Investing In Textile Companies

Textile Business – Run After Only Profit and Be Out of Business Soon

Tighten your seat belts before we take off to discuss this topic that needs a lot of guts to be digested by conventional wisdom of running a business. After all, a business is meant for making money and the headline appears to be exactly opposite to that belief. Rest assured, you will have a pleasant flight because I do not discuss theory and my domain is where the rubber meets the runway and the wings shear through the clouds of ambiguity. Here we go .. to the cruising height with some simple questions and no brainer answers.

* Who decides whether you can sell? You know the answer – it is the customer.

* Who takes decision whether to buy a product or service at a certain price, even at a premium? Easy answer – it is the customer.

* Does a customer care whether you sell more or make profit? Heck – No. He/She does not give a damn about your financial goal.

* When you buy a product, say – from Sony. Why do you buy? Because that product fulfills your perceived needs more than other competitors of Sony, Right?

* Do you buy your bottle of Pepsi or a Pizza to quench your thirst or appetite, to make Indira Nooyi reach her profit target or Pizza Hut expand their business? No need to answer.

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All those are glaring example that customers ‘buy’ to solve their problems, not to help the supplying companies make money or sales.

From a height of 35,000 ft., look at the ground.

A successful road side fast food corner stall owner focuses on getting her dishes right in terms of quality, at a correct speed to match the demand at different points of time during the day, at a right price. Her entire efforts – the purchase, storage, cooking, serving, financing, accounting, advertising, retailing skills … all are centered around one critical goal that is, to get and retain customers. She knows that whether she would be ‘in’ or ‘out of’ business depends on the ‘image’ (brand) of her establishment in the eyes of her customers.

I have shown the example of a grass root level of successful business and though a roadside stall only to emphasize that it does not need complex thinking genius if the sale and profit are viewed as ‘effects’ of passionate and emotional focus on solving customers’ problems.

What do we see when looking at the textile units in our country? There are very few, who have infused the customer centric approach into their culture and are successfully making profits. I have seen some of them have not even ‘modernized’ under the TUF scheme! Their order books remain overbooked whether there is recession, draught, flood, dollar rates going up or down or whatever reason – they sail through all the ups and downs.

On the other side, there are highly modernized units that have half baked approach to the business. With the sole purpose of increasing the top line and bottom line by any means, they want to ‘recover’ the invested money as fast as possible, neglecting the very soul of the business, that is, the customers and development of an emotionally charged up team to look at the customers’ problems and solve those issues with passion.

Many of those profit oriented units went public, hoping that more fund would give them edge over competition due to advantage of scale giving lower cost of production. Nothing wrong in investing more money if we think of generating capacity of employment. Money can provide the physical infrastructure of an organization. But there are other two essential infrastructures which have been neglected by those companies because they seem like ‘unnecessary’ in a traditional business mind. Those are the intellectual infrastructure and the emotional infrastructure.

How many textile companies we have that have developed any intellectual properties over their long existence? Not many patents, copyrights, research leadership contributions we can see yet in this industry.

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Emotional foundation is an assembly of the shared consciousness of an organization that binds everyone within and outside different teams and holds everyone together. This is something that can not easily be developed without the active involvement of the top management. In India, excepting Madura Coats Pvt. Ltd., I am not aware of any such companies having an edge in this area as example.

The effect of ‘invest-sell-earn profit-run away’ kind of approach is very pathetic as I have seen along the way. Before landing, let us take a close look.

In many interviews for the post of a marketing chief, a popular (and often first) question is – "how many meters of fabric can you sell?" If the answer is something like "one hundred thousand meters per day and more" and if shown with some kind of statistics, the candidate is normally immediately selected. The conversation may not be exactly the same as I am writing, but de-facto this is an almost sure shot way to a land a job there.

By chance, if the candidate asks questions "what is your vision for this business over the next 5 years", followed by little more probing questions, then the situation becomes uncomfortable because the ‘interviewer’ might not have a long term practical vision at all! This example is not specific and there are good visionaries who will encourage such questions and favor such candidates but almost all losing units feel uncomfortable answering such candid questions because they actually never felt the need of building up customer orientation excepting knowing that they have to make money as the only goal.

What happens to such units?

A marketing head is treated as sales representative. He has to fill the vast capacity on his head. Existing customers do not want to book in advance what the mass producing units can churn out. Hence the manager books the capacity with ’safe’ and low margin items. Once produced, those are sold at whatever best price those can fetch from the stockists just to have cash flow. Since those goods are produced by every other units (all having same policy), the market is overstocked. Hence the stockists arm twist the manager to reduce prices and extended credit. Some shrewd stockists make a contract to book long term at even lower price. Thus the very ‘profitability’ gets eroded. There is no time or money to do market research and product development. If something is copied from the market trend, new qualities get introduced. The profit gets slightly improved but within short time everyone copies the product and scenario goes back to square one. It is a vicious cycle of stock building and liquidating. Result is, no profit at the end of the day.

Hope, by now, I have explained why most profit oriented investors

In order to reverse the trend, the industry should:

1. Keep the customer in mind first, second and third. They should not run after each and every type of customers.

2. First build the infrastructure before starting the business. All 3 infrastructures as mentioned are essential to stand on a long term basis.

3. Should focus on building customer base instead of just manufacturing and counting costs every day.

4. Understand customers’ requirement and innovate to find solution through the business rather than working the other way round.

5. Employees should be treated with respect and provided with necessary equipment. Creating an emotional bonding among them is a must, not an option.

Author: Arun Chattopadhyay

There are two more secrets that I shall discuss in a later posting.

Arun Chattopadhyay Specialist in Indian Textile Industry http://indian-textile-industry-blog.com

Article Source: http://EzineArticles.com/?expert=Arun_Chattopadhyay

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