A buoyant economy

Coimbatore is shedding its conservative image and taking competition head on in its effort to come on top in the globalised environment.

THE mood is palpably upbeat in Coimbatore. The end of the textiles quota regime under the Multi-Fibre Agreement, the promise shown by the Information Technology (IT) sector, the growth that most companies posted last year, rising exports, the jump in the number of BPO (business process outsourcing) centres, and the real estate boom, all signal the end of a recessionary spell that had kept Coimbatore shackled for much of the 1990s.

Most important, the textile industry, which has been at the core of Coimbatore's industrial scene, is picking up the threads; stocks of most textile companies are on the rise as much because of fundamentals as the bull run in the stock market. The boom is not restricted to textiles alone. A European team that came shopping to India early in 2003 had identified over 80 manufacturers of Coimbatore - the highest number from a single city - for sourcing valves, pumpsets and automobile components.

Coimbatore has well proved that it can take on competition, domestic or international; it earned over Rs.10,000 crores in exports last year. The volume of software exports from Coimbatore more than doubled.

A recent study of the top 36 Indian cities done for the Confederation of Indian Industry by Bibek Debroy, Director, Rajiv Gandhi Institute for Contemporary Studies, and Laveesh Bhandari of the research firm Indicus Analytics, ranked Coimbatore fourth in growth potential after Delhi, Mumbai and Chandigarh, and ahead of Bangalore (fifth), Chennai (sixth) and Hyderabad (ninth). (The study looked at professional education, private finance, communication, road transport, tourism - business and leisure - and relative growth.)

Another recent study by PricewaterhouseCoopers on the feasibility of setting up an IT park in Coimbatore pointed to the city as one to be watched. According to the study, the total volume of trade in automotive components, textiles, pumpsets and other products exceeded Rs.16,000 crores annually. Most of the products find their way to the United States, Europe, and East, South-East and West Asia.

Coimbatore supplies over 30 per cent of all the automotive components used in the country; many international auto majors also source from the city. The city makes over 60 per cent of the water pumps and 45 per cent of the motors used in India. According to the Coimbatore-based Southern India Engineering Manufacturers Association (SIEMA), Coimbatore's 400 foundries have a combined turnover of Rs.1,000-1,200 crores. Its engineering units registered a 15 per cent increase in turnover in 2003-2004 and their exports, which rose by 21 per cent, have crossed Rs.1,400 crores.

Coimbatore district, with an excellent academic infrastructure that churns out over 20,000 engineering and 28,000 non-engineering graduates every year, is poised to emerge as one of the largest suppliers of human resource by 2008. Over 40 per cent of the industrial units in Coimbatore have their own captive power-generating units. The city's teledensity (telephones per 1,000 people) of 150 is one of the highest in the country.

According to N. Krishna Samaraj and Nandini Rangaswamy, Chairman and Vice-Chairperson respectively of CII, the organisation has decided to push six sectors - textiles, engineering, auto components, IT and IT Enabled Services (ITES), health care and education - in which Coimbatore shows great potential. The CII's involvement is two-fold - helping industries build internal competencies in areas such as cost management, training and human resource development, and interacting with government agencies on issues such as policies and infrastructure development. Separate panels have been constituted to deal with different segments of industry and service activities.

According to Coimbatore Management Association (CMA) president P.M. Jagatheesan, the region is fast emerging as the knowledge hub with 25 business schools. The three sectors that are growing at breakneck speed are auto components, IT and medicare. Coimbatore is also showcasing its medical tourism potential, what with major surgical operations costing nearly 40 per cent less than in Chennai. The CMA is also trying to market Coimbatore as a "place to work". With the State government giving the nod for an IT park, Coimbatore is all set for a galloping growth. The auto component sector is growing annually at 200 per cent and the textile sector are all set to grow with the disbanding of the MFA. According to Jagatheesan, the inherent strength of Coimbatore is the three generations of work culture, which is ready to make the most of globalisation.

