I got an SMS last night, which is more like a SOS. It is about the disastrous situation in the industrial situation in Coimbatore.
It read:
"The land is purchased at inflated prices. The machinery is bought at high costs, giving the manufacturer of machines bigger profits. The banks readily gave money for the above expenses. The mills made high profit as long as the tide ran their way. They reaped the profits, and ploughed it back into the business dreaming more profit, and this created more intense competition.
Today there is higher production than before but the demand has remained the same. Because of competition, the mills have to reduce the price of the yarn. Since this automatically shrinks their margin, they now find it difficult to make profits even at the low 4% interest rates at which they have borrowed money from the banks. They just about break even.
Now comes the difficult period. The price of Cotton has increased due to export demand, but the cost of yarn has not increased because the export demand is less due to recession. The mills have begun to run at loss. If they don't function, the loss will be more, because they can't make loan repayment, and their debts would mount.
Today, the biggest industry, the greatest employer in Coimbatore faces closure. LMW, the major textile machinery supplier has declared lay-off. How will their workers survive? Millions will be rendered jobless. Their livelihood is at threat. If crime rate increases, who is to be blamed?
Had there been control over the land rates, the profit margins and a vision of limits to growth of the industry, the industry would have survived and would have continued to feed its millions of workers. Now the golden goose is facing extinction".
SHOULD WE BE DISCUSSING THIS?
C.P.Snow expounded a two-culture theory.
Similar to it, today there is a breakdown of communication between specialists and commoners like me. We don't think we are competent to read and comment on what the specialists of science, technology, and economics say. And needless to state, the specialists don't get any feedback on how much of the knowledge they had struggled so hard to win, has reached the masses.
I know much of what I write about Science, Economics and so on could be wrong. But the point is, I think this way. I can check and correct my thinking only through informed discussion.
Many industrialists in Coimbatore are of closed mindset and dont encourage innovation and outsiders to come and build a better model
ReplyDeleteAnon., thanks for commenting. It would have been better if you elaborate on this- this is a serious charge- are they more closed than industrialists in other cities, and how do they prevent outsiders from coming in and building a better model?
ReplyDeleteBelieve me, I know nothing about this- I will honestly appreciate whatever you have to say on this.
Regards,
Coimbatore story is not an isolated one. The situation here is as grim as anywhere in India. Land prices have gone up across the country, it is just not in Coimbatore alone.
ReplyDeleteCoimbatore is a major hub for global Valves and job work market. Slump in export demand due to recession in US and Europe have affected engineering units. Textile industry goes through a cycle every 3 or 5 years. It is nothing new. This time problems are further accentuated by the global recession as export demand for textiles also has come down.
Coimbatore industrialists are known to be conservative and are risk averse. Even I heard that the Coimbatore elite (industrialists) was rounding up land banks in order to prevent IT and ITES having a foothold in Coimbatore. They wanted stable man power at cheap rates. They even resisted L&T hugely and tried to talk to them to keep the salaries to Coimbatore level.
This is a depressing situation.
ReplyDeleteBalajhi, is there any way out?
If you are asking about immediate situation then the answer got to be 'no'. But definitely in about 2 to 3 years time (may be even earlier) things will start to look better.
ReplyDeleteIt's nothing new, actually. In 2002/03 things were quite bleak, especially in Coimbatore. Coimbatore's major earners are textiles, pumps and Engineering. Textile has a cycle and pumps is seasonal. Due to global recession engineering also got a hit this time.
Companies can't totally insulate themselves from external shocks but can have better risk management systems and cushion the shocks better so that impact is lesser. Lean times often serve as the best time to study and analyse causes to avoid future problems. But seldom they happen in companies, not just in Coimbatore.
Thanks balajhi.
ReplyDeleteI would like to know,
(a) could the industries have predicted this and safeguarded themselves? How?
(b) now that the crisis is here, what can be done? Are these millions of employees simply to be left in the streets?
(c) what changes would you suggest so that future problems are avoided?
REgards,
Any businessman must have his feet firmly on the ground. They should always be prepared for the unexpected. That said, people could have predicted if only they were savvy enough to understand what is happening around the globe and how they relate to him and his business. It requires lot of discipline and a systematic approach. Economics is key. It helps you to know things better both at the macro (external) and micro (internal) levels. Finance is another area that shapes up a good entrepreneur. Knowledge of economics and finance always helps a business man to run his business well.
ReplyDeleteHonestly there is not much companies can do at the moment. However those who innovate and think out of the box can survive and even garner more of the available market. This is easier said than done. It requires lot of discipline, commitment and some risk taking. More than anything it requires conducive work environment.
Risk is there in every business. It is important for companies to have a clear idea on what is their business risk. They must profile their business risk and develop a system to detect early warnings. With this approach in place they can also embed course corrections when things look shaky. Sound risk management practices save companies and businesses from becoming extinct. Some even do well during tough times. But again it is all easier said than done. It has to start at the top and percolate down.
Every strategic option / decision, like investing in machines, markets, products etc, that is intended to expand the scope and scale of business, must be analysed thoroughly before the decision is taken. A decision anatomy covers not only positive effects but also counter effects. People need to plan well. Not just plan A but also plan B and if needed plan C.
