first tier garment exporters in delhi: industry and company perspectives

FIRST TIER GARMENT EXPORTERS IN DELHI: INDUSTRY AND COMPANY PERSPECTIVES

A Collaboration Between United Students against Sweatshops

Jobs with Justice Society for Labour and Development

March 2007

TABLE OF CONTENTS PAGE NUMBER Chapter One: Introduction ............................................................................ 3 1. Methodology ..............................................................................................................3 Chapter Two: Agency Profiles 1. Registrar of Companies (ROC)...........................................................................10 2. Third Eyesight.....................................................................................................12 3. Apparel Export Promotions Council (AEPC).....................................................15 4. National Institute of Fashion Technology (NIFT)..............................................18 5. Northern India Textile Research Association (NITRA) .....................................21 Chapter Three: Company Profiles 1. Modelama Exports Ltd.

I. Contact Information .........................................................................................24 II. Brief History ....................................................................................................25 III. Basic Profile.....................................................................................................25 IV. Financials .........................................................................................................27 V. Brand Information............................................................................................28 VI. Infrastructure....................................................................................................29 VII. Working Conditions.........................................................................................31 VIII. Human Resource Policies ................................................................................32 IX. Business Bottlenecks .......................................................................................35 X. Industry Comments..........................................................................................35 XI. Personal Experience.........................................................................................36

2. Shahi Exports Pvt. Ltd.


3. Jyoti Apparels

I. Contact Information .........................................................................................49 II. Brief History ....................................................................................................49 III. Basic Profile.....................................................................................................50 IV. Financials .........................................................................................................51

V. Brand Information............................................................................................51 VI. Infrastructure....................................................................................................52 VII. Working Conditions.........................................................................................56 VIII. Human Resource Policies ................................................................................57 IX. Business Bottlenecks .......................................................................................58 X. Industry Comments..........................................................................................59 XI. Personal Experience.........................................................................................59

4. Company G of R Group of Companies


5. Pearl Global Ltd.


6. Orient Craft Ltd.


CHAPTER ONE INTRODUCTION

The identification and profiling of top tier Indian garment exporters was undertaken for the following purposes:

1) To identify common Human Resource strategies used to suppress union organizing in the export garment sector.

2) To identify correlations between labor conditions and businesses characteristics. 3) To develop corporate research strategies specific to the Delhi, India context.

Five companies (Modelama Exports Ltd., Shahi Exports Pvt. Ltd., Pearl Global Ltd., Company G of Group R, Orient Crafts Ltd.) were identified using “Mapping First Tier Suppliers in Garment Industry in Delhi,” a CEC report submitted by G. Manicandan. The sixth company was identified by the researcher through an interview with a representative of the Indian Apparel Export Promotions Council (AEPC). Several other agencies that are major players in the export garment industry were identified and profiled by the researcher. These are the Northern India Textile Research Association (NITRA, linked to the Ministry of Textiles, Government of India), the Apparel Export Promotions Council (AEPC), the National Institute of Fashion Technology (NIFT, linked to the Ministry of Textiles), the Registrar of Companies (ROC, Ministry of Textiles), and Third Eyesight (an industry consulting agency). Methodology Preliminary research was conducted on the internet. Four of the six companies profiled and all of the agencies have individual websites. Online searches yielded some kind of press release or interview for each entity except for Jyoti Apparels. Public limited companies like Pearl Global Ltd. display their financial information on the company website, others self-report to financial databases, and others do not disclose financial information beyond approximations of annual turnover and production capacity. Contact information was available on websites, although some were out of date. A management survey was developed using the framework of surveys used in other geographic contexts and updated on the basis of preliminary interviews. Managers at six companies and four agencies gave interviews. Interviews were obtained in a variety of ways. Obtaining the phone number from the agency website and directly calling was the simplest way of setting up interviews. E-mail was also used to a large extent to set up meetings, though it proved best to limit the amount of e-mail communication. Asking a question via e-mail often yielded claims of confidentiality, while asking the same question in person would yield a response. It is advisable not to send questions via e-mail. If an interview cannot be conducted in person, an interview by telephone would be far more likely to be successful than an information

request by e-mail would. However, no telephone interviews were conducted in this survey; all interviews were in person. The agencies profiled were primarily interviewed before the export houses, and used to establish industry contacts. The AEPC was instrumental in identifying Jyoti Apparels as a top tier supplier, and NIFT gave updated contact information for Shahi Exports Pvt. Ltd. and Orient Craft Ltd., without which interviews would not have been possible. Managers were surprisingly open in some cases, going as far as to hand over Standard Operating Procedures, industrial accidents record, or productivity schemes, while others would refuse to state the number of workers in the manufacturing unit. The attitude and openness of those interviewed are subjectively recorded in the individual profiles. Aggressiveness both in pursuing interviews (which could take several phone calls and e-mails before contacts could be made) and in asking questions during the e-mail was not seen as rude as it would in a U.S. context and was integral in order to obtain information. An interview with an anonymous manager produced the following conversation, which typifies management attitude both towards women and unions:

Limitations Time constraints limited the consistency and thoroughness of company information, as it was not possible in many cases to conduct follow-up visits. Information on these companies was obtained primarily from top-down management sources, and as such may be misleading as to actual conditions. The purpose of this research was to obtain information about companies from a management perspective, however, even though such a one-sided perspective may not reflect the reality of the situation. Furthermore, time constraints would not permit cross-checking all information with workers and officers at each company. Questionnaire Used by the Researcher The following questionnaire was handwritten in shorthand and brought to the scheduled interviews as notes. It was not e-mailed to any of the managers, and one experience e-

Researcher: Why are your workers mostly female? Are there significant differences in productivity? Manager: No, no significant differences in productivity. Just, men together tend to form groups and lobbies because they have spare time. Researcher: I don’t understand. What groups? Manager: Oh, they get involved in politics—(phone call) Researcher: What were you saying about the worker groups? Manager: No—that’s not—don’t quote that. I’ll tell you, but off the record. Women are easier to handle. They’re more docile; easier to control. Also, ladies are more focused on work. Researcher: Did you have problems with employing males in the past? Manager: No—no, I don’t think they ever employed males…

mailing questions proved fruitless in gathering information. The survey questions were divided into sections according to the position of the respondent, as there are some questions that an HR manager would know more than a Merchandising Agent. However, if only a higher level manager could be reached, they often had information regarding each of these areas. The questionnaire was used only as a guide in the interviews as a reminder of what kind of information was needed, since a conversational approach proved to yield the most information. Name, Designation, and Responsibilities of Respondent: Number of Years in the Company: General Upper Management Do you have a brochure saying what products, etc? What products do you manufacture? How many factory locations does the company have? Size and scale? Addresses? Does it have objectives on which it was founded? Articles and Memorandum of Association (Objectives, Ownership of Company- Incorporation of Company) What is the shareholding and ownership makeup of the company? What plans for expansion? Do they cater to domestic market or only export? What share of turnover/sales/production is export? Markets—who, where, U.S., EU? Major foreign brands that the company supplies to: length of relationship, total sales, vol of product, how fast company delivers products to brand Kinds of buyers—importers, specialty (GAP), discount retailers (Wal-Mart), dpt stores (Belks) What is the average price that you get per piece of garment supplied? Do you know the average retail price at the point of sale? By item? At what point of delivery do you get the price (FOB – freight on board, Landed Cost)? different practice of brands and retail clients? How does the company get contracts with foreign vendors? How are prices negotiated with a foreign brand? Do you have design department? Where is it located? Give details. What kind of input—CMT, no input--or more capable, get order, help design, sourcing, CMT, package, deliver? Does the company ever have problems with contracts and/or steady orders? (if possible, DSP questions, I’ve heard of collegiate licensing that would provide steady orders from major brands at higher prices, if such a program were introduced would be willing to participate if increase wages and committed to labor rights and worker representation?) Problems with seasonality? Manufacture winter clothes? How have vendors changed post-MFA? Have you taken price cuts? Which products? Larger volumes? Different buyers? Deepened relationship? Middlemen? Who are the company’s competitors? Are subcontractors involved and if so at what stages? Which factories/companies? What are the size and scale of these operations? Has this changed post-quota phase out? What effect does the company believe the quota phase-out will have on turnover and the industry in general?

Have they used outside agencies in developing any part of their strategies? Part of AEPC, NITRA, or do they use agencies like Third Eyesight for technology and HR development? How has AEPC or NITRA or NIFT helped them? In what capacity? What are two or three main things holding business back? What are you doing to solve this? How has the central and state government helped the company’s smooth functioning? Or not? Labor laws, infrastructure How do you manage being so large? Market Related information: Is financial data/ annual reports for the past five years available? Can you give a copy of the latest annual/financial report for the company? Current figures for the company: Total sales, total value of exports, material cost, labor cost, overhead, subcontracting, profit margin HR Manager What are the normal timings of work at the factory? What are the periods of break? Do you use labor contractors? Temporary employees? What benefits are different? How do you train your workers? At what level? How long does the training last? Give figures for the total number of employees and their average wages per month by category and gender, tailors (skilled, semi skilled, unskilled), cutters, washers, pressmen, finishers, checkers, helpers, trainees, supervisors, etc. How many women, men, average age of employees, how long they have stayed in company Are workers in any way involved in wage negotiation or target setting? Target setting-prod planning mtgs? How many years of experience do the workers need to have in ordered to be hired at your company? What is the usual turnover of employees? How do you fill vacancies? Do you use recruiting agencies? Are all employees in the company given a letter of contract? If yes, can you give a sample of the contract letter? Is there a procedure for workers to complain about supervisors/management? Are there programs or committees to minimize conflict and improve morale of workers? i.e. Shopfloor Committee, Productivity Committee, Grievance Committee, Sexual Harassment Committee, Quality Circle? If yes, who are the members and how are cases handled? Give details. Have you seen a benefit in productivity since implementation of program? Are there joint worker-manager forums in your organization? If yes, what do these forums do? Get any documents willing to give at any point, standing orders, codes of conduct, what is displayed to workers on details of employment, etc. Have there been any attempts at unionization in the past? What is the company’s attitude toward unionization?

Is there a personnel ‘code of conduct’? Is this a company policy or vendor policy? How are these communicated to workers? What employers are covered by: (i) ESI (Employee State Insurance) (ii) PF (Provident Fund) (iii) Gratuity (iv) Maternity benefits (specify) What are the details of employment that are displayed / notified to workers? (i) minimum wage (ii) ESI/PF/Gratuity? What is the average overtime payment to all employees? (i) overtime per month (ii) overtime as a percentage of total wages (iii) rate of overtime payment Ask about industrial accidents, if there is a doctor available, how often, rotate between factories, what is the most common injury, what kinds of safety equipment What is your approach in HR and Productivity/Efficiency? (Get policy document) Do you involve outside agencies in your HR strategies? Do you have common policies across your plants? What are the typical causes of punishment of employees? What are the types of punishment given? (wage cuts/extra work/asked to go home?) Is there a procedure followed for dismissal of employees? Who initiates the procedure? Is the employee given a hearing? Give details? Do you have a legal officer in the company? Do you have an Industrial Relations policy? (any written documents?) What are two or three main things holding business back? production, labor situation, training , quality control, etc. What are you doing to solve this? HR/Production Manager: Get any documents willing to give on productivity schemes, time-study worksheets, productivity numbers, structure of lines, how many supervisors, etc What is your approach in HR and Productivity/Efficiency? (Get policy document) Could you give me a sense of the floor layout of a typical factory; what kind of technology and planning has gone into the factories? What are the different departments? (Floor chart) Department # Workers # Men # Women # Machines What are parts of a Line? Is it an assembly line? How much time does an item take from the beginning to the end of a line? How many supervisors are there on the Line? Is there a productivity scheme in your company? If yes, when was it introduced? What categories of workers are covered? Are workers in any way involved in target setting? Prod planning? How much time does a worker take to achieve the desired productivity? What kinds of productivity schemes? Teams? Line supervisors? How come up with time studies? How conveyed? What have been the benefits from the productivity scheme in terms of (i) increase in productivity (ii) reductions in waste (iii) any others? Does the productivity scheme give incentives to workers? If yes, give details based on category, average incentive, and maximum incentive. How make workers more productive?

What are the typical causes of punishment of employees? What are the types of punishment given? (wage cuts/extra work/asked to go home?) Is there a procedure followed for dismissal of employees? Who initiates the procedure? Is the employee given a hearing? Give details? Has the company ever consulted industrial engineers to design the factory? What was productivity output before and after the consultation? What are the quality check points that the buyer requires? Does the company management have other quality checks? How have they used technology and state of the art equipment to improve quality? What are two or three main things holding business back? production, labor situation, training, quality control, etc. What are you doing to solve this? Types of Sources (other than management interviews) To obtain much of the initial company information, the researcher performed internet searches for the company names, and several common business periodicals showed up several times including: Apparel Resources http://www.apparelresources.com http://www.ittimes.co.kr/ The Economic Times http://economictimes.indiatimes.com/ http://www.sify.com http://www.businessworldindia.com/ http://www.indeconomist.com/ The Hindu Business Line Internet Edition, Financial Daily http://www.blonnet.com/ Most of the companies profiled had company websites, except for Jyoti Apparels and Orient Craft. Once interviewed, the companies typically gave company profiles that they use for potential buyers, which contain information about the composition of the company, the types of clothing it manufactures, production capacity, turnover, and major clients. The agencies profiled, especially the AEPC and NIFT, were vital in obtaining information that would lead to interviews, identification of major players, and important industry resources. Third Eyesight has links to industry-related articles at http://www.3isite.com/index.htm. Although the researcher was not able to research the following sources further, some were featured at an international garment fair and others are commonly used as industry resources for financials: CMAI (www.cmai.info, [email protected]), EBSCO CRIS, INFAC (intranet and internet), INSIGHT, CMIE, RMS, IAS, INDIASTAT, IRA. Information In Company Profiles

Contact information includes addresses of known production sites, contact persons, website, and e-mail.

Brief history includes relevant information regarding the establishment and incorporation of the company.

Basic profile includes the legal composition of the company, export oriented unit information, the breakup of exports and imports of the company (100% exports for all the companies profiled in this report), the product mix, clients, and awards of the company.

Financials section includes the turnover and whatever other financial information could be obtained on the company.

Brand information section includes major clients, length of relationship and percentage of turnover, direct or buying agency clients, and unit prices.

Infrastructure section includes subcontracting information, the type of production system (all assembly line units), production capacity, the design/sampling department, quality control, specific departmental information, and productivity schemes.

Working conditions section includes timings of work, wages, wage-setting procedures, benefits, overtime information, and labor turnover.

Human Resource policies section includes management structure, worker training information, recruitment policy, dismissal procedure, union information, worker committee information, grievance policy procedure, corporate social responsibility schemes, codes of conduct, worker medical care information, and security system information.

Business bottlenecks section includes whatever setbacks or problems that managers perceive as holding back business.

Industry comments section includes strategy, predictions, and other relevant information regarding the growth of the company, its views on the industry as a whole, strategies for expansion, etc.

Personal experience section includes miscellaneous description regarding the researcher’s views of the company and its managers and the ability to get an interview.

CHAPTER TWO AGENCY PROFILES

1. REGISTRAR OF COMPANIES (ROC)

According to an interview with the Company Secretary of Pearl Global Ltd., in order for a company to be registered with the ROC, they must submit several forms at incorporation and annually. Such forms include:

Form 1, the compliance of companies act; Form 18, the address of the registered office and the locations of the business; Form 32, the details of the board of directors/management structure; Form 29 for Pearl Global makes it a public limited company; Form 20 gets the Director a Director’s Identification number (the number used on

the mca.gov website to access the public disclosure documents).The financials publicly available include the annual return and balance (for all companies). Since Pearl Global is a public limited company, the profit and loss are also publicly available, which is not true for privately owned companies. Companies are required to register new events such as a change of directors with the ROC.

The Registrar of Companies is a division of the Indian government’s Ministry of Textiles. Website of the Ministry of Company Affairs: http://www.mca.gov.in According to the Ministry of Company Affairs website: Registrars of Companies (ROC) appointed under Section 609 of the Companies Act covering the various States and Union: Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories and ensuring that such companies comply with statutory requirements under the Act. These offices function as registry of records, relating to the companies registered with them, which are available for inspection by members of public on payment of the prescribed fee. The Central Government exercises administrative control over these offices through the respective Regional Directors. The addresses of each state’s ROC as of 2003 can be found at http://dca.nic.in/ROC_2003.htm : Delhi & Haryana Regional Director: Dr. Navrang Saini Addresses: B-Block Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi 110003 Phone: 011-24362708 Fax: 011-24364570 E-Mail: [email protected] Nehru Stadium, New Delhi – 110003 E-Mail: [email protected] However, the office at Nehru Stadium closed down earlier in the year.

The ROC in Delhi is in a process of transitioning to an electronic format of filekeeping. As such, the process of obtaining public documents, such as financial information and company Articles and Memorandum of Association (objectives, etc. of a newly incorporated company detailing the scope of its operations), was difficult and did not yield a lot of useful information. Documents are publicly available after submitting a form requesting a release of information along with a small fee for each company. Not only were entire company files missing, but several did not have up-to-date financial or structural information. Furthermore, photocopying the documents in the file is not permitted unless a fee for a legal copy is paid. Information must be copied into a notebook by pencil (pens are not allowed). The researcher attempted to take notes by laptop, and though there is no formalized rule against this, it was not permitted either.