But the crucial question is whether the euphoria generated by globalisation can be sustained. Suguna Pumps managing director V. Lakshminarayanaswamy says that the global market offers an excellent opportunity despite the threat of cheaper and more sophisticated products coming into the Indian market. Coimbatore now offers a huge product range from which manufacturers should find a niche product for themselves and build on that. This, he feels, will increase efficiency and lower costs owing to the volumes involved.

According to Pricol's Col. A.N. Ramesh, Coimbatore is showing strong signals of revival, if one were to go by the orders flooding all industries - automobile components, textile machinery, pumps and foundries - and the hectic construction activity. "With heavy reinvestment, the excellent brand equity of Coimbatore products, the increasing professionalism and the effort to be contemporary, Coimbatore's industries are going great guns," he says.

Says Roots Industries director N.V. Krishnan: "Coimbatoreans, with their enterprise, are quick to change. This has led such companies as Ford to seek us as reliable ancillary component suppliers." This, he feels, is only going to strengthen in future given the upbeat mood of the industrialists.

Sakthi Sugars vice-president and managing director M. Manickam is equally optimistic. According to him, Coimbatore is a "private town". Its industrialists have taken the town forward solely by their enterprise and resilience, without any government help. According to him, in such areas as textiles and sugar, government policies have, in fact, created problems. Now, with the government withdrawing from these areas and leaving everything to the market, Coimbatore will surely benefit, he says.

Dr. R. Nandagopal, director, PSG Institute of Management, says that now almost all industrialists in the city want to face competition, which is a healthy sign.

A lot of restructuring is happening in industries of all kinds and sizes - small, medium and big. In the past century, industries in Coimbatore grew tremendously, one feeding another and showing resilience in the face of every downturn. But in the process they accumulated a lot of flab, which is now hurting - in terms of reduced profits and high costs - in the environment of recession and enhanced competition.

With trade barriers falling, industries have realised the need to be able to compete internationally and have been restructuring themselves at a feverish pace. Restructuring - to improve quality and cut costs - is happening in several ways, including staff downsizing, product diversification, fine-tuning of manufacturing processes, adding value, modernising, improving quality, branding, and financial cleansing (high-cost debts are retired to lower the interest burden). There is now a tendency to look at long-term rather than quick gains.

While companies in Coimbatore are shedding their conservatism and are becoming more modern, some like UMS chief executive officer Dr. B.V.D. Rao feel that they have a long way to go to become professional and transparent. Almost all big companies are family-run and hence, often, family problems get reflected in their operations. Most important, says Dr. B.V.D. Rao, is to send out to the outside world signals of the behavioural change that has happened.

But the real beneficiaries of the economic recovery are companies that had conserved during the recessionary period; they are registering growth ranging from 15 to 50 per cent in turnover. A number of corporate bodies, manufacturing for multinational corporations, source components from here. For instance, Suzuki of Japan sources auto components from Coimbatore for its unit in Thailand. With over a third of the Fortune 500 companies sourcing components from Coimbatore, little wonder that Coimbatore is emerging as one of the major global outsourcing centres for manufactured products; the city's annual exports of engineering products now exceed Rs.12,000 crores.

Big companies such as Roots, Elgi Equipments and LGB & Sons have adopted modern manufacturing processes such as total quality management (TQM), making it easier for automobile manufacturers to look for reliable supply sources in Coimbatore.

A lot of consolidation is also happening as part of the restructuring process. Most medium and big companies are outsourcing from small and tiny firms, as the former rapidly automate their processes to improve quality and cut labour costs. This may mean fewer jobs with big companies, but labour is being absorbed in the small and tiny units though at lower wages and on a non-permanent basis.

According to Elgi Equipments' company secretary H. Mohan Ram, his company is creating a network of tiny units in and around Coimbatore to source from. In fact, Elgi is trying to revive several tiny units that have gone sick, in order to bring them into its feeder chain. His company will assemble and test the components that it acquires from its feeder units before exporting. The Elgi experiment seems to be catching on and several big and medium companies have started to contract work out to small units and concentrate on assembling, testing (to ensure quality) and research and development (to improve product quality, the technology is being passed on to the tiny units).

