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APRIL 10, 2005
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Budget 2005
Online Special

A special Ernst & Young report on the scenario in several sectors pre-Budget, and what they look like post-Budget 2005.


From Start To
Finnish

Finland, like India, has 0.7 per cent of world trade. It leads in communications technologies, from paper to phone handsets, and nearly owns the entire market for such niche products as ice-breakers. It has the hardware competence. India, the software. It is inviting Indian firms to joint hands to map the entire technology value chain—from start to finish.

More Net Specials
Business Today,  March 27, 2005
 
 
RETAIL
Going Shopping With Wal Mart
This year, the world's most feared retailer will source Rs 5,000 crore worth of goods from India. What does it buy, who are its vendors, and what kind of deals does it strike with them?
"We are continuing to expand our supplier relations in India because of the positive response we have had"
Raymond Bracy
VP (International Corporate Affairs)/Wal-Mart

Last July, when Wal-Mart first approached Himachal Pradesh-based pa Time Industries to source inexpensive watches, it went about the task quietly and methodically. After checking out the company's manufacturing unit up north to start with, a team from Wal-Mart sat down with pa's marketing honchos and went over product costing, component by component. Where are the movements sourced from, how much does the steel cost, what about the plating... Next, Wal-Mart's director of finance flew down to Bangalore for a presentation, followed by the product head. That done, another team of inspectors paid a visit to the company's factory to look at its work practices: are the workers being paid fair wages, are any children being employed illegally, do working mothers have a crèche facility... Eight months on, pa's sample watches are being tested at Wal-Mart's technical factory in China. An approval is expected in April this year.

If PA, which sells its watches under the Maxima brand and claims to be the second-largest manufacturer after Titan Industries, is putting itself through an elaborate approval process without as much as a whimper, it's because of the buyer in question. With annual revenues of $256 billion (Rs 11,26,400 crore, that's a little more than a third of India's GDP or gross domestic product), the Bentonville-based retailer is the world's biggest. Getting a foot in the Wal-Mart door can, quite simply, transform the fortunes of a company. Take pa as an example. While Wal-Mart hasn't confirmed how many watches it will be buying every year, it has indicated that it could be in excess of 1.5 million pieces-that's almost as much as the Rs 65-crore company sells in India every year. "Wal-Mart approving your quality and pricing means that you can easily become a global supplier," says Manoj Sharma, Deputy General Manager (Product Development & Marketing Co-ordination) of the company, which hadn't thought of exports until it started talking to Wal-Mart.

A preferred supplier to Wal-Mart, Trident plans to invest Rs 350 crore to triple its terry towels production capacity
Rajinder Gupta
CEO/Trident Group

Happily for manufacturers in India, the retail behemoth is stepping up sourcing in the country. Last year, it bought $300 million (Rs 1,320 crore) worth of goods directly, and this year the figure is set to jump to $400 million (Rs 1,760 crore). There's another $800 million (Rs 3,520 crore) worth of goods it will be buying indirectly. The total figure of $1.2 billion (Rs 5,280 crore) may still be minuscule compared to the $12 billion (Rs 52,800 crore) it spends shopping in China every year, but there's little doubt about its intentions. After basing its Asia sourcing operations in Hong Kong for 25 years, Wal-Mart opened an India office, which now boasts 50-plus employees and buys from nearby countries too. Says Raymond Bracy, VP (International Corporate Affairs): "Wal-Mart is continuing to expand its supplier relations in India because of the positive experience it has had (so far)."

At present, Wal-Mart sources a raft of products from India. These range from cosmetic jewellery made by women volunteers at the Tegh Foundation in Uttar Pradesh to pens made by Linc Pens to terry towels manufactured at Trident Group's Ludhiana factories. With Indian vendors willing to work with Wal-Mart on quality, costs and manufacturing, the retailer is looking to widen its India basket. Marine products, over-the-counter drugs, spices, electrical products, garments and Indian foods are reportedly on its shopping list.

Liberty started by supplying EVA-soled shoes to Wal-Mart, but is now moving into sports-shoes and beach-shoes
Adesh Gupta
CEO/Liberty Group

"Everyday" Challenge

At Bentonville, India is not just seen as a back-up to China, but a country that has its own set of advantages. In several categories such as footwear and jewellery, India has a distinct edge over competing Chinese suppliers, both in terms of volumes and production skills. Sources say that a high-powered team led by Wal-Mart President & CEO, Lee Scott, was choppered into Jalandhar and Karnal to visit factories of Liberty Shoes and Bawa Shoes, and tie up large sourcing deals with them, especially in areas such as injection-moulded footwear. This technology allows multiple designs and colours to be produced in a short span of time. "India has a history of 25 years in injection-moulded footwear compared to three years of China," says a manufacturer.

The Uttar Pradesh-based Tegh Foundation supplies cosmetic jewellery to the retail behemoth
Kavinder Khanna
Head/Tegh Foundation

Doing business with a retailer that's actually helped curb inflation in the US is anything but easy. "There isn't much room to manoeuvre with them... they look for large volumes and strip you down to the bone in terms of margins," says the head of a large retail company. There's an elaborate factory certification programme that suppliers must subject themselves to. Wal-Mart's inspectors spend up to 12 days a month combing through factory premises, looking for even the smallest slip-up. "They look through everything, beginning from your overall capability, effectiveness of pricing, ethical standards and supply chain set-up," says Chand Bhalla, Managing Director of Mayur Overseas, a supplier of women's apparel.

Just the same, everyone's tripping over themselves to scale up operations with Wal-Mart in mind. The Trident Group, a preferred supplier of terry towels, plans to invest Rs 350 crore in tripling its production capacity from 9,000 tonnes to 30,000 tonnes per annum, besides spending $10 million (Rs 44 crore) or so on acquiring towel brands in the US. Welspun, another supplier, is in the process of doubling capacity to 100,000 towels a day and is building a $110-million (Rs 484-crore) bed linen factory. Linc Pens and Plastics, which sells an estimated 30 million pens a year to Wal-Mart, has tied up with Mitsubishi Pens of Japan for technology, and Liberty Shoes is reported to be designing a range of beachwear and sportswear for the retailer. Liberty will also begin production at its new facility in Uttaranchal, where 25,000 pairs of footwear can be made daily, according to sources. Says Linc Pen's Managing Director, Deepak Jalan: "With the demise of quotas, Indian vendors should pick up more business with Wal-Mart."

If that happens, convincing other global retailers to start shopping in India would be a cinch.

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