2. THIRD EYESIGHT (INDUSTRY CONSULTING AGENCY) Contact person: Mr. Devangshu Dutta, Founder and Director of Third Eyesight A-847, 2nd Floor, Sushant Lok-I, Gurgaon - 122 002 INDIA Tel: +91 (124) 4112493, 4112494, 4112495 Fax: +91 (124) 2577586 Cell: +91 98111 03494 Email: [email protected] Website: www.3isite.com Third Eyesight's Experience Profile: (from their promotional materials) Third Eyesight was founded in late-2003 by Devangshu Dutta who has worked with retailers and manufacturers from across the world in a variety of consumer products sectors, over the last 16 years. During his career Devangshu has performed the roles of an entrepreneur, manager, advisor, trainer and teacher. Devangshu began his career with the then-leading Indian national retail chain in buying & merchandising and in store operations. He subsequently worked with an international retailer's joint-venture in India, in marketing and distribution, as part of the team that launched the JV. He then joined a start-up consulting firm and was instrumental during its growth into a multi-national consulting firm's joint venture in India. He was also based in the European practice of this multi-national consulting firm, and returned to India to his position as General Manager of the Indian business. Thereafter, he co-founded a fashion sourcing company in which he remains a shareholder. Third Eyesight's project teams consist of professionals who have hands-on experience in various aspects of retail and consumer products businesses. Third Eyesight and its team of associates & professionals have worked on a variety of business strategy, new business start-up and operations projects with Indian and international clients. The following are brief descriptions of some of the projects on which Third Eyesight's professionals have worked. * International multi-billion dollar apparel brand - development of India strategy and preliminary business plan including market analysis, competitive and regulatory information, and product analysis. * One of the largest global home products retailers - Strategic assessment of India – insights for a global senior management team to gain a realistic picture of the opportunities and the challenges in India. * Diversified Indian consumer and industrial products conglomerate - Carrying out sectoral market studies in retail, assistance in formulating strategy and developing partnerships with International retailers and brands, including fashion, food & grocery, home, health, dining etc. * Global fibre and chemicals company - strategic inputs for Asia-Pacific top management team to identify emerging opportunities in the Indian textile supply chain * Leading UK Retailer - Assistance in development of global sourcing strategy and action plan; Benchmarking against global supply chain and product development best practices; Support in implementing changes in sourcing strategy and organisation; assistance in assessment of Indian supply base

* Multi-billion dollar Indian consumer goods conglomerate - Assistance in formulating strategy and developing business with global customers for exports. * One of the largest Indian textile and garment companies - Comprehensive comparative study of 7 cities in India and outside to choose location of new garment manufacturing plant * Leading Turkish supplier - Formulating strategy and assistance in strategic alliance proposal to key European customer. * Pioneer luxury brand house in India - Business planning for new brand acquisition; Business strategy and plan for current business, and assistance in seeking new capital infusion. * Indian subsidiary of one of the largest sports apparel and footwear brands – Design, development and delivery of sales & marketing collateral for three consecutive seasons. Content of Interview (5 July 2006) with Director of Third Eyesight: Asked about study, gave contact information for the National Institute of Fashion Technology in Hauz-Khas. (Website: niftindia.org) Advised researcher to contact faculty of the management studies department, who could then direct me to industry management: Dr. D.K. Batra, Mr. Pradeep Joshi, Mr. Sibichan Matthew. Directed researcher to online industry magazine resource (Website: apparelresources.org). Also told the researcher to contact faculty of Pearl Academy of Fashion, who would be able to help schedule company interviews. Mentioned another apparent Tier 1 (said they are large and source directly to MNCs), Matrix. The name is on the WRC disclosure list. Gave a brief background about salient law regulating the textile and garment industry: The tax laws are such that if you subcontract work but sell to the domestic market, you need a separate registration and thus it is easier to simply export (used to be tax-free). Gave history of market structure in India. Initially, it was a licensed economy in which you needed to get government clearance to manufacture in specific capacities. The government thus limited how much you could produce under the reasoning that over-capacity would lead to inefficient use of capita. In the early 90s, this model was phased out. The small-scale reservation system, which continues to regulate knit-fabrics, reserves certain sectors for small units, and you cannot have large units. The investment cap was very low, and the result of this was that a successful company was prevented from expansion. This is partially why many of the current successful companies (such as Richa Global) are split up into many different companies. Much of the fragmentation of companies was really only on paper. The other reasons for company fragmentation are the nature of quota system and labor laws. The quota system obliged companies to set up under different names. According to him, labor laws also limited the ability of companies to expand, as you needed approval from the state government if you were operating a place of business with more than a hundred workers. Since the garment industry is extremely labor intensive,

one hundred workers is nothing. He expressed hope that soon the labor laws would relax some to reflect changing needs of business. He stated that “the inconvenience of a labor inspector” pestering and harassing company management was a minor price to pay for business expansion. From 2001-2004, he said that Indian companies were extremely uncertain about the effects of the MFA phase-out, worrying that Indian business could not compete with China. Because of this, investment in the industry slowed down. In 2004, he said, this changed somewhat, as the companies began to listen to the needs of buyers and in 2005, as it was clear that Indian businesses were gaining from the phase-out and smaller countries like Bangladesh were losing instead, the investment returned. Although he expressed the belief that a market economy cannot compete with a controlled economy like China in that the Chinese government built factories and infrastructure, then privatized factories, so all the businesses had to pay was labor and overhead, he made it clear that somehow they were competing because of their “ability to develop and deliver product.” Furthermore, the quotas had restrained India far more than China (showed a graph from a U.S. economic source, couldn’t see name). He began to talk about sourcing, saying that the industry had often talked of diversifying, that they were too “over-exposed in China,” however that had mostly been talk and no action. He then mentioned that “strategic sourcing” would be much more beneficial to the market, whereby long-term relationships are cultivated. He began to describe the different ways of sourcing, how the current transactional model is very inefficient insofar as buyer-supplier cooperation goes. The MNC gives product specs, gets quotes from suppliers, the supplier makes the product, ships a sample, the MNC may like it or require additional changes, the product is re-done, etc., and rather than cultivate a relationship in which the supplier provides input and designs according to a long-standing relationship, money is instead wasted on an inefficient process. However, strategic sourcing is dramatically different from the current widespread transaction model, and as such is seen as a big risk and many are reluctant to actually work on establishing these relationships, since vendors and suppliers both may have had bad business experiences when attempting to do the same. The current model has self-contained worlds instead of cooperation, wherein the buyer, for example, doesn’t communicate with the designer. From a piecemeal view, it would increase unit prices, but in the strategic long-run, total costs would go down because the current transactional model wastes a lot of time, material, effort, and money (wastes that would not be eliminated by greater cooperation, but would be greatly minimized). He mentioned that Delhi (mostly womenswear) is only one side of the big picture, and that Chennai (mostly menswear), Bangalore (roughly equal, but more menswear), and Tirupur (mostly jersey knits) all have different cultures. He said that Delhi is doing extremely well in terms of business and is the largest in terms of exports, but that the outlook of the management may be more pessimistic than Tirupur, which has worse infrastructure but is nevertheless optimistic about business.

3. APPAREL EXPORT PROMOTIONS COUNCIL (AEPC) Office: Apparel House, Sector 44, Institutional Area, Gurgaon 122003 Contact Person: Mr. KK Jalan, Secretary General of AEPC Mobile: 98-9912-4555 Website: http://www.aepcindia.com/ The AEPC was originally incorporated in 1978 as the Apparels Export Promotion Council and re-incorporated in 1984 as the Apparel Export Promotion Council. According to the Articles and Memorandum of Association: Up till now Cotton Textiles Export Promotion Council was handling the export promotion work of garments, but now as the garment industry has reached a stature and maturity and has achieved the target of 250 crores, the leaders of the garment industry thought that it would be in the best interests of the garment industry to have a separate export promotion council. Two leading organisations of readymade garments, Clothing Manufacturers Association of India, Bombay and Garments Exporters Association, New Delhi took a lead in this matter and formed a special ad-hoc committee of the following Members: Mr. P.N. Amersey (M/s Milton’s Ltd., Bombay) President, Clothing Mfrs. Assan. of India; Mr. Vijay Mehta (M/s Intercraft Pvt. Ltd., New Delhi) President, Garment Exporters Association; Mr. B.P. Singh (M/s Singh Export Corporation, New Delhi) Ex-president, Garments Exporters Association; Smt. Premila Wagle (M/s Paville Fashions Pvt. Ltd., Bombay) Vice-President, Clothing Mfrs. Assn. of India; Mr. S.L. Shah (M/s Hiralal Gulabchand, Bombay) Hon. Gen. Secretary, Clothing Mfrs. Assn. of India; Mr. N.F. Mogrelia (M/s Zoro Garments Pvt. Ltd., Madras); Mr. N.K. Banthia (M/s Magnum Enterprises, Calcutta); Mr. B. Ramadorai (Chief Executive, M/s Handloom and Handicrafts Export Corporation, New Delhi). The main objectives of the AEPC are as follows:

(1) To promote, advance, increase, develop export of all types of readymade garments, excluding, woollen knitwear and garments of leather, jute and hemp.

(2) To undertake all export promotion measures, particularly to undertake market research, quota distribution and allocation, to find out the tariff and other restrictive practices of importing countries, to find out the product range and export prices of garments of other countries, to develop new designs and patterns of garments, to undertake marketing in individual foreign markets, to send trade delegations and missions to foreign countries as well as to survey export potential of readymade garments from the country.

(3) To appoint representative, agents or correspondents in foreign markets for the purpose of continuously and regularly reporting the markets prices, market preferences and latest fashions and designs prevalent in the foreign countries.

(4) To conduct propaganda and publicity regularly and continuously so as to bring to the notice of the importers and the public in foreign countries the advantages of trade and commerce with India and to create a liking for the various types of garments markets

for the purpose of continuously and regularly reporting to manufacturers, traders and exporters of garments.

(5) To assist members, especially, in the Small Scale Sector by giving assistance in the matter of understanding and implementation of the drawback, rules and procedures, import licence facilities provided and how to apply for the facilities.

(6) To establish design centres, to evolve improved design and patterns and garments suitable for export, to improve the qualities and standards of the fabrics and garments by importing technical know how, to encourage export production of quality garments and to undertake necessary research in fashions, designs and techniques and to encourage manufacture of garments for exports.

(7) To undertake training of workers and technical personnel, to improve the skill of workers engaged in garment manufacturing in India and to assist in the technological base of the garment industry.

(8) To obtain from members of the Council and to prepare for the Council as a whole, action plans for promotion of exports, development of export markets, generation of production for exports, setting of export targets generally and in relation to specific countries and commodities on an annual basis and for such medium and longer terms as may be considered desirable and to ensure/undertake execution of such plans.

The complete list of the AEPC’s objectives can be found on the company’s website in the Articles and Memorandum of Association (link from main page), as well as the names, address, and description of subscribers. Content of interview (7 July 2006) with the Secretary General of the AEPC: The main issues in the garment industry are labor and infrastructure. AEPC focuses on three things:

• marketing help, • lobbying to government to change laws regarding labor and infrastructure

(and whatever other business bottlenecks there are), • help with training and productivity (14 training institutes), and • raw material supply (both indigenous and imported).

He stated that over the industry as a whole, unit prices have remained stable pre and post quota phase-out. He said the three biggest centers for garment production were

• firstly Delhi, its strengths being better infrastructure, NCR region, and its specialization in better embroidery and the “India look” (ethnicwear heavy with embellishments and more complex work);

• secondly Bangalore, its strengths being higher levels of worker productivity, and lastly Tirupur, specializing in knitwear.

He stated that the government needs to increase labor flexibility, so that workers can be more easily fired and hired, otherwise productivity will remain stagnant and labor costs will remain high. A specific AEPC goal is to get the government to change the law that states that workers are permanent employees after 100 days, to 200 days, so that businesses who do not get orders during the winter are not hurt by the cost of labor. For three months of the year, he stated, garment businesses do not have orders.

He listed the top ten Indian garment factories as • Shahi Exports (Delhi), • Richa Global (Delhi), • Golkadas Images (Bangalore), • Golkadas Exports (Bangalore), • Creative Group (Mumbai), • Texports (Mumbai), • SPL Industries (Delhi), • Modelama (Delhi), • Centwin Group (Tirupur), and • the Eastmen Group (Tirupur).

These businesses have succeeded through a number of different strategies, with a common thread of individual attention to quality control and productivity by hiring consultants and building better facilities. He mentioned several notable resources, including

• an HR training institute-KSA Technopack, • a foreign consultant agency Method Workshop (main consultant Roger Thomas), • Gurgi (“biggest industry consultant”—saw this name in the fabric stores in Jyoti

Apparels), and • the Cotton Textile Export Promotion Council.

The AEPC did not have company specific financial data, as it is self-reported. The researcher purchased the newest book of statistics on industry level data that the AEPC had (2003) and a directory of garment exporters.

4. NATIONAL INSTITUTE OF FASHION TECHNOLOGY (NIFT) Ministry of Textiles, Government of India Website: http://www.niftindia.com/iftf.htm Address: NIFT Campus, Hauz Khas Near Gulmohar Park, New Delhi-110 016, India Telephone: 26850484, 26964771, 26965059, 26965080, Extn:306 Contact Person: Professor Rajesh Bheda, PhD., Chairperson, Department of Fashion Technology Telephone: 26850484, 26964771, 26965059, 26965080, Extn:306 Fax: 91-11-26851198 Mobile: 9810154829 E-mail: [email protected], [email protected] NIFT was set up under the Ministry of Textiles in 1986. According to its CE (Continuing Education) Prospectus 2006-07: NIFT provides quality fashion-education to industry experts, professionals, practitioners, and entry-level candidates in the form of Continued Education Programmes. Each of the seven NIFT Centers offers a spectrum of specialized short-term courses that address the dynamics and niche needs of the fashion industry and open windows of opportunity to interested candidates. In addition to classroom learning, these courses offer a unique opportunity to participate in the lively academic environment of NIFT, and avail of facilities like laboratories with state-of-the-art equipment, Resource Centres, and diverse faculty expertise. The thrust of CE Programmes is on integrating theory and practicals with industry best practices and reciprocal professional interaction in a consolidated time-bound format, leading to upgradation of skills and knowledge, enhancement of critical abilities, advancement of careers, and the evolution of new professionals. (Gauri Kumar, Director General of NIFT) The Institute: Today, NIFT is acknowledged as the premier institute of fashion design, management and technology across the globe. NIFT has set academic standards and excelled in thought leadership by providing a pool of creative genius and technical competence to the fashion industry nationally as well as globally. The Institute has pioneered the evolution of fashion business education across the country through a network of seven centres at New Delhi, Bangalore, Chennai, Gandhinagar (Sub-Centre: Surat), Hyderabad, Kolkata and Mumbai. The centres are professionally managed platforms of the world’s finest design expertise, management practices and manufacturing technologies. They offer a learning environment that encourages innovation, creativity, and excellence. Continuing Education (CE) Programmes: National Institute of Fashion Technology, besides conducting regular professional undergraduate and postgraduate programmes in Design, Management and Technology, also offers short duration part time courses under Continuing Education (CE). NIFT has crafted a range of Continuing Education Programmes, which have been developed in consultation with reputed academicians [sic] and industry practitioners. These programmes reflect the requirements and

concerns of the industry and have been carefully planned to spur professional growth, relevant to individuals at different stages of their careers, and also to those aspiring to join the industry. The CE Certificate Programmes are aimed at complementing the practical knowledge of the industry professionals with formal technical education in their respective areas of work. The flexible schedule enables the participants to pursue the programme without interrupting their professional activities. With focus on interactive learning, the programmes provide a congenial environment that integrates theory with practice. The participants receive a NIFT certificate on successful completion of the programme. The library at the NIFT campus is open to anyone, though you cannot take bags inside the doors or check out books. However, it is a useful resource in identifying the types of materials used in classes and to train managers and HR personnel—one book on HR management that the researcher later purchased had a lengthy passage on labor unions and how to use HR strategies to discourage their formation. Content of interview (20 July 2006) with Professor Bheda: Professor Bheda has been with NIFT for 16 years. He teaches classes in quality management, productivity (how to perform time studies), corporate social responsibility, and a global overview of the garment industry. The main characteristics of successful firms include:

• recognizing what customers are looking for, • better quality product and service, • managing their supply chain better, • offering shorter lead times, • design development, • higher productivity • use the help of consultants, • BPR manufacturing, • have more highly trained workforce, and • hire or train industrial engineers.

