GROWING CONFIDENCE

Print edition : January 30, 2004

Industrial activity in Coimbatore, particularly in the textile and engineering sectors, is picking up after a period of recession, and there are reasons to believe that the resultant upswing in economic activity may be just round the corner.

Asha Krishnakumar in Coimbatore Photographs: K. Ananthan

At Cross-cut Road, one of the main shopping areas in Coimbatore.-

AFTER a spell of recession, the feel-good factor is back in Coimbatore. The upbeat mood is thanks to the growth experienced by most companies last year, an increase in exports, a jump in the number of BPO (business process outsourcing) centres, and a real-estate boom. Most important, the textile industry, which is always at the centre 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 markets. In an apparent vote of confidence, a European team that came shopping to India early in 2003 identified over 80 manufacturers of Coimbatore - the highest number from a single city - to source valves, pumpsets and automobile components.

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

A recent study on 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 Indicus Analytics, ranked Coimbatore fourth in growth potential after Delhi, Mumbai and Chandigarh, and ahead of Bangalore (5), Chennai (6) and Hyderabad (9). (The study looked at professional education, private finance, communication, road transport, tourism - business and leisure - and relative growth.)

Another recent study on the feasibility of setting up an Information Technology (IT) park in Coimbatore, by PricewaterhouseCoopers 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 domestic products accounts for over Rs.16,000 crores annually. Most of the products find their way to the United States, Europe, East Asia, South-East Asia and West Asia.

Coimbatore supplies over 30 per cent of all the automotive components used in the country; several companies also cater to the international market. The city makes over 60 per cent of the water pumps and 45 per cent of the motors used in India. According to P. Rajendran, president, Southern India Engineering Manufacturers Association (SIEMA), Coimbatore's 400 foundries have a combined turnover of Rs.1,000-1,200 crores. Coimbatore's engineering units registered a 15 per cent increase in turnover in the past year and their exports have crossed Rs.1,400 crores, recording a 21 per cent growth over the previous year.

The 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 manpower by 2008. Over 40 per cent of the industries in Coimbatore have their own captive power-generating units. The city's teledensity (telephones per 1,000 people) is one of the highest in the country at 150.

But the crucial question is whether the euphoria can be sustained?

Sakthi Sugars vice-president and managing director M. Manickam is 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 created problems. Now, when the government is withdrawing from such areas and leaving everything to the market, Coimbatore will surely benefit.

Dr. R. Nandagopal, director, PSG Institute of Management, says that when change happens, industrialists in Coimbatore generally react in one of the two following ways. Some say: "Let things change and I will cross the bridge when I come to it." Others say: "If there is a change I will close down and shift to manufacturing some other product." But now almost all industrialists want to face competition and change their ways if needed. And this, he says, is a healthy sign. Shanti Gears vice-president P.K.R. Kurup says that by modernising and upgrading, the traditional industries - textile mills took a beating, while the market for motor pumps and wet grinders is saturated - are working themselves out of the mess they landed in the last few years.

The Computer Aided Design section at KGSIL.-

A lot of restructuring is happening in all kinds and sizes of industries - small, medium and big. In the past century industries in Coimbatore grew tremendously, feeding one another and showing resilience in the face of every downturn - the World Wars, the Great Depression and so on. But in the process they have become bloated, accumulating a lot of flab that hurts them - in terms of reduced profits and high costs - in the face of competition and recession.

Realising the need to be able to compete internationally when trade barriers will go by 2005, the industries 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 manufacturing processes, making value addition, modernising, improving quality, branding, and financial cleansing (all high-cost debts are being paid off to decrease the interest burden). There is now a tendency to look at the long-term rather than at short-term gains.

All associations and support organisations, such as the Coimbatore District Small Industries Association (CODISSIA), the SIEMA, the Indian Chamber of Commerce and Industry and the Southern India Mills Association (SIMA), are gearing themselves for the change and the new opportunities. For instance, they have begun to meet regularly and discuss issues relating to international trade and standards. Associations such as the SIEMA have set up an information centre that updates members on what is needed to achieve such international standards as ISO 9002 and ISO 14000.

Who has benefited from the economic recovery?

