Tiruppur ‘exports’ garment units to Ethiopia, Sri Lanka

Tiruppur, India’s knitwear hub known for its cluster units, seems to be crumbling slowly.

The multi-crore industry, which faced the brunt of demonetisation and GST, is staring at near existential crisis with many garment manufacturers opening their units in far-away Ethiopia and neighbouring countries like Sri Lanka that provide free access to major markets like the US and EU (European Union).

In the past six months alone, four well-known garment manufacturers who excelled in the sector for decades together have opened their factories in Ethiopia, which offers excellent infrastructure facilities to those starting their businesses, while one has gone to Sri Lanka. While a few manufacturers went to Bangladesh in the past, many are now turning to another neighbour – Sri Lanka, which has a geographical advantage over others since the flying time from Coimbatore to Colombo is just 70 minutes.

Why are they shifting?

Most manufacturers who have opened their factories in foreign countries cite cheap labour, free market access to EU and US, readily available infrastructure facilities and absence of red-tape as major reasons for their move.

In India, they say, lack of support from government machinery and too much of red tape hinders smooth running of businesses.

The move comes even as the industry, which was growing at more than 10% every year, reported a 7% dip for the first time since 2011, resulting in loss of a whopping Rs 2,000 crore. The exports, which were valued at Rs 26,000 crore in 2016-2017, fell to Rs 24,000 crore in 2017-2018 and the domestic sales stood at around Rs 18,000 crore.

India does not have free market access to EU and the US – major buyers of garments – and this puts manufacturers in Tiruppur at a disadvantageous position since entry tax is levied once goods reach the destination countries. While Bangladesh and Sri Lanka have free access to the EU, Ethiopia offers free access to both the EU and the US – making these countries “better clients” for buyers.

“The latest trend of companies from Tiruppur opening their units in foreign countries is alarming as it hurts the Indian industrial climate and the economy. This industry would thrive as long as mankind exists and there should a holistic approach towards saving this industry here in India,” Raja M Shanmugham, President of Tiruppur Exporters’’ Association, told DH.

Shanmugham said the problems faced by the knitwear industry in Tiruppur have been “capsulated” by countries like Uganda, Ethiopia, and Kenya who are eyeing the lucrative garment market. Trade and Industry delegations from these countries visited Tiruppur in the recent past with assurances that they want to build “new Tiruppurs” in their respective countries. Garment manufacturers want free access to EU and other major markets and ask the government to conclude FTAs and operationalise them. They also want the incentive duty drawback restored back to the earlier percentage of 7.6 which was reduced to 2%.

S Balasubramanian, Managing Director of Jay Jay Mills, spoke in detail about hurdles being faced by manufacturers in servicing a customer in India and says despite “serious civil unrest” that is quite common in African countries, factories don’t lose their working day unlike in India. “Customer service is paramount for us. We went to Sri Lanka way back in 1998 and launched a factory in Bangladesh in 2009. Only a few months back, we went to Ethiopia mainly because of free market access to the US. Since a majority of our buyers are in the US, we decided to move to the African country to serve our customers much better,” he told DH. Opening factories in far-away countries brings in a lot of exposure to garment manufacturers and allow them to learn better market practices that prevail across the globe, he said. “It is quite easy to do business in countries like Ethiopia where they have dedicated export processing zones besides the lucrative free access status,” he added.

R Rajkumar, Managing Director of Best Corporation which has set up a factory in Hawassa in Ethiopia, told DH that while the labour cost in Tiruppur is $150 to $200 (between Rs 11,000 to Rs 15,000) a week, it is just $75 (Rs 6,000) in Ethiopia. While in India, they hire separate labour for stitching packing and so on, in foreign countries they train their labour to multi-task, saving much more on the cost involved.

Plug and play model

In Ethiopia, the government keeps ready the infrastructure for the garment manufacturers – all they have to do is to go with their machines, hire employees, train them and have their factory up and running. “The plug and play model is what attracts manufacturers like us. We don’t have to go through the hassles of looking for land, constructing a building and get permissions. Everything is done by the Ethiopian government and all we have to do is to start our operations once we are there,” he said. Rajkumar, who launched operations in Hawassa in Ethiopia a couple of months ago, says they are running the show currently with 500 machines in two shifts.

“Our plan is to have a total of 2,000 machines and we will reach the capacity gradually. Though there are challenges in training the labour, the infrastructure available makes us forget everything else,” he said.
Only the factories have shifted to foreign countries, but the raw materials are still produced in Tiruppur and taken to these nations, the manufacturers say. N M Ravichandran, a partner of Santex Inc that has opened a factory near Kandy in Sri Lanka, says free market access to the EU lured him to the neighbouring country.

“Since it is a customer-driven industry, all we need to keep in mind is the needs of our customers. We launched just four months ago, and we are very happy with the way things are moving,” Ravichandran said.

Another advantage that Ravichandran cites in having a factory in Kandy is that they could employ Tamil-speaking people in their factories.

“In Tiruppur, we need to hire labour separately for stitching, packing and so on. But in Sri Lanka, we have trained our employees in multi-tasking and they do almost everything which works into our advantage,” the exporter said. Shanmugam also rued the indifferent attitude of those in power and bodies that represent industries towards Tiruppur and its clusters. “When ambitious entrepreneurs go and propose innovative ideas and seek some support, we are looked at as if we seek alms from them. That attitude has to stop if Tiruppur has to remain relevant in the global market,” the president of TEA said.