The average Indian garment factory has 100% potential in physical labor productivity, and they are making efforts to reach good productivity, with production planning and scheduling, performance-based rewards system. Most common is line supervision, training managers, operators, methods monitored, quality improvement program, trying to get workers’ involvement. If companies put efforts into enacting these measures, there could be a 50% improvement in quality. Post-MFA trends have been a consolidation of supply chain and capacities; manufacturers consolidating capacities, suppliers reducing subcontracting, buyers reducing number of suppliers as well as brands. Companies are trying to move up the value ladder as product development and design are becoming more important. U.S. and EU have always been strong markets in India, probably average 70% of India’s market, as there has not much shift in markets. Unit prices are down, demand is up, cost is up,

there is an erosion of the bottom line and companies find it difficult to survive and improve working conditions. Regarding corporate social responsibility, “suppliers get a feeling of being cheated,” that retailers are paying lip service to CSR without sharing the cost burden, and are simply passing it on to the suppliers. Retailers should start partnering with the brands and rewarding CSR compliant suppliers. Everything in the market is transaction-based, driven by price and the customer can walk away at any point, so suppliers feel they are not committed. Social programs are a long-term investment, and many cannot afford them because there is typically no financial payback, so some firms are investing in CSR to the extent they can afford. He does not see a correlation between turnover and CSR programs: “ultimately it comes from within, from principles, not because the buyer says the firm has to do it.” The researcher mentioned the United Students Against Sweatshops-proposed Designated Suppliers program and if suppliers would be interested in such a proposal and he said absolutely, something like it has been discussed, and as long as it is ensured that the rewards system cost comes down to the factory floor, it would be good to invest in social improvement program. However, it would have to be meticulously and carefully implemented. He gave a contact person to interview from Shahi Exports and up-to-date contact information number for Orient Craft. The day of the interview was the final day of the Indian International Garment Fair (IIGF: www.indianapparelfair.com, 38th annual: www.indiaapparelfair.com), the 37th annual garment fair with 393 exporters/exhibitors at Pragati Maidan. The core group of organizers include Vijay Mathur, the AEPC Director of Export Promotions (interviewed him after K.K. Agarwal), Vijay Agarwal (Chairman of AEPC, Mumbai), H.K.L. Magu (Chairman of Jyoti Apparels), K.K. Jalan. The researcher obtained a buyer ID and toured the grounds. None of the firms were top ten exporters or easily recognizable; it seemed to be a showcase for smaller firms to vie for new buyers and international exposure. The award winners for their showcases (announced the previous day, so the researcher asked IIGF workers) were 1) Intercraft (New Delhi), 2) Shilpayan Craft (Jaipur) 3) Another firm from Jaipur.

5. NORTHERN INDIA TEXTILE RESEARCH ASSOCIATION (NITRA) NITRA, Sector-23, Raj Nagar, Ghaziabad (UP) 201 002 Website: http://nitratextile.org/ Contact person: Dr. J. V. Rao, Chairman of NITRA, P.S. 0120 278-3638 NITRA was established jointly by the industry and the Indian government (Ministry of Textiles) in 1975 with the objective “to carry out scientific research in the field of textile as well as to promote and foster scientific research studies for the extension of knowledge related to or connected with textile industry” (NITRA’s website). It is the only ISO 9001:2000 accredited textile research organization in India. It is linked to the Ministry of Textiles and is recognized by the Department of Scientific and Industrial Research (both government entities).

NITRA’s Experience in Environment Field: NITRA’s Environmental Division has made headway…[in] solving the industrial problems related to environment through R & D based Consultancy, Publications, and Seminars/ Conferences/ Training programs…NITRA has carved a niche and occupied leadership in Package Design Consultancy for effluent treatment and water recovery. Several prestigious textile units and multinationals are already within its consultancy network. The Environment division has successfully executed 74 industrial projects with effluent handling capacity of 100 m3/day to 2000m3/day…Environmental division has 40 publications in environment field…The division has organized several seminars/workshops during the last one decade in the following areas for the benefit of

According to NITRA’s 2006 Prospectus: NITRA’s Multifarious Activities

*Job oriented professional courses (full-time and distance learning) in textile, garment, environment and allied areas.

*HRD activities through training programs, seminars, workshops, conferences and publications.

*Customized consultancy packages for national and international clients in the areas of Product Development, Product Diversification, Cost Reduction, Quality Improvement, ISO-9000 Quality Management System, Pollution Control, ISO-14000 Environment Management System, Environmental Audit, Design of Effluent Treatment Plants and Water Recovery Plants, Machine Design & Development, Energy Conservation, Energy Audit, Manpower Planning, Process House Study, Techno-economic Viability Study, Maintenance Management, Maintenance Audit and a lot more.

*Quality Evaluation of textiles, chemicals, dyes, waters, effluents, leather, and plastics.

*Research and Development projects and industry specific surveys related to textile & garment industry.

*Need based cost effective software development. *Collection and dissemination of data useful to the textile & garment industry.

textile and allied industries: waste management, eco-friendly textiles, effluent treatment and water recovery plant, environmental statement…NITRA’s Environment Laboratory is well equipped with Sophisticated Analytical instruments, which are essential to conduct such a program…[it] is accredited/ recognized by the National Accreditation Board for Testing and Calibration Laboratories (NABL), the Bureau of Indian Standards (BIS), and the Haryana State Pollution Control Board (HSPCB). An in-house miniature ETP (effluent treatment plant) of 100 Liters/hour capacity has been installed by NITRA. A programmable ADI Bioreactor System of 3 liters capacity from Applikon Dependable Instruments, Netherlands, has been installed for carrying out treatability studies of biodegradation of industrial effluents through aerobic cum anaerobic route. Library: Enriched with 5,000 books and journals, the…library [keeps students connected with] ongoing global developments. The library also subscribes to 150 [national and international] periodicals... [NITRA’s IT Center] has over 100 [PC’s]... NITRA has a wide database of employers [in its placement cell, to build the careers of its students and] monitors the current trends and requirements in the job market [by keeping in constant touch with prospective recruiters]. According to NITRA’s website: The Research Advisory Committee is an apex policy making committee of NITRA to guide it in its research activities and formulating short term, mid term strategies and policies and creating necessary infrastructure. The Committee also guides NITRA to conduct research and provide consultancy to the industry in the areas which are more relevant in the present context. Content of interview (7 July 2006) with Chairman of NITRA: Gave background on the history of the textile industry, from composite textile mills in the 50s-60s to the rise of small scale businesses/ fragmentation, fear of China post-quota, etc. During the 60s-80s, he said that unions hurt business. He allowed that workers were being exploited, but would not elaborate and would only refer to the intractability of trade unions in vague terms. Stated that the fragmentation of the business made quality control an issue. Also stated that it cost businesses more to subcontract because they had to pay for delivery. Complained about government infrastructure and labor laws, especially the law whereby a worker that is employed for 100 days is considered a permanent employee. The government is currently working on better infrastructure, better access to a supply of power through a cluster system called Scheme for an Integrated Textile Park (SITP), which would consolidate factories, improve infrastructure, and perhaps have relaxed labor laws within these sites. Access to and the price of power seemed to be a big issue for him. He believes the government should subsidize capital for Indian business like China (mentioned something about a Technology Aggregation Fund, TAF). NITRA helps factories with product development and various audits; quality, energy, water, legal compliance, etc. There is a shortage of skilled garment workers, especially

machine operators at the shop floor level, so NITRA conducts training programs for workers that last 3-6 months. They conduct in-plant training as well as distance learning programs for middle management at NITRA itself. When asked for company names, he mentioned Vardhmal, Arvind, Reliance, Bilwara, L and J (seem to be mills, not garment manufacturers). NITRA’s worker training program’s classes (this year beginning in August) cover mostly productivity issues for middle management such as production managers and line supervisors. Students apply to the program online and are selected on the results of aptitude examinations and interviews. They typically have 4-5 students applying for one seat. The course coordinator is Vivek Agarwal, a NITRA Senior Scientific Officer. Classes are full days, 10:30 am - 4:30 pm. The researcher obtained a copy of the 2006 prospectus.

CHAPTER THREE COMPANY PROFILES

1. MODELAMA EXPORTS LTD. An ISO 9001:2000 certified company The information in the following company report was obtained from interviews with the Director, Human Resources manager, Merchandising Agent, the company website, documents given by the HR and production managers including a company profile, business articles, ICRIER financial data, and G. Manicandan’s CEC Report. I. CONTACT INFORMATION1 Contact Person Lovleen Kumar, Director E-mail: [email protected], Mobile: 9810015693

Corporate Office2 Plot No. 7 & 8, Sector-5, Manesar IMT Gurgaon -122016, Haryana, India Tel: 91-124-2290993, 2291131 Fax: 91-124-2290864 Website: www.modelamaexports.com E-mail: [email protected] Head Office Delhi Head Office Gurgaon B-57, Okhla Industrial Area, phase -1 184, Udyog Vihar Phase -1 New Delhi -110020, India Gurgaon, Haryana, India Tel: +91-11-26810103 Tel: +91-124-2397838-42 fax: +91-11-26817969 fax: +91-124-2397843

1 Initial information obtained from company website, and updated telephone numbers from interview. 2 Unit visited by the researcher.

Road Map 3

Production Units4 1. 200, Phase 1 Gurgaon 2. 201, Phase 1 Gurgaon 3. 204, Phase 1 Gurgaon 4. IMT Manesar, Plot No-5, Sector-4 Gurgaon 5. Plot No. 7 & 8, Sector-5, Manesar, Gurgaon1 6. B-33, Okhla Industrial Area, phase -1 New Delhi 7. B-80, Okhla Industrial Area, phase -1 New Delhi 8. B-26, Okhla Industrial Area, phase -1 New Delhi 9. B-57, Okhla Industrial Area, phase -1 10. 184, Udyog Vihar Phase -1 II. BRIEF HISTORY Modelama was founded in 1979 by Mr. Lalit Gulati as a family-run operation. In the first year they exported Rs. 45 lakhs with 50 indigenous sewing machines and a workspace of 4,000 square feet. Modelama today has ten professionally run production units over 4,00,000 square feet. In 1999, Modelama professionalized its management structure and has been consistently upgrading technology in their production facilities. Modelama places a great emphasis on technology as the secret to its success.5 III. BASIC PROFILE6 Legal Composition Sole proprietorship, owner is Mr. Lalit Gulati. 3 From company website. 4 Other production sites in untranslated Hindi document. 5 From website, interview, and Pandey, Vinita. “Build Quality Rather Than Check The Quality.” Apparel Resources. <http://apparelresources.com/defaultnextone.asp?msg=2710&cod=newsindetail&nam=>. 6 From company website.

EOU Information Modelama Exports Ltd. is an export oriented unit registered with NEPZ, LOP NO.4-530/2001-100% E.O.U I/6921dt28/08/01 RCMC NO. 4-530/2001-100% EOU/103 dt 14/09/2001 and also registered with the Apparel Export Promotion Council since 03/05/2001 (Registration No.AEPC/REG/MER/47569/N/2001) as a manufacturer/ exporter of readymade garments including woolen, knitwear and garments of leather, silk, jute and hemp. Exports/Imports 100% exports. Modelama does not manufacture for the domestic market. Product Mix Areas of specialization include outerwear, nightwear, ladies blouses, dresses, trousers, shorts, skirts, kidswear, and home furnishings. Uses natural fabrics (cotton, linen, silk, wool), synthetics (viscose, polyester, polyamide), and blends. Incorporates ethnic Indian accents and embroidery into design samples. Launched Home Textile Collection in 1999, offering products such as table linen, drapery, top of beds, and decorative items for loungewear like throws, cushion covers, etc. Added outerwear to their product mix in 2001-2002, which may have contributed to minimizing seasonality issues. Clients USA: GAP (Banana Republic, Old Navy), Federated Stores (Macy’s), Target Stores, Mervyns, Saks, AMC, Sears Roebuck & Co., Charming Shoppe Inc., Lane Bryant, Kohls-Belk, Pottery Barn, William-E-Sonoma, Dayton Hudson Corporation, Chambers, Lands End, Marshalls, Westelm, Proffitts. Tommy Hilfiger, A & F, Colt’s Europe: Etam, Zara, Marks & Spencer, H&M, Galeries Lafeyette, Monoprix, La Halle, Eurofiel (Women’s Secret), Villersey & Boch, Modafil UK: Laura Ashley, Next, GUS, Freemans, Grattan. Canada: Eatons, Hudson Bay, Marmaxx, Sears Roebuck & Co., Zellers Australia: Country Road Awards Target Vendor Award of Excellence, 1992, 1993, 1999, 2000, 2001 Federated Merchandising Group Five Star Award (in Development of Federated Department Stores Private Brands and Labels), 1998, 1999, 2000, and 2002 Associated Merchandising Corporation Outstanding Performance, 1996 Charming Shoppes Inc. Sales Growth and Profitability Vendor Award, Nov. 2000

IV. FINANCIALS Turnover

0.5 2 3 515

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Other Financials7 2003 2004 2005 Total Sales 180 crores 180 cr 200 cr % of output exported 100% 100% 100% Profits 15% 15% 20% Capital employed 2.5cr. 3cr. 3cr. VA per employee Rs. 500 Rs. 500 Rs. 500 Total employment 500 500 500 Production workers 450 450 450 Proportion exported directly -- -- 60% Proportion exported indirectly through intermediaries 40% Misc. No. of pieces exported to the US 150,000 per year No. of pieces exported to EU countries 25,000 Proportion of workforce that is female 30% Average wage for female production workers Rs. 3000/per month Average wage for male production workers Rs. 2800/per month. 7 ICRIER Data (based on an interview at B-57 Okhla Industrial Area plant in Fall 2005)

V. BRAND INFORMATION8

Modelama's Export Market

94%

5%

1%

U.S.A.

Europe

Others

Major Clients Brand Origin Length of Relationship % of Sales Federated Stores (Macy’s) USA Since 1975 30-40 Target Stores USA Since 1975 15 GAP (incl. BR and ON) 9 USA 10 years plus 10 Tommy Hilfiger USA 10 years plus -- Marks & Spencer USA 10 years plus -- A & F USA 10 years plus -- Colt’s USA 10 years plus -- Saks USA 10 years plus -- Etam Europe 5-6 years -- Zara Europe 5-6 years -- Marks & Spencer Europe 5-6 years -- H & M Europe 5-6 years -- Buying Agency or Direct Most contracts are negotiated through buying agencies.

Average Unit Prices (per piece of garment supplied) Unit Price Origin Product Mix Retail Markup Type10 $5-7 USD U.S. Brands Casual wear 4 to 7 times Mostly FOB $10-16 USD European Brands High Fashion 4 to 7 times Mostly FOB 8 From interviews with the Director and Senior Merchandising Agent. 9 “GAP is sourcing worth about $1 billion from India and we are doing more than $10 million with them.” Lalit Gulati, Modelama Chairman, quoted in 9 Pandey, Vinita. “Build Quality Rather Than Check The Quality.” Apparel Resources. <http://apparelresources.com/defaultnextone.asp?msg=2710&cod=newsin detail&nam=>. 10 Nearly all brands are FOB with the exception of discount retailers like Target Stores (USA). An example given was if the retail price of a given garment manufactured for Target is $9.99, 60% of that is Target’s profit margin per unit (PMU). The remaining $3.99 is the landed cost, which includes not only the factory unit price but the duty cost (AMC and freight). Of that remaining $3.99, ~$2.75 goes to Modelama. Although they get large production volumes from discount retailers, the unit prices are markedly lower than specialty stores.

Unit Prices Since MFA Phase-out Unit prices have gone down an estimated 7-10% due to increased global competition. V. INFRASTRUCTURE Subcontracting Modelama does not appear to subcontract.11 Production System Uses an assembly line system, which varies according to the product. The day the researcher observed the process, they were manufacturing garment orders for Charming Shoppes Inc., Marks and Spencer (Style and Co.) as well as home furnishing products. Production Capacity12

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Design/Sampling Modelama has a fairly large design department. Typically, Modelama will present their company profile to the buying agencies of MNCs, who will then contact them with a development package if their profile fits their needs. Then there is some back and forth communication between Modelama and the MNC to reach an agreement in terms of product design, volume, and delivery times.13 Gayatri Lal, an alumnus of the National Institute of Fashion Technology (NIFT), is one of the principal designers. “My team of designers scans international trends and comes up with a tentative collection of not only designs but also shades. We then sit down with the stores, fine-tune the patterns, add a bit, subtract a bit, and get down to manufacturing. Some of the orders can be pretty huge - 80,000 pieces, for instance.”14

11 According to interview with the Director. 12 From company website and brochure. 13 From interview with Director and Senior Merchandising Officer. 14 Makhijani, Vishnu. “Indian Fashion Firms Adopt Global Pret and Couture.” <http://www.ittimes.co.kr/en/node.asp?em=M&mcode=200602&idx=1083>.

Quality Control15 Modelama’s motto is “build quality rather than check quality.” Modelama emphasizes technology and internationally acclaimed systems to maintain a high level of quality. Procedures are based on aql 4 point system by which all fabrics are screened and categorized. Modelama has an in-house laboratory that is equipped with testing machines for AATC Standards and has developed in-house grading systems based on ERP. Tests include tensile strength, tearing strength, pitting test, PH check, color fastness to light, laundering and crocking, GSM check, etc. In the sewing departments, they use internationally standardized procedures like the traffic light quality assurance system. Approximate number of workers16 Modelama employs a total of ~6,000 workers in all plants. Site visited by the researcher employs about 1100 workers (including about 15 accounts staff), over 90% male. Departments17 Production (~800 Workers) There are about 560 tailors. The floor is laid out in dozens of assembly lines, at the front of which is displayed an “Hourly Production” dry-erase board with the line number, supervisor name, input, output, and number of workers. An example line was sewing collar parts with a total of 46 tailors and 5 helpers. The company deploys over 3000 imported sewing machines with customized workstations. Machinery includes Auto Zig Machine, Auto Pocket Welting M/C, Programmable Sleeve Setter Stations, Auto Surging Machine, Auto Dart Making Stations, Pneumatic Button Hemming Stations, Differential Feed Machines Needle Feed Machine, Top, Differential and Bottom Cylindrical Bed Unison Feed Machine, Blind Hemmers, Auto Belt Attaching Stations, Multifusing with Three Track of Loading (High Performance Macpee). Cutting (50-55 workers) The cutting department had five lines of machines laid out with worker stations. Machinery includes Auto Spreaders, Autocad (Lectra), Auto Cutter (Lectra), Band Knife M/Cs, Air Flotation Tables. Washing (24 workers) and Finishing/ Pressing (175 workers) The finishing area had lines of workers pressing and folding clothes. This was the only department with women. The product was women’s fashion blazers for Style and Co. Washing machinery includes a wet and dry processing unit comprised of micro processor controlled washer extractors, perc based dry cleaning machines, sand blasting, and brushing machines (from light softener washes to heavy enzymatic washes).