Companies that had conserved during the recessionary period seem to be doing very well, registering 15-50 per cent increases in turnover last year. A number of corporates are manufacturing for multinational corporations. For instance, Suzuki, Japan, sources auto components from Coimbatore for its unit in Thailand. No wonder the city, exporting engineering products worth over Rs.12,000 crores, is emerging as one of the major global outsourcing centres for manufacturing products with over a third of the Fortune 500 companies sourcing components from Coimbatore.

According to Sara Elgi group's managing director Sumanth Ramamurthy, companies in Coimbatore are now shedding their conservatism and becoming more modern and transparent. But, according to UMS chief executive officer Dr. B.V.D. Rao, they have a long way to go to become professional and transparent; though companies have begun to realise the importance of these two factors and are becoming more transparent, a lot needs to be done. Almost all big companies are family-run and hence often family problems get reflected in their operations. Most important, says Dr. Rao, is to send out to the outside world signals of the behavioural change that has happened.

Even as K.G. Denim's head of domestic business N. Rajha Gopallan feels that Coimbatore is all set to enter a high-growth phase, he also sees the need for companies to plough back profits and concentrate on value addition. This, he feels, is particularly relevant for the textile industry, which for long has made only grey fabrics. His company is now targeting youth (with its Trigger brand) and focussing on making affordable products, concentrating on volumes rather than small quantities of premium products.

According to Sanjay Jayavarthanavelu, director, Lakshmi Machine Works and chairman, Textile Machinery Manufacturers Association, the textile machinery industry is onto a path of growth. "LMW," he says, "has successfully overcome the trying period and is onto newer products to meet customer needs." An indication of the recovery comes from the addition of spindles in existing mills.

According to V. Krishna Kumar, General Manager of AquaSub Engineering, while the fortunes of the pump industry are closely related to the drought condition, companies that are national and/or international have managed to stay afloat as there is always some part of the country that is facing drought and needing pumps to draw groundwater from great depths. He also feels that companies that have captive foundries and stamping have done better.

Exports, says Krishna Kumar, not only increases revenue prospects but also helps in improving quality as international standards are stringent and it helps to increase the quality of products in general. "In the bargain, our house is set in order. Exports also seem to be preferred as they attract no excise duties and make the company eligible for all kinds of concessions such as duty drawback," he says. YenYesKey Machine Tools, which sells machines to manufacture paper bags, exports to over 12 countries. According to its owner N.S. Kumar, last month he got inquiries from over 24 countries.

Big companies such as Roots, Elgi Equipments and LGB & Sons are adopting manufacturing processes such as total quality management (TQM), making it easier for automobile manufacturers to look for alternative 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 are increasingly automating their processes to improve quality and cut labour costs. So, though jobs are disappearing with big companies downsizing, labour is being absorbed in the small and tiny units though at lower wages and on a non-permanent basis.

G.K. Sundaram of Lakshmi Mills, the doyen of industrialists in Coimbatore.-

According to Elgi Equipments' company secretary H. Mohan Ram, his company is creating a network of tiny units in and around Coimbatore to feed it. In fact, Elgi is trying to revive several tiny units that have gone sick (including those in Chennai's Guindy Industrial Estates) 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 out work to small units and concentrate only on assembling, testing (to ensure quality) and research and development (to improve product quality, the technology is being passed on to the tiny units). The industrialists are aware that this kind of restructuring is against the interests of the labour in that they would have to give up all their benefits.

There is no doubt that 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 one-fourth have made all workers non-permanent. According to M. Arumugam, State vice-president of the Indian National Trade Union Congress (INTUC) and general secretary of the Coimbatore District Mill Workers' Union, over half the 60,000 mill workers in Coimbatore and Erode are casual workers, most of them women.

On competition from Chinese imports, AquaSub's Krishna Kumar is sure that it 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. But the real threat is from the unorganised sector, which caters to a bulk of the demand as it can offer products at a much cheaper price as they do 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. According to R. Rajendran, 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 high cost of inputs such as steel, coke, power and copper.

Says the doyen of industrialists in Coimbatore, 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 of the industrialists agree with this sentiment.

In fact, many feel that one of the primary reasons why IT did not take off in Coimbatore is the lack of good airport 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. Manufacturing outsourcing is also happening in a big way in Coimbatore. Several big multinationals are outsourcing components from Coimbatore.

Says B. Vijayakumar, managing director, L.G. Balakrishnan & Bros.: "We have good reasons to believe the worst is over and there will be an upswing." This feeling is echoed in almost every nook and corner of Coimbatore.

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