No doubt the restructuring has hit the labour badly - most permanent jobs have become casual, many jobs have gone, almost all workers have taken sharp wage cuts, working hours have increased, and workers now perform multiple tasks. Over 250 mills are closed; nearly 50 per cent of the working ones have reduced their workforce by half, one-fourth by 75 per cent, and the remaining have made all workers non-permanent. According to the Coimbatore District Mill Workers' Union, over half the 60,000 mill workers, most of them women, in Coimbatore and Erode are casual workers.

AquaSub Engineering's general manager V. Krishna Kumar feels that competition from Chinese imports is only a perceived threat. According to him, while the Chinese cater to pumps of only one voltage specification, pumps made in Coimbatore can be used for different voltages that the market needs. But the real threat is from the unorganised sector, which caters to the bulk of the demand and at a much cheaper price, as it does not attract excise and other duties.

According to Elgi's Mohan Ram, India's advantage over China is that India can cater to mid-segment buyers who require 10,000-20,000 pieces, while China can only supply to bulk buyers. G. Rajendran, director of CRI Pumps and former president of SIEMA, says that the small and tiny foundries and pump manufacturers are going through a tough time despite being major suppliers of pumps in the country - worth over Rs.800 crores - on account of the high cost of inputs such as steel, coke, power and copper.

Says G.K. Sundaram of Lakshmi Mills: "Coimbatore has done very well for itself without government help. It is the industries - textiles, sugar, foundries, and so on - that are dependent on government policies (usually haphazard, fluctuating and inconsistent) that are hit the hardest." According to him, if the government stops "policing" and "leaves us to do our business, we will be much better off". Most industrialists here agree with this sentiment. But the only help they want from the government is better infrastructure - better air, rail and road connectivity, in particular.

THE boom in Coimbatore is also palpable with the enhanced activity in real estate and retail business. For instance, Srivatsa Real Estates managing director C.S. Ramaswamy says that a number of real estate companies such as Land Marvel, Sahara Homes and Appaswamy Real Estates are coming to Coimbatore. In business since 1996, Srivatsa Real Estates has constructed one million square feet of commercial and residential space and done business for Rs.100 crores; it is looking ahead to taking a large pie of the booming real estate market. Says its executive director V. Jayaraman: "The next five years are surely going to be a boom period for Coimbatore."

According to Sree Kumaran Thangamaligai director P.K. Aroomugum, there is a big rush to buy jewellery as it is considered the best form of investment, particularly after the fall in savings bank interest rates. While several players came into the jewellery business in Coimbatore in the last few years, those with ethics and good quality products have survived. Sree Kumaran Thangamaligai has imported a carat meter that can check gold quality. According to Aroomugum, there are 60,000 skilled jewellery artisans in Coimbatore. To utilise their skills it is important that the government rationalise the tax structure so that shops that operate with small margins can benefit and hire more skilled workers consistently. The increase in jewellery sales indicates a rise in the purchasing power of the people - a sign of an upbeat economy.

In fact, many people feel that one of the primary reasons why IT did not take off in Coimbatore is the lack of good air connectivity. But now, with the government planning to set up an IT park, IT majors such as Wipro, Satyam and Tata Consultancy Services are showing interest in setting up shop in Coimbatore. With several more making inquiries, Coimbatore is hopeful of making it big. The industrialists feel that software and auto components will propel Coimbatore's growth.

The Indian Chamber of Commerce and Industry (ICCI) has called for the establishment of the Kongu Development Authority to boost the development of the Coimbatore region, which is seeking to become a global outsourcing hub for different industries.

As the city is on the threshold of becoming the second largest IT centre after Chennai in Tamil Nadu, the chamber has urged various government departments to address the issue of infrastructure bottlenecks in order to attract potential investors and improve the quality of life of its citizens. It wants the airport expanded and modernised for more national and international flights, and a ring road built linking Coimbatore with Salem, Pollachi, Tiruchi, Palakkad, Mysore and Udhagamandalam so that long-distance travellers can bypass the city.

Says M. Krishnan of Krishna Sweets: "We have good reasons to believe that the worst is over and there will be an upswing." This feeling is echoed in almost every nook and corner of Coimbatore.