15 From company website. 16 From interview with Director and Human Resources Manager. 17 Information on machinery was primarily taken from the company website. Information on workers and floor layout is specific to the unit visited and is taken from an interview with the HR Manager.

Pressing and finishing machinery include multipresses, dummy presses, flatbeds, calendaring machines and range of buck shapes and steam irons from manufacturers like MACPII, Veit, Trevil, and Renzacci. Embroidery Did not observe embroidery process during visit. Has hand and machine embroidery capabilities. Machinery includes 20m length Schiffley Embroidery (Lasser & Saurer), 200 single head and 6 multiple head computer embroidery machines. Additional Machinery Factory has a special conveyor system that moves products from assembly lines to other departments. HR Manager boasted that Modelama was the only factory in India to have this machine, stressing how much state-of-the-art machinery has contributed to the quality and productivity of the manufacturing process. Productivity Schemes Company has production planning meetings consisting of the HR Manager, Production Manager, and line supervisors who perform time studies on particular styles and set worker targets. No workers are involved in these meetings. The targets are communicated to workers by line supervisors and dry-erase boards on the production floor that display productivity goals. The Director said that workers are given incentives in productivity schemes if they reach their targets. However, the HR manager said that no incentives are given, indicating that he would like to develop such a system in the future. If workers cannot reach their targets, the HR manager stated that no punitive measures are taken as it is prohibited by law. He talked vaguely about “helping” the worker to reach their targets or perhaps moving them to another department for which they would be better suited. The production manager gave the researcher a copy of a time-study conducted for Charming Shoppes, Inc style. VII. WORKING CONDITIONS18 From to Work timings 9:30 6:00 Timings for Lunch break 1:00 1:30 (washing) (in shifts by dept) 1:15 1:45 (production) Wages Average wages Rs. 3000 per month, and unskilled minimum wage was Rs. 2448 per month. Because the factory is not near a city, management states that they set wages higher than minimum wage to get workers to commute. Category Average Wage (Rs./month) Tailors +skilled 3500

18 From interview with HR Manager.

+semi-skilled 3000-3300 +unskilled 2710 Cutters +machine operators 3000 +unskilled 2500-2800 Washers +sandblasting operators 4000 +other machine operators 5000 Finishing +pressers 3000 +skilled final checkers 3500 +semi-skilled checkers 3200 +general unskilled checkers 2700 Supervisors/Mid Mgmt +skilled (3+ yrs experience) 7000-11000 +assistant (1-2 yrs experience) 6000 Wage Setting For shop floor workers, supervisors conduct time studies evaluating the skill level and productivity of a new hire. After a three-day period, workers are then offered a monthly wage based on this evaluation, which is not subject to negotiation. HR Manager stated that wages increase after a year. Benefits HR Manager indicated that workers receive the social benefits required by law, including ESI and PF. Overtime Management indicated no more than four hours per week per worker, and that workers receive double wages for overtime hours. Expressed dissatisfaction with labor laws requiring double overtime, stating, “It should be time-and-a-half, like China.” Labor Turnover Estimated worker turnover per month at 7-10%. Indicated that there are a few shop floor employees who have remained the two years the factory has been in operation. VIII. HUMAN RESOURCE POLICIES19 There does not appear to be common policies across the plants, except for worker recruitment for middle management positions.

19 Information based on interview with HR Manager and documents given by HR Manager and production manager.

Management Structure

Ms. Beneeta SeigalSenior Merchandising

Management Staff/Accounts Personne

Assistant Supervisor(Less skill/experience)

Helpers (Unskilled)

Skilled Tailors/Machine Operators

Mr. Shiv SinghSkilled Production Line Supervisor

Mr. K. KiranProduction Manager

Mr. Anil ChauhanHR Manager

Other Upper Management Positions

Mr. Lovleen KumarDirector

Mr. Lalit GulatiSole Proprietor

Founder/Chairman

Boxes with straight-line borders are positions common throughout all production sites, while dotted-line boxed positions are factory-specific and subject to variance. Worker Training This site does not provide training to its workers. However, workers have a brief orientation session during which they are informed of security measures, standing orders, grievance procedures, Modelama’s anti-harassment policy, and vendor codes’ of conduct. Recruitment Policy They do not use labor contractors at the unit visited. However, according to G. Manicandan’s “Mapping First Tier Suppliers in Garment Industry in Delhi,” Modelama uses labor contractors for some of its other units, such as the unit located at 200, Phase-I Gurgaon. To recruit shop floor employees, the company posts signs on the gate, at bus stops, and in nearby worker villages. For middle management positions, the company recruits from training centers and placement companies and has a formalized policy that the researcher obtained. Workers are a mix of local villagers and from Gurgaon.

Dismissal Procedure No information was obtained by the researcher regarding a formalized procedure. Union There is no union in the production site visited, nor have there been unionization attempts. Management stated that it would have no objection if workers wanted to form a union and they are free to associate with any group they desire. “We take care of all their problems, so there is no need for a union.” Worker Committees Since there is no union, they have joint employee-worker committees required by law, such as a Health and Safety Committee, a Works Committee, an Anti-Harassment Committee, and a Sexual Harassment Committee.20 Grievance Policy Procedure If workers have a problem, that they can report their grievance to their direct supervisor or upper management. HR Manager indicated that there are very few worker grievances, and that management works to quickly solve problems in order to maintain an atmosphere of “family.”21 Corporate Responsibility/ Codes of Conduct Modelama’s Anti-Abuse/Harassment Policy is posted on the factory floors in English and in Hindi. The code of conduct for Charming Shoppes Inc. was displayed on the factory floor, but only in English. Work times for employees were also posted. Medical Care There is a medical room in the factory, and an ESI station 1.5 km from the factory. A resident doctor is “available at all times,” but when asked to meet the doctor, the researcher was informed that he was at another production site. There is a company dentist that comes every Thursday. There are only six recorded injuries at this site for 2006. All workers were said to have received medical attention. According to G. Manicandan’s “Mapping First Tier Suppliers in Garment Industry in Delhi,” there are no doctors in two of Modelama’s other production units (200, Phase-I Gurgaon and B-57 Phase-I Okhla Industrial Area). If workers suffer from minor injuries, the company usually pays the medical expense, but avoids paying for major injuries and illnesses, preferring to dismiss the workers. Security New security measures have been implemented since the quota phase-out, according to the Customers Trade Partnership Against Terrorism, or CTPAT model. U.S. companies have required them to uphold a more stringent counter-terrorism model of security in compliance with U.S. Customs Security requirements regarding issues like preventing trespassing, tampering, traceability. The factory locks its doors at night, in compliance 20 Received a Hindi copy of group meeting minutes. 21 Received a Hindi copy of policy.

with these measures. If workers stay for overtime, only their department is kept open and the rest of the factory is shut down at 6 pm. IX. BUSINESS BOTTLENECKS Main problems hindering financial success according to the Director are poor relative infrastructure, low relative levels of productivity, relative strength of the Indian rupee to the dollar opposed to weaker Asian currencies, and government bureaucratic hurdles regarding labor law. The Director mentioned that seasonality is an issue, advancing the common view that the government should amend labor law to increase worker flexibilization so that companies can more easily fire workers when there are fewer orders in the winter. The HR Manager, however, stated that seasonality was not an issue and that they have orders year-round. If Modelama has had as much success in outerwear as they have stated in press releases, it would appear that seasonality should be less of an issue for them than other companies who do not manufacture winter clothing. In 2002, the Chairman stated that though the South is better known for it, Modelama successfully invested in the necessary infrastructure to export ~Rs. 25 crore in jackets alone.22 X. INDUSTRY COMMENTS The Director opined that the only reason MNCs were still placing orders in India is because they did not want to overexpose themselves in China. A business strategy that Modelama is looking into is “triangular shipping,” a more developed system of subcontracting modeled on Southeast Asian business strategies. MNCs would present their contract orders to Modelama as an Indian company, whose upper management and design departments would remain in India. Modelama would then shift the actual manufacture of the product to either countries with lower labor costs like Sri Lanka or duty-free countries, and then ship the product from that country. In an interview with Apparel Resources magazine, Lalit Gulati, the Chairman, and Sanjay Gulati, the former Director stated: Lalit: We do not consider machines as individual equipment but as a complete workstation. The idea is to convert a single lockstitch machine into a machine which can do a specialized jobs…so that we do not have to worry about the skill of the o,perator. We do not need masters; we need operators who can be trained. This can be achieved by deskilling operations to the simplest and most automatic level…We convert the machine with the help of our in-house engineers into individual units by developing different work-aids that convert a normal lockstitch machine into a workstation. Sanjay: …We have to train the operators to work on these re-engineered machines and I myself have worked on the machines eight hours to familiarize myself. Lalit: Machines change according to the product requirement…We have to be flexible because the buyer doesn't buy one thing all the time. 22 Pandey, Vinita. “Build Quality Rather Than Check The Quality.” Apparel Resources. <http://apparelresources.com/defaultnextone.asp?msg=2710&cod=newsin detail&nam=>.

Sanjay: It is a very unique combination of machines that we have that gives us this flexibility of handling [versatile] product [mixes]. XI. PERSONAL EXPERIENCE Modelama used an Italian consulting agency for the design of two of their factories, when they began to develop the infrastructure to manufacture outerwear. The unit visited is the site of their corporate offices and was built two years ago with the help of industrial engineers. The high level of attention paid to infrastructure and personnel management is probably not typical of their older factories. This is likely the factory to which buyers are taken, as it is the most modern. Modelama was the first company to be interviewed by the researcher. Contact was made by calling the general inquiry number on the website, then was directed to a Senior Merchandising agent, who was not available on the date of the interview, but directed the researcher to her colleague. Modelama was very open in disclosing information about the factory unit. The only question that management would not answer was regarding a detailed financial breakdown of the company.

2. SHAHI EXPORT HOUSE PVT. LTD. The information in the following company report was primarily obtained from interviews with the General and Divisional Managers of Marketing, the company website, business articles, and G. Manicandan’s CEC report. I. CONTACT INFORMATION Contact People J.D. Giri, Senior Management Ashok Raman, General Manager of Marketing Mobile: 98-18212505 E-mail: [email protected] Ajay Khanna, Divisional Manager of Marketing Mobile: 93-13369269 E-mail: [email protected] Head Office Faridabad23 Industrial Plot 1, Sector 28 Faridabad 121008, Haryana. Tel: +91-129-2273970/80 Fax: +91-129-2273485/91 E-Mail: [email protected] Head Office Bangalore Belandur Gate, Sarjapur Main Road Bangalore 560034, Karnataka Tel: +91-80-28439214/15 Fax: +91-80-28439356 E-mail: [email protected] Website: www.shahiindia.com Production Units: Plot No. 1, Sector 28, Faridabad. Shahi Export House has a total of eighteen manufacturing units. Two or three other units are in Delhi (Noida) and a fabric processing unit, Palmprint Textile, is in Ghaziabad. The remaining woven and all knit production sites are located in Bangalore. II. BRIEF HISTORY Incorporated in 1974 in Delhi. Harish Ahuja, the owner of the company, is former vice chairman of the Apparel Exports Promotion Council of India.24

23 Unit visited by the researcher.

III. BASIC PROFILE Legal composition of the Company Private Limited Company. Up until a year ago, the sole proprietor was Harish Ahuja, who is now the Managing Director. Family-owned. EOU Information No information was obtained regarding registration and EOU capabilities, though any exporter of this size must have at least one registered EOU for importing capabilities. Exports/Imports 100% exports. Shahi does not manufacture for the domestic market, nor does it currently have plans to do so. Product Mix Areas of specialization are mostly ladies woven tops and men’s tops. Shahi has expanded to home furnishings in the past year, but it is a small fraction of turnover ($5-10 million). Shahi’s product line covers casual and formal men's and boys', ladies' & girls' blouses , ladies' and girls' dresses, men's and ladies' bottoms. The knitwear product range includes 3 button polo shirts, t-shirts, tailored collar polo shirts, turtlenecks, mock neck, jackets, tanks tops, lingerie, loungewear, golfwear, sportswear, sleepwear.The fabrics range includes solids, yarn dyed single jersey, pique, interlock, rib, flat back rib, textured knits, jacquard, engineering stripers, full jacquards, heavy jersey in cotton, polyester cotton, polyester viscose, double mercerized, 100% polyester polar fleece, spun filament, cotton fleece, indigo dyed units, acrylic wool, and circular woolen knits. Clients Bobbie Brooks (Woman), Solutions (New York), The Children’s Place, Van Heusen, At Last and Co., Carolina Colours, Carolina Blues, Von Daniels, Cento Mila, Hollister Co. (Pacific Merchants), Euro Open, Seacorn, Enzo Lorenzo, Akademiks, Natural Issue, Sag Harbor (Sport), St. John’s Bay, Faded Glory, Cherokee, Ralph Lauren, Old Navy, A & F, TKS Basics, Jeans Dynam, Cross-Bow, American Khakis, Abercrombie & Fitch, Bleu, Arizona Jeans Co., Place Jeans, No Boundaries.25 Wal-Mart, GAP, H & M, Target Stores, JC Penny’s, Liz Claiborne, American Eagle.26

24 Fashion Newsletter, No. 2, 2005. <www.lawson.com/www/resource.nsf/pub/Fashion_News_05_02_en2_Webb.pdf/$FILE/Fashion_News_05_02_en2_Webb.pdf>. 25 From company brochure, which was printed in 2005 by the Bangalore office. It is primarily information taken from the website with a few new passages regarding Human Resources and corporate responsibility. 26 Remaining client names were obtained from interview with Divisional Manager of Marketing.

Awards Wal-Mart International Supplier of the Year 2000 (can’t read others)

IV. FINANCIALS Turnover $140 million 2005-200627 $120 million 2004-200528 $90 million 2003-200429 Other Financials Breakdown of Sales Revenue30 Est USD 2006 % of Sales Per Unit Price31 Material Cost 70 million 50% $3.25 Labor 16.8-23.8 million 12-17% $0.78-$1.11 Trims and Packing 14-28 million 10-20% $0.65-$1.30 Depreciation 1.4 million 1% $0.07 Machinery upkeep 2.8 million 2% $0.13 Overhead 2.8 million 2% $0.13 Embellishments32 7-14 million 5-10% $0.033-$0.65 Profit 14 million 10% target $0.65 27 Estimated by General Manager of Marketing. Turnover estimates varied by tens of millions of dollars between the GM and the Divisional Manager of Marketing, so figures cannot be considered accurate. 28 Fashion Newsletter, No. 2, 2005 <www.lawson.com/www/resource.nsf/pub/Fashion_News_05_02_en2_ Webb.pdf/$FILE/Fashion_News_05_02_en2_Webb.pdf>, accessed July 2006. 29 Estimated by General Manager of Marketing. 30 These figures were estimated by the Divisional Manager of Marketing in the space of 5-10 minutes, so they can only be thought of as a rough approximation. 31 Based on the company’s average unit price of $6.5 USD. Did not obtain average retail markup information, though generally it is four to seven times the unit price of the garment. 32 Embellishment costs such as embroidery depends on style. It can be none or most of the unit price. Percent of sales is based on an average estimate given by the Divisional Manager of Marketing.

V. BRAND INFORMATION

Shahi's Export Market

84%

15%

1% U.S.A.

Europe

Other Licensees(Japan, Middle East,Australia)

Major Clients Brand Origin Lgth of Relationship % of Turnover Wal-Mart U.S. 18 years 10-14 GAP U.S. 6 years 7-14 H & M Europe33 6 years 5-14 Target Stores U.S. 4-5 years 3-8 JC Penny’s U.S. 15-16 years 3-8 Liz Claiborne U.S. 3 years 3-4 Abercrombie and Fitch U.S. 5 years 3-4 American Eagle U.S. 4-5 years 3-4 Stated that do not have many huge clients; sales are mostly spread out among 15-20 buyers at any point in time. Buyers haven’t changed considerably post-MFA, though they are planning to increase shares in Europe. Buying Agency or Direct About 30% direct relationships, the rest through buying agencies. Stated that it is easier to deal with buying agencies in India than to maintain a direct relationship. Unit Prices (USD paid to factory per piece of garment supplied) Unit Price Range Average Product Mix Type Delivery Time $3.30-$26 $6.50 Casual, High Fashion Mostly FOB34 60-120 days Liz Claiborne can be up to $20, A & F can be up to $26, Wal-Mart is usually $4.50. Unit Prices Since MFA Phase-out Unit prices have gone down an estimated 7.5-15%, depending on the product. Prices for pants have dropped more, because of the nature of the quota restrictions.