ReplyDeleteYou mentioned, in your post, about people investing in capacities. Problem is people focused on expanding the business through capacity creation against value creation. When you go up the value chain say from yarn to fabric and then to garments, you are expanding your business with less risk compared to creating more and more spindlage and producing more yarn. Capacity creation needed to be backed by sound economic logic than business logic. But people generally look at business logic and go for capacity creations and get stuck on the downturn.
(i) Is it possible for a common man like a business man to understand economics? I feel it is a too big subject, and we have instances where even professional economists have made mistakes.
ReplyDelete(ii) What would be innovative practices for the businessman in current situation? The problem as I see it is that he is burdened with unproductive assets.
Thanks Balajhi, you are patient about this.
ReplyDeleteJust one more question: what about the million workers who get thrown to the street? Don't they have any say in this? Should we not restructure some kind of business model that gives them some decision-making power?
Regards,
In the current set up there is not much that can be done. If the business is not there then there would be lay offs and even retrenchment. There are laws and acts to protect workers and even none of them can do anything against management decisions to lay off or retrench as per law. In fact our labour laws are quite tough. Nowadays many companies have more temporary workers in order to escape from the clutches of labour laws. However this applies only in low skilled, labour intensive industries like textiles.
ReplyDeleteIf workers have some say in decision making then be assured there will be more economic damage. Remember USSR?
Companies lay off and retrench only when they incur loss. How do you expect them to keep people and incur more loss? They can at best be asked to rehire same people when things turn up. When businesses make profits they hire more and pay well; when they make loss they lay off and stop increments / cut salaries.
People should be willing to adapt and learn new things. In fact these tough situations should remind people reskill themselves where necessary and always keep them updated and upgraded.
ReplyDelete(i) "In fact our labour laws are quite tough"- in our country which has iniquitous record of human rights, do you suggest that we should make it easy for the employer?
ReplyDelete(ii)If workers have some say in decision making then be assured there will be more economic damage. Remember USSR? - powerful corporations are bad for the world. US is an example of this. What is happening in Agriculture, Mining and Weapons Industry? They are risking the safety of the whole world. I feel there should be limits for the power of Corporations as well.
(iii) "If the business is not there then there would be lay offs and even retrenchment" If the labour is not there, there would be no business as well.
(iv) Companies do not stand alone. There are workers, customers and the immediate environment. How can you keep them away from decision-making? They are the ones who are affected. There should at least be a consulting mechanism. Just because someone comes up with the money, it is not fair that he can exploit the workers, the environment, and the wider customer base. This is not fair.
(v) How can someone who is thrown into the street at the age of fifty relearn anything? Does he get any pension? Is there any social security? The only occupation available to him is crime.
(vi) Communism failed only because it was heartless. If people are thrown into the streets just like that and are asked to learn new skills, chances are that whatever economic system is followed, that is doomed.
I agree powerful corporations are bad and interests of all sections should kept in mind. But if you try to protect those interests through legislation then there won't be much business and that means there will be little or no employment generation.
ReplyDeleteCooperative system is one of the best but it is rarely successful. Also when capital requirement is high cooperative system can't attract money.
Too many decision makers and stakeholders will only hinder progress. Like it or hate it, capitalistic way bears more fruit than other models, though it is not an angel. In fact no other model is angel, though some promises as one.
When companies make money they create jobs and pay well. When they lose money it is only natural that they retrench jobs and halt increments In fact companies are bound by our tough labor laws when it comes to lay offs and retrenchments. Compensations are paid out as per law. I don't see how you can fault them.
I am not saying workers deserve what they have got but only saying companies can't be faulted when they lay off / retrench after complying with necessary laws. It's sad but then I can only blame governments (past and present) and politicians for the failure to secure peoples lives through social security and through other measures. If you are still not convinced then pick up your gun.
"If you are still not convinced then pick up your gun"
ReplyDeleteThanks a lot, but is this a feasible business proposition? I think millions of us on the streets with guns would initially drive down demand, and sometime later, drive down supply too.
Any other 'out of box' suggestion to subvert this?
The government is bent to safeguard the 50000 odd workers of satyam, who might loose work at satyam because of the fraud in accounts commited willingly by their management.
ReplyDeleteHere in the textile industry the workers are to loose their jobs because of the government's failure to stop the cotton exports and its failure to alter the dollar rate in time to compete China.
Now our PM and co. discuss on its grave about treatments and medicines.
I found this at The Economic Times, 23 Jan 2009, page 13.
ReplyDeleteThe article is titled, "Knit or Knot: Sizing Matters"- Tamil Nadu Textile Mill Owners Go Soft On Layoffs, and is by S.Sujatha.
This is the gist of it:
According to SIMA, Tamil Nadu has about 5.6 lakh textile mill workers. Of them 2.6 lakh are directly employed. The state has 43% of Inda's spindle capacity and consumes more than 100 lakh bales of cotton per year.
According to SIMA vice-chairman and MD of Rajarathna Mills, J.Thulasidharan, most of the companies are working only 4-5 days a week; 20% of the workers have been laid off.
The months between December to February is the peak period for yarn producers. Global slowdown has led to 40% fall in exports and around 10% to 15% slackness in the market. The domestic markets are flooded with supply, and parn prices are suppressed by 12%
Power cut has had a hand in this situation- effective power cut felt by the textile mills is close to 50%: by keeping their employees idle, the mills lost only Rs.3 to 4 per kilo yarn, whereas they lose Rs.12 per kilo yarn when they run on diesel.