cost-reduction changes from cutting expenditure to enhancing the productivity of every single resource within the company. It opens up a whole new world of possibilities. Or supposing Batliwala and his team look at all non-core activities of the company, as part of outsourcing them gradually. This again opens new doors. All you need is a change in mindset .

It is important for Batliwala and his managers to concentrate on volumes. In fact, I have often noticed how managers of Indian textile companies are enamoured with the premium end of the market. They see glamour in niche segments. They also see higher margins there. I think this obsession with a small, but no doubt profitable, part of the market undermines the basic viability of the business in the long run.

In the long run, there is money only in volumes. Value-added niche marketing can only be a tactical approach. It is not a sustainable proposition. Since technology is usually the basis of that proposition-and technology is easily duplicable or is available for a price-competitors will catch up sooner or later. It is only mass marketing that provides a strategic direction and thrust for a company. Volumes will automatically cut costs and ensure profits. That is what gives depth to a company's strategy and makes it strong from within. It also generates an enduring commitment on the part of the dealers, distributors, and of course, consumers that can ultimately act as an effective entry barrier to competitors.

One of the priority areas for Lakhan is strategic alliances with overseas textile firms. There are several countries-like South Africa and Bangladesh-which enjoy the status of the most-preferred trading partner with countries like the US. It makes sense for Lakhan to lease manufacturing facilities in such countries and export to the US and Europe from there. Mills in these countries would be too glad to partner with well-known Indian textile firms.

It would also be worthwhileto examine the possibility of backward integration into the cultivation of cotton. Land laws in India are still not amenable to such an approach. But it may not be a bad idea to forge relationships with major cotton growers. In fact, Batliwala would do well to strengthen the various elements of the supply-chain at Lakhan. A control over the supply-chain gives the company a tremendous staying power.

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