33 In the U.S. as well, but the majority of the sales are to the European market. H & M is also the company’s biggest client in Europe. 34 Very few landed costs, though Abercrombie was mentioned as a landed cost buyer.

VI. INFRASTRUCTURE Subcontracting Shahi does not subcontract. Production System Assembly line system. Production Capacity Shahi as a whole: 2.4 -2.8 million PCs per month All Delhi factories: 300,000 PCs per month Production site visited: 150,000 PCs per month The knitwear sewing facility is capable of producing 250,000 pieces per month. Efforts are on to increase the knit production capacity to 0.5 million pieces per month. When the researcher visited the unit, Shahi was producing orders for many different buyers, among them 85000 pieces of peasant blouses with lace trim for GAP (Old Navy), denim jeans for Woodland, and 5,000 pieces of embroidered corduroy fashion blazers for Monsoon company. Design Shahi has two design departments located at the head offices in Delhi and Bangalore. Buyers send a “technopack” and/or samples of the “look” they’re going for, Shahi’s design departments produce a sample range for the buyer, who then shops around until they reach some sort of agreement. Quality Control Shahi has a fabric division that handles knitting, processing, and inspection. Fabrics are sent to in-house testing facilities to ensure that they adhere to STM standards. The laboratory is equipped with a Datacolor Computer Colour Matching System coupled with a Datacolor automatic Dispenser to ameliorate human error as well as a Mathis Padder with Dryer and Steamer and a replica pilot plant of bulk dyeing machines. The lab to bulk co-relation is maintained above 95%. The lab has a Datacolor infra-red dyeing equipment for exhaust dyeing. The color management group handles the product shade sorting and color related defects like listing and end-to-end problem detection. It is equipped with various machines that check tensile strength, tear strength, abrasion resistance, pilling resistance, shrinkage, fabric drape, fastness to various agencies (washing, crocking, perspiration, etc.). Processing Palmprint Textile is Shahi’s wet processing plant in Ghaziabad. Woven fabrics like poplin, twill, canvas, gauze, etc., and made of cotton, linen, rayon, and lycra blends are processed to international standards. Shahi makes prints like reactive, vat color discharge on reactive grounds, and pigments apart from some special printing techniques like burnt out effects on polyester-cotton blends. The unit produces 9000 meters of processed fabric per day. The pre-treatment section houses an Osthoff Gas Singe & Desize machine,

Benninger Continuous Bleaching Range, Ben Dimensa Chainless Merceriser. The Dyeing Section has machinery like a Kusters Cold Pad Batch & Benninger wash range, Continuous Dyeing Range , Jet Dyeing, Benninger Pad-Dry (with Kuster Padder) and Benninger Pad Steam Range. The unit has twelve color rotary Printing Machines, with after treatment machines like continuous Ager, Loop Ager , Star Agers , Polymerisers and Washing Ranges. The designing department is computerized with small yardages tackled on a Baby-Pilot Rotary Machine. The Finishing Section is equipped with Stenters, a Relax Dryer cum baker, Emerising (Peaching) Machine & Preshrinking Range, Speciality finishes (apart from normal silicon or soft finishes) like easy care (Self Smoothening rating 3-3.5), Permanent Hydrophilic, Stain repellant–Teflon , Water repellent, and application of Anti microbe or Permanent Fresh and Permanent Perfume. Knitwear The knitwear sewing facility is equipped with Pegasus top feed, micro processor controlled with automatic trimmers, CF Italia Collar attaching and latest Button Hole Machines capable of handling fine textured knits. Number of workers 15,000 in all of Shahi’s production sites 5,500 in all of Shahi’s Delhi (Faridabad and Noida) units Shahi’s Delhi factories employ 80% female workers, while in the Bangalore factories they are 90% female. Workers at production site visited Department and category ~Number of workers Gender Production Total 1800 Mostly female +Unskilled 400-500 -- +Semi-skilled and Skilled sewing operators

1100-1300 90% female

+Line supervisors 25 Mostly male Cutting Total 85 Mostly male +Unskilled fabric spreaders 60 -- +Skilled machine operators 25 -- Centralized Storage35 Total 150 -- +Semi-skilled and unskilled 120 -- +Skilled workers 20 -- +Staff who manage quality control 30 -- Washing Total 150 -- +Semi-skilled 120 -- +Skilled machine operators 30 -- Finishing (incl pressing/checking) 600 Mixed +Unskilled (heavy lifting) 50 +Semi-skilled 410 +Skilled 100

35 Stores for Noida production units as well.

+Supervisors and dpt/line-in-charge 40 Sampling (think incl in production) 50-150 Mostly female Remaining marketing, merchandising, accounts, shipping staff Mixed Total number of workers: 3,000 Machinery 6,500 in all of Shahi’s production sites 1,800 in all of Shahi’s Delhi (Faridabad and Noida) units 750 in production site visited The CAM based cutting department can make 75,000 cuts per day, while the 60 multi-head computerized embroidery machines have a capacity of 800 million stitches per day. The latest CAD software enables quick processing of pattern creation, grading, marker making and global electronic exchange of pattern data. The production unit boasts machines from Brother, Juki, Ngai Shing, Durkopp Adler, Hashima and Kannegiesser. It is also equipped with single needle lock stitch programmable machines with UBT, double needle-needle feed split bar machines, single needle top and bottom variable feed machines, feed-off-the-arm machines, fusing press, collar/cuff turning and blocking machines, pocket machines and automatic pocket welters. Washing The washing facility puts out over a ton of garments per day through specialized wash treatments such as softener wash, stone wash, enzyme wash , desize soft wash and golf ball wash. Embroidery Most is done by computer, very little is done by hand. Sampling This is a fairly large department in the production site visited. There are two departments for sampling, one for production and another room with rows of computers in which employees work on digitized patterns and samples. Productivity Schemes The unit visited has an industrial engineering department with eight staff, and it was stated that each unit has a similar department. This department is responsible for time-motion studies and an operation breakdown. They conduct production planning meetings jointly with managers and supervisors by department. They also conduct joint department meetings. These meetings set targets for the shop floor workers, who are not involved in these meetings; line supervisors convey target setting to them. This unit has an incentive scheme for productivity, in which workers get bonuses for exceeding their targets, which can be 10-25% of monthly salaries depending on how difficult the style is. The incentive scheme only applies to skilled and semi-skilled workers. Its implementation and form depends on the department. For example, in sewing, every hour the target is marked, and there are quality bonuses if clothes do not need repairs. In finishing, incentives depends on how many pieces are finished. The Divisional Manager of Marketing states that they always had incentive schemes, but they

have recently gone through major changes in their implementation. Benefits of the incentive scheme include a 10% increase in productivity in past two years in the sewing department, an increase in attendance, lower labor turnover, and a decrease of waste in the cutting department. VII. WORKING CONDITIONS36 From to Work timings (Shift 1) 8:30 am 5:00 pm37 Shift 2 9:00 am 5:30 pm Shift 3 9:30 am 6:00 pm The office opens at 9:30 and closes at 6:00. The workers get a fifteen-minute tea break between the start of work and their half-hour lunch break, and another fifteen-minute tea break between lunch and the end of their shift. Workers use their ID card to clock in and out of the factory.38 Wages As Estimated by Divisional Manager of Marketing39: Category Average Wage (Rs./month) Unskilled helper 2200 Semi-skilled operator 3600 Skilled operator 6,000 Supervisors/Mid Mgmt 10,00040 Minimum wage is posted as follows: Category Wage (Rs./month) Unskilled 2448 Semi-skilled 2558 Skilled 2708 Highly skilled 3008

36 Information from interview with the Divisional Manager of Marketing and the researcher’s observations. 37 The researcher toured the factory around 5 pm, when the first shift of workers were getting off. This early shift seemed to be entirely female, leaving male sewing operators and some female ones. However, there was still a strong female presence in the factory. 38 According to G. Manicandan’s CEC report, the workers at this unit do not get a tea break. 39 Stated that these numbers do not include ESI and PF; these benefits are additional. 40 G. Manicandan’s CEC report says a supervisor with eight years experience makes Rs. 4200.

Wage Setting Procedure Managers interview workers and then take a trial of their work for one day, after which the HR manager will put them into a set wage scale depending on their ability. Wages are fixed and there is no negotiation, they are only evaluated to see what category of skill they fall in. Workers are then on a three to six month productivity probation. Benefits Stated that workers do receive ESI, PF, and a three-month maternity leave. Workers who receive less than Rs. 7500 are provided with ESI benefits. Workers also have access to an on-site crèche for their children during the workday, which the researcher observed. Overtime Stated that there is not a lot of overtime because they plan production with target setting.

Estimated two hours per week per worker in the sewing and finishing departments, and negligible overtime for the other departments. Shahi’s overtime policies take into account gender; if overtime is needed, they try to have the male workers pick up the extra work instead of the female workers. Labor Turnover Estimated at 7-10% per month. Most sewing operators have been at Shahi for around two years. VIII. HUMAN RESOURCE POLICIES41 “Human intelligence is the greatest asset which we possess.” ~Shahi’s website Shahi’s updated brochure includes lengthy passages stating their dedication to innovative Human Resources approaches.

The Shahi workforce consists of committed and highly skilled people. People who are motivated to excel and trained in different disciplines of garment

41 From interview with the Divisional Manager of Marketing.

manufacturing. Shahi has ensured all systems are in place to make sure that everybody works in an extremely salubrious environment. Particularly so as clothing corporations the world over are labor intensive and it’s imperative that they are well looked after. Shahi has invested in a dedicated personnel management division to take care of its labor. Labor problems get a kind ear and are followed up on a priority basis, making Shahi one of the most sought after organizations to work for in the garments arena. 42

The brochure and website both state that human resources are developed using the training procedures of Kurt Salmon Associates. Worker Training Shahi trains the unskilled operators for a period of a week. Some are skilled, so they do not need to train them. Training depends on the job description of the worker. There is also an orientation program for upper level staff. Recruitment Policy Shahi states that they do not use a labor contractor, it is all direct employment. They do not recruit for shop floor positions beyond posting signs on their gates and through word-of-mouth. They are able to have female workers because they are in heart of Faridabad, not the outskirts of cities, so the labor is here. In the Shahi factories in Bangalore, they provide transportation to overcome those issues, but it is not necessary to do so here. Dismissal Procedure No information was obtained regarding a formalized procedure. Union Didn’t ask directly, but definitely not. Employ more women and uses HR strategies to disempower workers and remove blatant rallying points for workers. In G. Manicandan’s CEC report, workers revealed that there had been unionizing attempts that were suppressed by the management, and union organizers were either dismissed or isolated from other employees. Worker Committees Stated that there is a worker forum that managers also attend. Grievance Policy Procedure Presumably, the worker forum is a “safe space” in which workers can address any issues they have with managers. 42 From company brochure and website.

Corporate Responsibility/ Codes of Conduct The company has a biweekly English magazine that publishes news and articles by workers. They have activities for the workers such as an annual cultural week with games and contacts. Codes of conduct posted in factory include Carafour, Liz Claiborne, American Pacific, Target Stores, The Limited, Wal-Mart, Nautica, Charming Shoppes Inc., Dayton Hudson Corporation, and American Eagle. More of these were in both Hindi and English than I’ve seen at other factories; in fact nearly all had a Hindi translation.43 Shahi’s website claims a dedication to the environment and that “waste reduction is practiced to the hilt… the plants are environment friendly with Effluent Treatment Plants at all the wet processing units.” Shahi’s updated brochure includes add-ons regarding treatment of their labor force.

Shahi Export House adheres to International Labor Legislation. It aims at providing a conducive environment for employees to protect, promote, and support their families in the best way possible. Strict compliance with anti-child labor law is ensured. And some of the remarkable provisions for employees include: eligibility of workers for health insurance, educational facilities for children, training facilities for employees, personality development through work shops, seminars, and lectures, securing of employees’ earnings through e-com (EDI) and ATM cards. Best employee awards are given for overall discipline, attendance and productivity. A full-fledged Dispensary and Ambulance is provided with a doctor always on standby. Awareness programs are conducted for employees on health, hygiene, and nutrition related topics.44 Safety measures are given utmost importance. Fire fighters are on high alert at all times and every floor is equipped with the right fire fighting equipment. Evaucation boards are put up on all floors along with photographs of fire fighting personnel. The company organizes fire drills to keep employees alert in case of emergencies.45

Medical Care There are male and female onsite doctors and nurses in case of industrial accidents, and a first aid room in the facility. 43 From interview with Divisional Manager of Marketing and joint worker-manager magazine. 44 There are many signs posted on the factory floor with stating things like “Discipline: Team work is an easier path to excellence,” “Anything worth doing is worth doing well” and one about the importance of personal hygiene. 45 From company brochure and website.

Security System New security measures have been implemented since the quota phase-out, according to the Customers Trade Partnership Against Terrorism, or CTPAT model. U.S. companies have required them to uphold a more stringent counter-terrorism model of security in compliance with U.S. Customs Security requirements regarding issues like preventing trespassing, tampering, traceability. Supposedly all visitors have to have proof of identity, but I did not have to show it. The security guards inside were asleep. IX. BUSINESS BOTTLENECKS Seasonality is an issue, Shahi has to decline some orders during peak season (October-May), and then not working to full capacity during the off-season. It is not a huge issue, as they produce about 2.4 million pieces during the peak season and 2.1 million PCs during the off-peak season. However Shahi is trying to diversify their product range so that it becomes even less of an issue. Stated that they need better infrastructure regarding port system, since it takes too much time to get clearance at the ports. Also argued for more labor flexibility, however said they currently retain workers during the off-season because it becomes a problem to rehire workers. (Stated that retained incentive schemes and everything off-season.) X. INDUSTRY COMMENTS Trying to build up capacity to produce outerwear by next year to reduce seasonality issues. Mentioned that Southeast Asia has the same problem of seasonality, only different season. Suppliers have changed post-quota; now they are getting competition from small exporters; before they didn’t have the quota holdings to compete, now they do. Shahi is currently constructing a production unit in Bangalore that would have a capacity of manufacturing 200,000 pieces per month.46 Shahi recently opened up a warehouse in New Jersey.47 XI. PERSONAL EXPERIENCE Obtained contact information from NIFT. Website contact numbers are out-of-date. The production unit was enormous, though the researcher was not permitted to take pictures during the tour. The picture of the minimum wage was taken by the manager, as he would not permit the researcher to do so. Shahi is notable in that they have a majority female workforce in a place like Delhi, where the garment industry is over 90% male. However, according to G. Manicandan’s CEC report, Shahi does not have a sexual harassment committee, and there was some controversy a few years back regarding a male manager and a female worker, who reported her case to the police. The Marketing Managers did not mention any new initiatives taken to deal with the issue.

46 From interview with Divisional Manager of Marketing. 47 From interview with Professor Rajesh Bheda of NIFT.

3. M/S JYOTI APPARELS An ISO 9002 Company Government Recognized Trading House The information in the following company report was obtained primarily from an interview with the Managing Director, a company profile and Standard Operating Procedures given by the Managing Director, shop floor observations by the researcher, and an interview with an Assistant Production manager. I. CONTACT INFORMATION Contact People H.K.L. Magu, Managing Director Senior Vice-Chairman of the AEPC (Apparel Export Promotion Council) Mobile: 9810029999 E-mail: [email protected] Manish Mall Assistant Production Manager Mobile: 9899096999 Registered Office48 D-42 Okhla Industrial Area, Phase-I New Delhi, 110020 (India) Tel: +91-11-26816917, 26818977, 26810804 (D) Fax: +91-11-26819684, 26817910 Website: Jyoti Apparels does not have a website. E-mail: [email protected] Production Units Magsons Exports, 41/42 Phase IV Udyog Vihar, Gurgaon49 The researcher was not able to obtain the addresses of all nine factory sites, of which five are in Gurgaon, two are in Manesar (southwest of Delhi, south of Gurgaon), and two are in Okhla Industrial Area (New Delhi). II. BRIEF HISTORY Company established in 1976 by Mr. H. K. L. Magu and deceased brother. He had no experience, but by networking through his brother, who had contacts in the garment and textile industry, he started business in 1977 with an investment of Rs. 20,000 ($444 USD50). The company’s turnover was Rs. 500, 000 ($11,111 USD) in the first year, which roughly doubled each year until 1984. The company has increased sales an estimated 30-40% in the past year, due to the quota phase-out. 51

48 Unit visited by the researcher. 49 Unit visited by the researcher. 50 Conversions are based on today’s exchange rate (Rs. 45~$1) and are not adjusted for inflation. 51 Information on company background from Managing Director, HR strategies and production from Assistant Production Manager, and remaining information is from observations unless otherwise noted.

