Exporters eye local market to hedge risk

The country's garment exporters are now diversifying into the local markets. This is not only because they have realised their potential now.

By entering the domestic market, many of them are already hedging their export margins that are under pressure.

With the removal of quota, both the advantages of exports and the disadvantages of the domestic market are being neutralised. Many garment exporters are currently planning a local presence by supplying their products to organised players, or launching their brands, or opening retail chains.

"(In the quota-free regime) only top-end exporters or small boutiques, which have something special to offer, will survive. It's indeed becoming tough for small- and medium-sized exporters," said Premal Udani, president of Clothing Manufacturers Association of India, and MD of KT Corporation.

There are quite a few factors. First, that China will become quota-free by the end of 2007 will lead to stiff competition, putting high pressure on margins of the country's garment exporters.

Second, the number of importers is dwindling as even foreign buying is going directly to the hands of retail chains. Again, garment is not a hi-tech commodity, so exporters are finding it difficult to get higher prices.

"For small- and mid-sized exporters even dealing with buyers like Wall-Mart "� meeting their quality standards and sizes "� is becoming difficult," Udani said.

"Export margins have been squeezing of late, as income-tax incentives are being reduced. For instance, in the post-quota scenario, income from quota premium is not available; competition from local players is intensifying; the disadvantages of the domestic market are disappearing with garment manufacturers having started to take business more seriously," Rahul Mehta, MD, Creative Garments, said.

In fact, organised retailers' demand for branded and designer garments is now huge, and exporters are better off catering to their requirements such as quality checks, sophisticated business skills, warehouse facilities, and so on.

Even buyers in the organised sector now prefer to deal with exporters rather than domestic suppliers. So, if exporters introduce their own brands, they can get margins that are higher than those for exports, he said. Thus, in that sense, exporters are obviously positioned better than local suppliers.

In fact, many exporters are scaling up production capacities to make most of economies of scale, and a part of their production is being diverted to domestic market.

"This is to tap the opportunities and potential in the local markets," said Raju Goenka, chairman of Texport Syndicate.

Let us see how several exporters are taking various routes to leverage the local market advantage.

Texport has introduced the SEPIA brand, and has recently opened its first store in Atriya Mall. It will have 20 stores and 100 doors by the end of 2007. (Other stores which sell the product are known as doors.) Under the SEPIA brand, garments designed by famous designer Priyadarshini Rao will be sold.

According to Goenka, while selling in the local markets, exporters have the edge in terms of sourcing of good quality fabrics, high production capacities, knowledge of international designs and trends.

While Creative Garments has also launched its brand, 109F, another exporter, Orientcraft, has kicked off its local supply.

KT Corporation is selling its T-shirts in the domestic market without any brand. Similarly, some exporters are selling their products to local players, who sell these good-quality garments under their own brand names.