III. BASIC PROFILE Legal composition of the Company Partnership firm, owners are Mr. H. K. L. Magu and Mr. Kishore Magu EOU Information No information was obtained regarding a registered EOU. Exports/Imports 100% exports. Jyoti does not manufacture for the domestic market. Product Mix Areas of specialization include ladies’ (roughy 80% of production volume), gents, and children’s (roughly 15-20%) readymade tops, blouses, skirts, and other garments. Manufactures woven (80%) and knitted (20%) garments using mostly yarn dyes, solid dye, viscose yarn and denim fabrics. Specialize in high fashion made of exclusive prints, , with embroidery and beadwork. Jyoti’s strengths (and the North in general) are in high fashion garments with embroidery, sequins, and ethnic handiwork accents. Jyoti manufactures some winter clothing (about 20% of production volume), but the majority is summer clothing. Clients52 USA: Kellwood (Sagharbor), Oxford Industries Inc. (Target Stores, Wal*Mart, Blair Corporation), V F Jeanswear (Wrangler), Charming Shoppes of America (CSI), Phool Fashion Ltd., Woolrich, Donn Kenny, Brylane, Roamans, Lane Bryant, Carol Anderson, Cabella’s, Miss Erica UK: Marks & Spencer, J D Williams, Gus, Primark, India Imports, Freeman’s, Debenhams, British Home Stores, House of Frasers, Littlewood, Adams, Evans, T. K. Mexx, Tesco France: C.D. International, Enjoy, Siplec (E Leclerc), Promod Germany: Neckerman, Karstadt Netherlands: Wehkamp, Zeeman Italy: La Rinascente, Prenatal, Brumel, Onyx Denmark: Kompagniet Switzerland: Manor, Otto Australia and New Zealand: Just Jeans, The Farmers Trading Co. Canada: Hudson Bay Co., Zellers, Reitman Israel: Fenomen Malaysia: Metro Jaya Spain: Mango, Zara-Indtex Awards The researcher was unable to obtain any information on vendor awards. 52 According to profile (which is out-of-date, maybe 2004, as it mentions “Quota Holdings: We have sufficient quotas in all categories of USA, Europe and Canada,” it was pre-quota phase-out January 2005).

IV. FINANCIALS Turnover 12 million USD (either 2003 or 2004) Current year 18 million USD Other Financials Current year sales Rs. 700,000,000 (15,555 USD)53 Breakdown of Sales Revenue54

Est USD 2006 % of Sales Per Garment55

% Retail Price56

Material Cost 9.3 million 60 $3 10-15% Labor 1.6 million 10 $0.50 1.6-2.5% Other Manufacturing 1.6 million 10 $0.50 1.6-2.5% Subcontracting Cost 1.6 million 10 $0.50 1.6-2.5% Overhead and profit 1.6 million 10 $0.50 1.6-2.5% MNC’s that source from Jyoti, on average, retain 75-84% of the sale of a retail item.57

V. BRAND INFORMATION

Jyoti's Export Market

50%40%

10%U.S.A.

Europe

Others (Canada,Latin America,Japan, Malaysia)

53 Financials, excluding the $12 million USD figure from the company profile, were estimated by the Managing Director on two different occasions, which accounts for the inconsistencies. 54 These figures were estimated by the Managing Director in the space of 5-10 minutes, so they can only be thought of as a rough approximation. 55 Based on the company’s average unit price of $5 USD. 56 Average retail markup is four ($20) to six ($30) times the unit price of the garment. 57 Since Jyoti’s unit prices are mostly FOB, this figure includes the amount the MNC spends on shipping, duty, etc. costs, and cannot be used as an indicator of profit.

Major Clients Brand Origin Length of Relationship % of Turnover India Imports UK 29 years 10 Lane Bryant USA 10 years 10 Marks & Spencer Mode Holland 2 years 10 Liz Claiborne USA 1 year 10 American Eagle USA 1 year 10 Tesco UK 15 years 5 Adams UK 15 years 5 Littlewood UK 10 years 5 Sainsbury UK 4 years 5 Okaidi France 3 years Orchestra France 2 years }5 Total: 75 Buying Agency or Direct The company does business with MNCs such as Liz Claiborne, American Eagle, and Gloria Vanderbilt through buying agencies, primarily through the Triburg buying agency. Prices and other sourcing details are negotiated through the buying agencies. Did not mention any direct relationships. Average Unit Prices (per piece of garment supplied) Unit Price Origin Retail Markup Type Delivery Time $4-5 USD Across the board 4 to 7 times Mostly FOB 60-90 days Unit Prices Since MFA Phase-out During the first meeting with the Managing Director, he stated that unit prices have decreased about 10%, but later stated that overall they have remained stable. VI. INFRASTRUCTURE Company has nine production facilities. Two of the factories are 2,000 square meters, four are 1,000 square meters, one is 8,000 square meters, and two are 600 square meters. Overall, the company has about 20,000 square feet of land spread over ten different areas (including the registered office, which is not a production facility). Subcontracting Jyoti does not subcontract the production process, but they do subcontract their fabric sourcing and processing. Subcontracting has not changed since quota phase-out.58 Production System

58 See Standard Operating Procedures for detailed subcontracting information. It is notable that Jyoti subcontracts to a Shahi processing facility.

Uses an assembly line system, which varies according to the product. The researcher observed production of ladies’ white blouses for Emma James (Liz Claiborne), and brown machine-embroidered skirts for American Eagle. Production Capacity According to profile, between 240,000 and 300,000 pieces per month. At production site visited, usually 80,000-90,000 pieces per month. According to company profile, 8000 woven pieces per day and 1200 knit pieces per day. Design/Sampling Small design department. Sometimes Jyoti has people from UK and France do designs for them, but primarily just take paper designs from buyers and converts it to clothing. Quality Control Jyoti Apparels has a quality control assurance team with both an in-house auditing scheme and third-party inspection.59 Approximate number of workers (in all facilities) Position ~Number of workers Tailors60 1200 Fabric Cutters 125 Thread-cutters (use embroidery machines) 200 Pressers 75 Fabric and Accessories Storage Workers 40 Helpers 50 Accounts personnel 20 Miscellaneous 100 Total number of workers in all facilities: 1400-1800

Machinery (at all sites) Jyoti has 1000 Juki stitching machines, lock stitch single needle and double needle, over locks, elastic insertion, fusing machines, computer embroidery, piccoting, shell stitch (Merrow), feed of the arm, belt attaching, cross stitch/lock stitch button/ button hole/ snaps, dry cleaning, perk-chloro plants, washing machines and set of 84 stem boiler irons.

59 See SOPs for detailed quality control schemes. 60 Managing Director and Assistant Production manager stated they were all skilled.

Ground Floor Plan Second Floor Plan

There is also a basement floor with fabric and accessory storage, cutting, and embroidery departments, though the researcher was not able to obtain a photograph of the plan.

(Right) A view of the basement and ground floor, directly facing cutting tables and below looking up at the finishing department. Production (~180-190 Workers)61 on Second Floor Machinery includes about 200 Juki stitching machines. Cutting (20-30 workers) in Basement There are four lines in the cutting area, with one cutting master, one cutting assistant, and the remaining workers helpers. The workers in this department were all male. Some of the fans were broken or not on. Machinery includes one bandknife cutting machine and two straight knife machines. Washing (10-15 workers) Washing was located on the topmost floor of the building. It did not seem as modern a unit as other top tier factories. Checking/ Finishing/ Pressing (40-50 workers) The finishing area had lines of workers pressing and folding clothes. This was the only department that had any female workers. The department has one finishing supervisor and one assistant finishing supervisor. Embroidery (observed 5-7 workers) Workers have to take off shoes before coming in because of “dust,” so they are barefoot when operating the computer embroidery machine. There were two workers on the machines, three thread-cutters, two supervisors in an office in the corner. There were no fans in this room. Fabric and Accessories Store, Sampling (15-25 workers) The fabric store had a sign reading “Triburg,” which is the buying agency that many firms deal with. Packing (10-15 workers) Did not observe department during visit. Document given to Buyer About Shop Floor Management (was displayed on shop floor, the researcher did not have time to write names) Magsons Export (a Jyoti Apparels Production Site) Finishing: One in-charge Finishing: One supervisor Finishing: Pressing Supervisor Finishing Quality Administrator (QA) Finishing Quality Checker (QC) Finishing: Quality and Production Floor After washing 61 Number of workers per department, observations, etc., is data for production site visited.

Step 1—Care label, extra button, security tag Four operators Step 2—Initial Pressing One supervisor Step 3—P.O. Wise Tag check with care, button placement One checker Step 4—Initial Checking Two checkers Two thread-cutters Productivity Schemes There are no incentive schemes according to the Managing Director; it is all left to self-discipline. However, according to the Assistant Production Manager, there is an incentive scheme that depends on monthly shippings. The production unit visited usually produces 80,000-90,000 pieces per month. If workers exceed this by 1 lakh, then the factory will give incentives. First the Assistant Production Manager stated that they do not perform time studies, rather they calculate targets manually by hourly production rate. Then he stated that they conduct production planning meetings with the factory manager, production manager, merchant/buyer (for style), finishing supervisor, and cutting supervisor who set the production lines and targets based on manual time-studies. VII. WORKING CONDITIONS From to Work timings 9:15 am 6:00 pm Tea Break 11:00 am 11:15 am Lunch break 1:00 pm 1:30 pm Tea Break 4:00 pm 4:15 pm Wages HR Manager stated that employees receive the minimum wage, and gave a copy of the minimum wage scheme for Haryana. The tailors and some finishing employees receive wages on a daily basis, while the rest of the employees receive a monthly salary. Wage Setting Procedure For shop floor workers, supervisors conduct time studies evaluating the skill level and productivity of a new hire. After one day period, workers are offered a wage based on this evaluation, which is not subject to negotiation. Benefits Production manager indicated that workers receive ESI and PF. Labor Turnover Estimated worker turnover per month at 20%.

VIII. HUMAN RESOURCE POLICIES There are no common policies across the plants.


Management Staff/Accounts Personnel

Manish MallAssistant Production Manager


Helpers (Unskilled)


Line Supervisors

Production Manager

Factory Manager

Other Upper Management?

Mr. H. K. L. MaguPartner

Founder/Chairman

Mr. Kishore MaguPartner

Boxes with straight-line borders are positions common throughout all production sites, while dotted-line boxed positions are factory-specific and subject to variance. Worker Training Sometimes Jyoti trains workers during a lean period if there is time. Usually 20-25 tailors take 10-15 days to train. Workers do not need experience per se, but managers observe productivity and hire skilled workers, though the Director mentioned that workers learn on the job. Recruitment Policy Jyoti states that they do not use labor contractors, and the extent of their recruitment is posting signs on their front gates. The Managing Director states that they recruit people from Apparel Training and Design Centers, but these tend to be more middle management people. Dismissal Procedure The Managing Director stated that they keep workers for 240 days and then change their workforce, because otherwise they become permanent and you have to pay them more. The Assistant Production Manager stated that if workers are not productive, they are given a one month notice so they can find another job and they receive a letter of termination.

Union The corporate office used to be a production site, but the Managing Director stated that when the old employees formed a union, he moved production to another site (now there is just the accounts staff and some sampling/design). He stated that old employees with a union do not work as hard. The production site visited did not have a union. Worker Committees The Managing Director stated that they do not have any worker committees. However, the Assistant Production Manager stated that they do have committees, but talked about them vaguely and though he stated that he could give me committee minutes, he did not. He said they have the joint employee-worker committees required by law since there is no union, such as environmental, anti-harassment, etc., and they have monthly meetings. Grievance Policy Procedure/Corporate Responsibility/ Codes of Conduct No information was obtained regarding a formalized grievance policy procedure. No common policies (with HR, production, etc.) across plants except for buyers code of conduct. Does not have its own employee code of conduct. Medical Care There are doctors nearby the factories and first-aid kits in the production sites.62 Security System New security measures have been implemented since the quota phase-out, according to the Customers Trade Partnership Against Terrorism, or CTPAT model. U.S. companies have required them to uphold a more stringent counter-terrorism model of security in compliance with U.S. Customs Security requirements regarding issues like preventing trespassing, tampering, traceability. The first time security did not take my name in the confusion of finding a manager, but did not give a visitor’s pass. Second time took my name, but no visitor’s pass. There is a path behind the building to get to the main office over ripped metal sheets over grates. IX. BUSINESS BOTTLENECKS63 Main problems facing the industry are poor infrastructure (need better highways, ports, etc), high rate of interest, higher material costs (indigenous, no imports because would have to pay landed costs), lack of good fabric processing machinery, labor laws (especially the lack of hire and fire exit policy), and high transaction charges. For example, they cannot transfer goods during “peak hours,” trucks are only allowed to transport good between 11 and 4, which makes it difficult to meet deadlines. Believes that there should be special customs lines at airports so that everything is not searched; they should run cargo through machines instead. A lot of money is invested into customs, duties, etc.

62 Based on interview with MD and Asst Production Manager, though neither of them knew where the medical facilities were located. 63 Based on interview with Managing Director.

X. INDUSTRY COMMENTS64 Jyoti used to deal with Wal-Mart and Target, but unit prices got too low, so could not take orders from them anymore. Also, it was difficult to deal in huge quantities because of the possibility of mistakes in such a large order. Post-quota phase-out resulted in a boom for Indian business, and had everyone borrowing money from the bank and investing in huge factories. This year, because of the late summer, the overseas vendors couldn’t sell their inventory. They’ve had to become very quality-conscious and price-conscious. China is their main competitor, as they still have the edge on labor productivity and good infrastructure. Companies are very upset with the government’s “bureaucratic hurdles.” Jyoti supports “special garment zones,” in which infrastructure would be built up by the government, making access to plants easier, labor laws would be relaxed, etc. Phase out of quota system has brought in new buyers, like American Eagle, before couldn’t have more because of quotas. XI. PERSONAL EXPERIENCE When observed work at the production site, did not see upper management (factory manager, production manager, etc.) or some supervisors do anything, or even leave their air-conditioned offices. They played solitaire, and one of them glanced at a time-study once, and did nothing the rest of the time. The Assistant Production Manager was almost never at the factory when the researcher came to the production site. Jyoti was an extremely open company in many respects. The Managing Director is the Senior Vice-Chairman of the AEPC, which is the capacity in which the researcher initially came to interview him. He was very open in disclosing information, as were much of the staff at the production site, who also permitted the researcher to take photos.

64 Based on interview with the Managing Director.

4. G INTERNATIONAL OF R GROUP OF COMPANIES Indian Government Recognized Export House The information in the following company report was primarily obtained from the company website, an interview with a General Manager of Operations, and G. Manicandan’s CEC report. I. CONTACT INFORMATION65 Registered Office: 2/2, Ware Housing Scheme Kriti Nagar, New Delhi - 110015 (India) Tel: +91-11-25431408, 25172437, 25172438 Fax: +91-11-25451549, 25454895 Contact person: Padam Vaish, General Manager of Operations 236 Udyog Vihar Phase-I, Gurgaon, Haryana (India) Tel: 95124-2439701 Mobile: 9313634777 Fax: 0124-2439710-11 Production Units66 The R group of companies has over twenty-two integrated manufacturing units in Delhi, Gurgaon, Noida, and Bangalore, including:

1. B-108, Mayapuri Industrial Area, Phase-I, New Delhi 2. 192, Udyog Vihar, Phase-I Gurgaon

The company profiled has over ten manufacturing units, including: 1. 151, Udyog Vihar, Phase I, Gurgaon 2. 208, Udyog Vihar, Phase III, Gurgaon 3. 506, Udyog Vihar, Phase III, Gurgaon 4. 133, Udyog Vihar, Phase IV, Gurgaon 5. 236, Udyog Vihar, Phase I, Gurgaon67 6. 479, Udyog Vihar, Phase III, Gurgaon 7. 225, Udyog Vihar, Phase I, Gurgaon 8. 239, Udyog Vihar, Phase I, Gurgaon

The group of companies has several offices throughout India as well as a textile mill in Tiruthani near Chennai and a tannery for leather finishing in Hyderabad. II. BRIEF HISTORY68

Vijay Uppal, the current Chairman, incorporated R and Co. in 1977, with one woven garments manufacturing unit in Delhi. G International was established in 1983 in Delhi and 1996 in Gurgaon.69 The R Group established its own textile mill in the year 65 Disambiguation: There is another company by the same name registered in UP that produces brass hardware, aluminum hardware, black iron, and ironmongery. 66 According to company website. 67 Unit visited by the researcher. 68 According to the company website. 69 From an interview with the General Manager of Operations.

1992. The R Group has recently established a fully integrated production line in Noida, which will specialize in ready-made specialty shirts.

The R Group began producing knitwear when Gaurav Uppal joined the company management. R Global was incorporated in 2002 at Bangalore. The company has set up its own offices in Ludhiana and Tirupur in order to better source fabric.

The group launched a leather manufacturing unit in 1989 specializing in high fashion leatherwear under the management of Sunil Kapur. It specializes in (primarily) outerwear for men, women and children such as jackets, vests, skirts, pants and shorts. It has initiated a backward integration project by starting its own tannery in Hyderabad. The tannery has modern finishing technology for leather finishes of Sheep, Goat and Cow leather as well as nubuck, semi-nubuck, antiques, anilines, semi anilines, waxy distressed/ oily nappaloans. The company has already started manufacturing leather accessories and is further expanding with a bigger factory planned in Gurgaon. III. BASIC PROFILE70 Legal composition of the Company Virender Uppal is the Managing Director, while Vijay Uppal and Gaurav Uppal are Joint Managing Directors. Including the original R and Co., the group includes eight companies. Exports/Imports 100% exports. The R group does not manufacture for the domestic market. Product Mix Areas of specialization include ready-made woven, knit, and leather high fashion garments for men, women and children including shirts, pants, ladies tops, trousers, cargo pants and shorts, skirts etc. Clients The R Group sources to over fifteen countries, to brands such as GAP, Liz Claiborne, Tommy Hilfiger, D.K.N.Y., J.Crew, BCBG, Polo Ralph Lauren, Spigel, Next, Monsoon, Betty Barclay, Mexx, Cortefiel, Dillard’s Sears, Target, Wal-Mart, Mervyn’s, Federated Stores, May Stores, Calvin Klein, Timberland, Land’s End, Charming Shoppe, Inc., Lane Bryant, Sigrid Olsen, Ann Taylor, Women’s Secret, Debhnams, Etams Miss Sixty, and Marks & Spencer. Awards

70 According to the company website.

IV. FINANCIALS Turnover The R group has an expected annual turnover of US $ 85 million for the year 2005. Export Performance Chart71

Other Financials No other financial information was obtained. V. BRAND INFORMATION72

Export Market of the R Gro

90%

10%U.S.A.

UK and Japan Major Clients Brand Origin Length of Relationship % of Turnover GAP U.S.A. 15-20 years 40 Macy’s U.S.A. 15-20 years 20-25 Wal-Mart U.S.A. 20 years 20 Dillards U.S.A. 15-20 years 12 Liz Claiborne U.S.A. 15-20 years 7 Federated Stores U.S.A. 15-20 years -

71 Graph taken from the company website. 72 From an interview with the General Manager of Operations.

Buying Agency or Direct Contracts are mostly negotiated through buying agencies, though they occasionally take direct orders. Smaller companies are more likely to be direct orders, since they often don’t have established offices. Unit Prices (paid to factory per piece of garment supplied) Avg Retail Markup Type Delivery Time $6-8 USD 4 to 6 times FOB73 60 or 120 days Unit Prices Since MFA Phase-out Unit prices have gone down 10-12% post-quota phase-out across the board. However, there has been a 15-20% increase in orders, though there are fewer orders in the fall and winter. Wal-Mart usually orders the largest volume. VI. INFRASTRUCTURE74 The R Group has over twenty-two integrated manufacturing units in Delhi, Gurgaon, Noida, and Bangalore. Subcontracting G International subcontracts their hand embroidery, though not to an established company or to direct employees. They set up a shelter (“shack”) for local tailors to do the hand embroidery, or sometimes they embroider in their homes. G International does not use a recruiting agency or a labor contractor.75 Production System The R Group uses an assembly line system. Production Capacity The R Group’s woven division has an in-house annual production capacity of 10 million pieces. R Global, the company’s knitwear divison, has an annual production capacity of 2 million knitted garments. The R Group’s leather manufacturing unit has an annual production capacity of 500,000 pieces. Design/Sampling76 The design department for G International and the entire R Group is located at Kriti Nagar (presumably at the site of its registered office). G International takes indicative orders from the buyer, shows a sample range, and the buyer selects and negotiates the contract. Quality Control The General Manager of Operations stated they use a “2.5 APQ” quality check standard across the board. For a more detailed quality control process, see company website.

73 Including Wal-Mart. 74 Taken from the company website, unless otherwise indicated. 75 From an interview with the General Manager of Operations. 76 From an interview with the General Manager of Operations.

Approximate number of workers in all facilities The R Group has a staff of over 10,000. G International has a total of 7,000 workers, with 1200 workers at this site (approximately 95% male, 5% female). Position ~Number of workers *Machine operators 250 -A-grade skilled operator 50 -B-grade 160-170 -C-grade 30-40 There is one supervisor per every 30-40 operators.77 Machinery R Group’s production facilities use machinery at every point in the production process including designing (CAD), cutting (Digitizers, Plotters & Automated Cutting Machines) and fabric testing (fully equipped laboratory) and fusing. Departments No information on specific departments was obtained. Productivity Schemes The company has production planning meetings in which targets are set and the workers do not participate. They have incentive schemes for things like 100% attendance; an estimate was approximately Rs. 700 per month extra. They incorporate corporate social responsibility schemes into their productivity ideas, such as medical checkups, scholarships for workers’ children, and worker welfare programs.78 The R Group has a Research and Development department for the technical aspects of garment manufacturing, from the sampling stage (product and pattern engineering, operation research), to the pre-production stage (layout and machine engineering, operator training and skill analysis), to the production stage (work aids, time and motion studies, material flow).79 VII. WORKING CONDITIONS80 From to Work timings 9:00 am 5:30 pm Lunch break 1:00 pm 1:30 pm Tea Break 4:00 pm 4:15 pm No other working condition information was obtained from the factory. Preliminary worker interviews revealed that this company was considered one of the worst factories to work for in Gurgaon. 77 After disclosing this information regarding the number of skilled workers, the General Manager refused to give any more specific numbers of workers. 78 From an interview with the General Manager of Operations. 79 From the company website. 80 From an interview with the General Manager of Operations.

Wages81 The wage amount excludes overtime payment, which is made on a different date than the regular salary. Overtime payment is Rs. 15 per hour, which is reportedly not always paid. Category (from pay slip) Wage (Rs./month) Tailor 2600 Sewing Operator 2750 Helper (8 months experience) 2344 Unskilled helper 1893 Helper (production) 2341 Wage Setting For shop floor workers, supervisors conduct time studies evaluating the skill level and productivity of a new hire. After a three-day period, workers are then offered a monthly wage based on this evaluation, which is not subject to negotiation. HR Manager stated that wages increase after a year. Benefits According to the CEC report, workers receive 12% PF and 2% ESI, though they do not always receive their PF once they leave the company. VIII. HUMAN RESOURCE POLICIES


Mr. Vijay UppalJoint Managing Director

Mr. Gaurav UppalJoint Managing Director

Management Staff/Accounts Personnel


Helpers (Unskilled)


Skilled Production Line Supervisor

Production Manager

HR Manager

Mr. Padam VaishGeneral Manager of Operations

Factory Managers at each IncorporatedCompany in the R Group

Mr. Virender UppalManaging DirectorFounder/Chairman

Straight-lined boxes are positions common throughout all production sites, while dotted-line boxed positions are factory-specific and subject to variance.

81 From G. Manicandan’s CEC report. Units visited in his report are Gurgaon Phase-1 192 UV, 151 UV, and 225 UV, none of which were visited by this researcher.

Worker Training The facility sometimes trains workers if the operation is difficult. Training usually takes one or two days and is done through the research and development department. No other information about the R & D department at this specific facility was given. Recruitment Policy The facility posts signs on gates, interviews applicants, then tests worker productivity for an hour and a half. Workers receive a letter of contract. The General Manager stated that there are common policies across the plants; that they engage in the same kinds of recruitment. According to G. Manicandan’s CEC report, Company G and the R Group does contract temporary laborers and subcontract to a labor contractor. Other Human Resource Policies No information was obtained regarding a formalized dismissal procedure, grievance policy, worker committees, or a union. Corporate Responsibility/ Codes of Conduct The R Group touts its corporate responsibility on its website “we have been in the forefront in complying with our customers’ requirements vis-à-vis Government laws and regulations on environmental safety. Today, [the R Group] is seen as a highlighted-tech, customer friendly, eco-responsive corporate citizen that is Shaping a Better Tomorrow for everyone.” The company has a manual code of conduct that the General Manager stated is given to each employee. However, an interview with a G International worker in a Gurgaon plant revealed that he had never seen or heard of the employee code of conduct manual. Medical Care No information was obtained regarding on-site medical care. Security System No information was obtained regarding a security system. IX. BUSINESS BOTTLENECKS The General Manager stated that buyer requirements like double pay during overtime are holding the industry back. He stated that it should be looser, like the labor norms in China. More than local labor laws, buyer codes of conduct are hurting business because they are more strict. Researcher: Is labor flexibility or the lack of hire-and-fire policies an issue? General Manager of Operations: No, no, not anymore. These problems are taken care of with labor contractors. Researcher: But you said you didn’t use labor contractors. So how do you overcome these issues? General Manager of Operations: Oh, well, we do more incentive programs and get better performance out of our existing workforce.

X. INDUSTRY COMMENTS The R Group is in the process of setting up a backward integration project for their knits division. They are also setting up a leather accessory factory at Gurgaon. The General Manager stated that the AEPC was much more useful before the MFA phase-out, as it would tell them new government policies and how to best utilize the system, especially in regards to quotas. He implied it has limited use after the quota phase-out. Virender Uppal (the MD of the R Group) is a former Chairman of the AEPC. In general, the Northern area of India is more embroidery and hand-work intensive and is multiproduct, which makes productivity more difficult to increase. The work culture in the south is “different—more productive and efficient.” The South is also usually single product. Because they are trying to increase productivity, G International is working on converting to a single product system within the next two or three months (August 2006). XI. PERSONAL EXPERIENCE The R Group was extremely difficult to both interview with and extract information. The researcher was directed to the General Manager at a G International plant for an interview, and he was much more reserved and suspicious. General questions about labor laws or productivity issues usually prompt details and complaints, but he answered questions in a more direct, brief way. When asked about the number of skilled workers, he asked “why do you want to know that” and refused to give much more information past that. Although the researcher obtained a employee code of conduct handbook, he initially would not let it leave the building. Furthermore, though several follow-up interviews were scheduled, every one of them was canceled by the General Manager. It would be better to simply show up or not leave an option of calling before coming. He refused to schedule an interview solely with the HR Manager, who was not at the factory when the researcher visited, and avoided any other types of follow-up including the suggestion of a phone interview.

5. PEARL GLOBAL LTD. The information in the following company report was obtained primarily from an interview with the Chief Finance Officer, the company website, online business publications and press releases, G. Manicandan’s CEC report, and an interview with the Company Secretary. I. CONTACT INFORMATION Contact People: Deepak Seth, Chairman [email protected] Rishi Vig, Chief Finance Officer Tel: 91-124-4308201 [email protected] Jayant Sood, Company Secretary Tel: 95-124-4308164 E-mail: [email protected] Registered Office: A-3, Community Centre Naraina Industrial Area Phase-II New Delhi – 110 028 Tel : 011-51417680-82 Corporate Office82: 446 Udyog Vihar, Phase-V Gurgaon – 122 016, Haryana Tel : 91-124-4004086/87/88/89/90 Fax: 95-124-4004067/85 Website: www.pearlglobal.com Production Units: 1. 138, Udyog Vihar, Phase I, Gurgaon 2. 222, Udyog Vihar, Phase I, Gurgaon 3. 446, Udyog Vihar, Phase V, Gurgaon 4. 870, Udyog Vihar, Phase V, Gurgaon II. BRIEF HISTORY83 Pearl Global was incorporated in 1979, business began in the 1980s, and its first manufacturing facility was established in 1989. In 1993 it became a public limited company. The company structure of Pearl Global is extremely unique, as it includes all parts of the garment industry under the “House of Pearl.” The House of Pearl is focused 82 Unit visited by the researcher. 83 From an interview with the Chief Finance Officer.

on the apparel sector with manufacturing bases in India (primarily Pearl Global Ltd.) and a global network of business associates and customers, which together yield a combined turnover exceeding U.S. $200 million. It offers full services to large retailers with the chain broken into business units that cater to different product lines. The House of Pearl includes designing and manufacturing units, marketing units in the U.S. and the UK, warehouse and distribution, is establishing a U.S. brand “Kool Hearts.” Its operations in Bangladesh (NorPearl and NorPlanet) focus on more simple sourcing and manufacturing while its offices in India focus on the sourcing and manufacturing of ethnicwear (more production-intensive and complicated clothing). It also has businesses in Hong Kong (NorWest) and the UK (Poetic Gem). The Chairman of Pearl Global established a fashion and design academy, Pearl Academy of Fashion Domestic. The company recently entered into a business and education partnership with Babson College in the U.S. He has been actively involved with the development of readymade garment industry in India. He has successfully promoted and established the fashion apparel brand "Lerros" in Europe. Besides having been elected to the Executive committee of the Apparel Export Promotion Council (A.E.P.C.) for the year 1990 - 1993, he has been inducted to the Executive Committee of A.E.P.C. as a Special Invitee. III. BASIC PROFILE Legal composition of the Company Public limited company.84 Exports/Imports 100% exports. Pearl Global does not manufacture for the domestic market. Product Mix Areas of specialization include: India: woven cotton and value-added cotton, ethnicwear, including blouses, t-shirts, bottoms, skirts, children’s, dresses. Bangladesh: low cost, basic stuff, Wal-Mart, NorPearl, NorPlanet Pearl Global has manufactured women’s, children’s and men’s shirts, vests, trousers, shorts, nightwear dresses, suits, and outerwear; stain sealed garments using goretex and acquatex, etc. Clients Abercrombie & Fitch, Karstadt/Neckermann, Siplec, Castromen, Lerros, H & M85, JC Pennys, GAP (including Banana Republic and Old Navy), Charming Shoppes, Inc., George (Wal-Mart), Kohls, Dillards, Marks and Spencer, Esprit, Liz Claiborne, Nex86.

84 See company website for list of shareholders. 85 From company website. 86 From an interview with Chief Finance Officer.

IV. FINANCIALS Turnover $200 million worldwide before quota phase-out.87 $400 million in its worldwide operations post quota phase-out.88 Net profits are 234% up.89 Other Financials “Pearl Global posted 88 per cent year-on-year increase in net profit in 2005-06 to Rs .6.43 crore[ from Rs. 3.41 crore in 2004-05]. The revenue of the company during the year was up 31.9 per cent to Rs 159.5 crore [from 120.9 crore in the previous fiscal]. Pearl announced a dividend of 30 per cent for the year [subject to shareholders’ approval]. In 2005-06 the company invested Rs 29 crore to augment its production capacities in Gurgaon and setting up a new unit in Chennai.” “The company’s operating profit was Rs 17.1 crore compared with Rs 7.5 crore in the previous year.”90 See website for detailed financials. Stock Exchanges where the securities are listed: 1. The Delhi Stock Exchange Association Limited (Regional Stock Exchange) DSE House 3/1 Asaf Ali Road New Delhi - 110 002 2. Bombay Stock Exchange Limited 1st Floor, New Trading Ring, Rotunda Building, P. J. Towers, Dalal Street Mumbai - 400 001. 3. National Stock Exchange of India Limited Exchange Plaza, 5th Floor Plot No.C/1, G-Block Bandra – Kurla Complex Bandra (E) Mumbai – 400 051 4. Ahmedabad Stock Exchange Limited Kamdhenu Complex Opp. Sahajanand College Panjarapole, Ahmedabad - 380015

87 From Chairman’s Message on company website. 88 Babson College press release. 89 From an interview with the Company Secretary. 90 “Pearl Global net up 88%.” The Economic Times: Garments/Textiles. 29 June 2006. <http://economictimes.indiatimes.com/articleshow/1690384.cms> and “Corporate Briefs: Pearl Global.” <http://www.telegraphindia.com/1060712/asp/business/story_6465123.asp>.

V. BRAND INFORMATION91 Pearl Global’s Export Market

60%

40% U.S.A.EU and UK

Major Clients Brand Length of Relationship JC Pennys 10 years GAP (incl ON and BR) 7 years Charming Shoppes, Inc. 7 years George (Wal*Mart) 5 years Kohls 5 years Dillards 5 years Marks and Spencer 2 years Esprit 2 years Liz Claiborne 2 years Nex 2 years Of the top ten retailers in Asia (would not be more specific), the Chief Finance Officer stated that they are engaged in strategic partnerships with six of them. They are working on building strategic partnerships with between all of their vendors and suppliers and consolidating them. The following is a forwarded e-mail from George Clothing (Wal-Mart) regarding Pearl Global:

Subject: Something you should know; Our Customer's perception This reply has come from ASDA Walmart to a query of a Sr. Journalist. “Dear sir,

Apologies for the delay in replying, we have been moving our office location over the last two weeks We have been dealing with the Pearl Group for the last 5 years. From an initial order in 2001,they have grown to be our second largest supplier. To grow the business at this rate Pearl has had to show a "can do" attitude. They have supported our growth by putting in the infra-structure to service our needs, before the cost justified it. They now supply us with a variety of casual, woven,knitted, and jersey product across all ages and genders from a variety of countries in the Far-East and Indian sub-continent. To put that growth into context George Clothing at Asda has seen its market share more than double in the last 5 years to the point where it is the second largest seller of apparel in the UK on volume.

91 From an interview with the Chief Finance Officer.

Growth on this scale inevitably creates major head-aches for the supply-chain, and where our distribution network has creaked under the pressure, so Pearl have stepped in to provide solutions and support, offering us product direct from factory or landed delivered if the situation demanded. For Pearl to grow their business with us, Quality, and delivery have had to be a given, and any issues that have arisen have been resolved immediately and taken as learnings to provide a better service going forward. I honestly believe that to supply fashion retailers at the volume end is one of the most difficult businesses to be in .We want style, quality, price, flexibility to change our minds as to what we want right up to the last minute. Pearl are also helping us to achieve our ambitions to make the George brand a truly Global brand by opening an office in Canada to support the growth of the George brand in Wal-Mart Canada. Finally, it is critical for us as a business to deal in the right way. As price deflation has become a way of life in the UK clothing market, no-one whether it be store customer, retailer, or supplier, has a right to exploit the people who make the product we sell. We pride ourselves at George that our ethical standards are rigorous. Pearl have taken it upon themselves to go beyond the bare minimum requirements and when building new plant have set them up to be compliant from day one. Mr. Deepak Seth has also gone beyond the factory gates to work with the community and put something back. I feel that we can have an honest conversation with Mr. Seth and his son and that there is a trust between us and we look forward to growing together as we set out to be the best clothing brand in the world. Best regards, Allan Quayle General Manager-Strategic Supplier Development George Clothing Phone 00 44 (0)1455 264409 Mobile 07779 700695 e-mail [email protected] --Original Message-- Dear Ms. Heather Moreton, Senior Sourcing Manager -Kidswear, ASDA Wal -Mart, UK

I am a journalist from India writing for India's No. 1 business publication. Currently I am doing a corporate feature on the House of Pearl who is your vendor, hence would like to have some of your observation/views/comments on the business house and your relationship. Below are a few points which I hope you would take time off and reply to at the earliest.

* For how long have you been interacting with the House of Pearl and what has been the business relationship?

* As a supplier how reliable are they in terms of delivery schedule, quality etc? * As compared to other supplier where do they stand?

Please feel free to add whatever else you would like to express/say on the business house. Thanks and regards, Lancelot Joseph, Executive Editor, Business India”

Buying Agency or Direct They used to contract through buying agencies, but now they have developed direct relationships with their long-term business partners. A few years ago the delivery/production cycle had to begin 18 months in advance, now it is 6 months. India: Unit Prices (paid to factory per piece of garment supplied) Range Average Retail

Markup Delivery Time (days)

Type India U.S.

High of $10 $6-7 USD 3 to 4 times 60 to manufacture, 90 incl. shipment

50% FOB, 50% landed

5% freight, 30% FOB

Bangladesh: Unit Prices (paid to factory per piece of garment supplied) Range Avg Product Mix $4-12 Varies by style Mostly casual No information was obtained regarding a change in unit prices post-quota phase-out. VI. INFRASTRUCTURE92 Pearl Global has five or six production facilities in India, one in Chennai and the others in Gurgaon. The House of Pearl has over 150 factories across Asia. Subcontracting Sometimes Pearl Global subcontracts hand embroidery, but it mostly in-house. The embroidery tailors either come into the facilities to perform the work or they send it. Pearl Global uses labor contractors. Production System Pearl Global uses an assembly line system. Production Capacity Pearl Global has 20 million pieces in-house capacity and 120 million pieces capacity all across Asia. They are working on doubling their capacity in the next 2-3 years. Design/Sampling and Product Development Designs are mostly developed in-house. They have six design factories, two of which are in Bangladesh, one in Indonesia, and one in China. Sometimes designers from the UK and the U.S. are consulted to developed in-house patterns. The House of Pearl’s research and design department prepares a collection of high fashion styles for each season, which are shown to buyers in advance, who then chooses or modifies the styles. Pearl Global then manufactures the style. Quality Control Raw material including fibres, yarns, dyes and chemical are thoroughly checked before they are fed into the manufacturing process. Every stage of the production line has its

92 From an interview with the Chief Finance Officer.

own set of detailed monitoring system. Every set of fibre (polyester, viscose tops and special fibre), which is sourced from outside is tested for fibre fitness micron ( fibre diameter), fibre bundle strength, moisture regain percentage and finish percentage. Polyster viscose and cotton yarn is tested for count, count strength product (CSP), fibre composition percentage (blend %), twist per inch, uster percentage and impurity. Sretch yarn, ply yarn, novelty yarns, single ply yarn is also checked on the uster machine to ensure consistency in yarn quality confirming to norms of the uster statistics. The finished yarn is tested for residual shrinkage, tensile strength, pilling, CRA, drape and fastness to light washing and rubbing and slippage, etc. Approximate number of workers in all facilities Pearl Global has approximately 6000 workers in India. Production Unit Number of Workers93 138, Udyog Vihar, Phase I, Gurgaon 500-600 workers 222, Udyog Vihar, Phase I, Gurgaon 2500-3000 workers 446, Udyog Vihar, Phase V, Gurgaon 600 workers 870, Udyog Vihar, Phase V, Gurgaon 2000-3000 workers

Machinery Pearl Global has an estimated 2000 machines for every part of the production process. Departments The researcher was not able to obtain information regarding the specific nature of the assembly line or tour the factory, as neither an HR manager nor a production manager was available for interview. Productivity Schemes Pearl Global gives out “best worker awards” and “gold stars” for productivity. They are thinking of switching to a piece-rate system instead of a monthly salary because “with the current labor laws” you cannot take disciplinary action for low levels of productivity. After workers receive their monthly salary they see a “rise in absenteeism,” as workers do not have a long-term commitment to the factory. If a worker stays for six months they get incentives, and if they have a low level or no absenteeism they also get an incentive. VII. WORKING CONDITIONS Wages and Benefits The Chief Finance Officer stated that sometimes Pearl Global pays workers above the minimum wage, but did not give specific numbers. 93 Numbers for the units at 446 and 870 were estimated by the Chief Finance Officer while the other numbers were obtained from G. Manicandan’s CEC report (and confirmed by the Chief Finance Officer).

Position Wages94 Finishing supervisor (7 months experience) Rs. 4000 per month Tailor (8 years experience) Rs. 3500 per month Tailor (5 years experience) Rs. 3000 per month Every year workers receive Rs. 100 more and a 20% bonus for divali. All but temporary workers are covered by social security schemes. They contract temporary workers through R.K. & Co. and Sukumar Pride, who are not entitled for ESI and PF. Overtime95 The facility at 222 UV has two shifts and thus there is little overtime, though sometimes workers work double shifts and are paid double. Labor Turnover96 The labor turnover in Gurgaon is about 20%. The labor turnover in Chennai, Bangladesh, and Indonesia is lower. VIII. HUMAN RESOURCE POLICIES97 A new HR manager is to be hired as of August 15, 2006. They did not have a HR manager before this. For their HR strategies, they used a mix of outside agencies and consultants. Worker Training There is a training line for new workers, who must first pass a hand-eye coordination test and then spend twenty days on the training line. Recruitment Policy Pearl Global uses labor contractors and specifically stated they use R. K. & Company. They want to hire more women like Southern facilities do because women workers are “more efficient,” but there are not enough “available,” and it is not convenient as Pearl Global would have to provide transportation. Furthermore if “it was all women it would be fine, but if it is mixed employees then it becomes a problem with issues of sexual harassment.” However they are working on providing the necessary infrastructure (such as transportation) so they would be able to hire more women workers. Dismissal Procedure, Union and Worker Committees98 There is no job security; although being a “permanent” employee will entitle a worker to an identity card, ESI and PF, if there are no orders or “no work” employees are told not to come. There is a union in the facility at 138 UV. Out of 500-600 workers only about 90 are in the union, and the head of the union is not an employee at the facility. The union is not effective in addressing the problems of the workers. There is no sexual harassment 94 According to G. Manicandan’s CEC report. 95 According to G. Manicandan’s CEC report. 96 From an interview with the Chief Finance Officer. 97 From an interview with the Chief Finance Officer. 98 According to G. Manicandan’s CEC report.

committee. The unit at 222 UV does not have a union, as there is different management at each facility. According to the Chief Finance Officer, there are sexual harassment committees, and teams are set up to work on weak areas in working conditions, which have monthly meetings. Corporate Responsibility/ Codes of Conduct According to the Chief Finance Officer, they have set up a medical treatment facility in the spirit of social responsibility. The company has set up Pearl Academy of Fashion, a fashion design and manufacturing technology institute. The company also operates a school by the name of 'Little Pearls' in Delhi. The Chairman Pearl Global espouses corporate responsibility ideals on its website (Chairman’s Message, Deepak Seth):

“A future that shall be built with the same strategy that has shaped our past. Source the best from the World to deliver the best to the world by following ETHICAL MANUFACTURING AND TRADE PRACTICES. Pearl Global has a very effective HRD system they have build an empire highly trained and skilled manpower ready to face the dynamic changes. The Company has built-up very effective TEAM WORK…The primary purpose of Corporate Leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies - Customers, Employees, Investors, Vendors and the Society-at-Large. The motto of every Corporate Body is to ensure Predictability, Sustainability and Profitability of revenues year after year.” IX. BUSINESS BOTTLENECKS99 The industry is regulated by the supply of cotton, which holds it back. Labor cost is still competitive (in terms of the world market). Working on having uniform HR and productivity strategies, as mentioned previously there is a new HR manager slated to begin on August 15, 2006. Seasonality is an issue, orders are fewer in July and August. X. INDUSTRY COMMENTS100 Commented on the strengths of the North; i.e. “ethnicwear” or design. The strength of South India is its efficiency, which is missing in the North but the value-added garments (embroidered, etc) helps immensely. Pearl Global just hired a lawyer to help analyze and plan financial structure. The AEPC helped a lot before the quota phase-out in terms interpreting and figuring out best way to capitalize on existing structures and business law, implying that the AEPC is not as useful post-quota. The House of Pearl has enough infrastructure to double turnover, so they are working on capitalizing upon the existing capacities. They want to integrate all offices with an ERP

99 From an interview with the Chief Finance Officer. 100 From an interview with the Chief Finance Officer.

system. The company is setting up new facilities in Dhaka (Bangladesh) and a design center at Chennai. The House of Pearl is planning to get into retailing and is working on an industrial engineering department and setting up software SAM. They just initiated a subjectivity productivity software analysis system which would analyze the difficulty of manufacturing particular items and adjust productivity goals accordingly (so workers are not “punished” for lower productivity levels if the style is more difficult and it is not their fault). According to The Economic Times: “Leading apparel group Pearl Global Ltd has decided to merge Pearl Styles Ltd and City Estates Pvt Ltd with itself…A swap ratio of 30.16 equity shares of the company for every share in City Estates was recommended by the board at the meeting, whereas no equity share of the company would be issued in lieu of shares of Pearl Styles as it’s a subsidiary of Pearl Global…The amalgamation scheme has got approval from the boards of City Estates and Pearl Styles as well.”101 Pearl Academy of Design Education-Pearl Academy of Fashion http://www.pearlacademy.com/index.htm Advisory board includes: Mr. Deepak Seth, Chairman, Pearl Global; Mr.Virender Uppal, Partner, R & Company; Mr. Lalit Gulati, Managing Director, Modelama Exports The Pearl Academy of Fashion was set up in 1993 by Pearl Global Ltd., and is located in the Okhla Industrial Area (Phase II) of New Delhi. It provides training programs in the areas of Fashion Design, Retailing, Merchandising, Production and Computer Aided Design…The Academy has opened its second campus in New Delhi, at Naraina. It has a validation agreement with the UK's Nottingham Trent University (NTU), one of the top two in this field in the world. It has links with acknowledged international leaders in fashion education, such as the UK's Chelsea College of Art & Design, Bolton University, London College of Fashion, and London Centre for Fashion Studies; the Netherlands' Hogeschool van Amsterdam, Hong Kong Polytechnic University, and Germany's LDT Nagold. The Advisory Board of the Academy consists of leading exporters, industrialists and academicians, who constantly review the institute's performance to ensure that the programmes are practical and industry-oriented. As a result of the close interaction between the industry and the institute, its alumni hold responsible positions in more than 300 leading organisations, in India and abroad, like in

101 “Pearl Global to merge two companies.” The Economic Times: Garments/Textiles. 7 Feb 2006. <http://economictimes.indiatimes.com/articleshow/1404688.cms>.

Benetton, Bombay Dyeing, Mafatlal, Ponds (India), Sonal Garments, Orient Craft, Richa & Co., Pearl Global Ltd., RMX Joss, Shoppers' Stop and Ebony.” 102 Partnership with Babson College Pearl Global Ltd. has set up a business partnership with Babson College in Boston (U.S.’s premier business school). The Babson college press release: Babson College, USA, Advises Pearl Global, India, on New Business School: Two Form Strategic Collaboration to Promote Entrepreneurship Education, Research in India

Babson College, USA and Pearl Global Ltd., India, have signed a strategic collaboration on a full range of activities to promote world class research and education of entrepreneurship in India.

Pearl Global Ltd.—a $400 million company exporting garments to Europe and North America—has formed a non-profit educational trust. This trust is in the initial stages of developing a new, private business management institution at two campuses near New Delhi. The Pearl School for Business Studies will grant Bachelor of Business Administration and/or Masters of Business Administration degrees with a focus on entrepreneurship. Current plans are for first classes to be admitted in the fall of 2008. Babson College in Wellesley, Mass.—ranked #1 worldwide in Entrepreneurship Education---will advise Pearl on the strategies, processes, and procedures necessary to build an Entrepreneurial foundation and curriculum. The collaboration is designed to expand over the next seven years.

Babson’s consulting reports will include: * The general curriculum for undergraduate and graduate programs. * An overview of the entrepreneurship curriculum. * Student report on the student admissions process and co-curricular activities. * Faculty report including Babson faculty profiles and approaches to faculty development.

Pearl will shape this information into a comprehensive Entrepreneurship curriculum to meet the particular conditions, requirements, and stipulations of the local region in India. Babson faculty will provide workshops for Pearl faculty and staffing, and will visit regularly to monitor teaching, learning, and assessment standards. Robert Eng, Executive Director, The Asia Institute at Babson, and Professor Ash Rao will present the final reports to Pearl.

Both institutions will identify mutual exchange opportunities—on-line access to library resources, links to websites, distance participation in projects, workshops, internship facilitation, joint information sharing, among others.

Babson’s Provost, Michael Fetters, traveled to Delhi, India last week for the official signing ceremony with Deepak Seth, Chairman of Pearl Global and Dr. Bhupatkar, advisor to Pearl Global’s education trust. Vivek Jain, President of Babson’s Alumni Club in India and Chairman of DCW Ltd., was also present.

102 From the website of Pearl Academy of Fashion.

“This collaboration is an important step in Babson’s journey to globalize Entrepreneurship Education,” said Fetters, “We are privileged to work with Pearl Global, Ltd., a company that shares our vision to advance Entrepreneurship knowledge in India.” Babson College in Wellesley, Mass., is recognized internationally as a leader in entrepreneurial management education. Babson grants BS degrees through its innovative undergraduate program, and grants MBA and custom MS and MBA degrees through the F.W. Olin Graduate School of Business at Babson College. Babson Executive Education offers executive development programs to experienced managers worldwide. For information, visit www.babson.edu.103 Domestic and International Retailing In addition to the U.S. Kool Hearts label, Pearl Global is getting into domestic retailing: “ [Pearl Global], which is setting up a joint venture manufacturing facility for soft fabrics in China to secure part of its supplies, is understood to have chalked up a plan for its presence in domestic retailing. “According to industry sources, the company is in the process of booking retail outlet spaces in cities across northern region - such as Jaipur, Gurgaon, Chandigarh and Lucknow. “According to market analysts, growth prospect remaining high, the recent fall in price makes it an attractive long-term bet.”104 XI. PERSONAL EXPERIENCE The interview with the Company Secretary was useful only in determining what reports are required to be submitted to the Registrar of Companies by each company. The Company Secretary was not useful in arranging interviews with other personnel who would be able to answer what he could not. It was difficult to obtain an interview by calling the numbers on the website, however after e-mailing the Chairman, Deepak Seth, an interview was promptly arranged with the Chief Finance Officer. The interview consisted of a powerpoint presentation on the structure and capacities of Pearl Global, though the researcher was not able to obtain a copy without signing a confidentiality agreement.

103 Babson Newsroom Release. 24 April 2006. <http://www3.babson.edu/Newsroom/Releases/Babson-and-Pearl.cfm>. 104 “Pearl Global bullish on Q2 numbers.” 26 Oct 2005. <http://sify.com/finance/equity/fullstory.php?id=13972072>.

6. ORIENT CRAFT LTD. Government Recognized Golden Trading House The information in the following company report was obtained primarily from an interview with the Managing Director on 1 August 2006, a company profile given to the researcher by the Managing Director, online business and economic articles, G. Manicandan’s CEC report, and preliminary interviews from Gurgaon workers. Unless otherwise indicated, most of the information is from the interview. I. CONTACT INFORMATION Contact Person: Sudhir Dhingra, Managing Director, Founder/Chairman Personal secretary Meghna, mobile: 9871496362 Corporate Office: Orient House F-8 Okhla Industrial Area, Phase-1 New Delhi, 110020 (India) Tel: (+91-11) 26818247, 26818249 Website: Orient Craft Ltd. has no website. There is a preliminary website set up for its embroidery division at http://www.ocemb.com/, but it does not contain any information beyond the heading: Orient Craft Limited: Embroidery, An ISO 9001-2000 Unit: “Orient Craft Embroidery Division, the largest computer embroidery facility in the Indian sub-continent.” E-mail: [email protected] Production Units: 1. 7-D Maruti Industrial Complex Sector-18 Udyog Vihar, Gurgaon-122015, Haryana Tel: (+91-124) 5090800, 2343262 Fax: (+91-124) 2342042, 2341110 2. Plot No. 13, Khansa Road Sector 37, Udyog Vihar, Gurgaon, Haryana105 3. 14-A Maruti Industrial Complex Sector-18 Udyog Vihar, Gurgaon, Haryana 4. 68, Udyog Vihar, Phase IV, Gurgaon II. BRIEF HISTORY106 Business began in 1972, but the company was not incorporated until 1978. Dhingra was a law graduate from Chandigarh with no experience. He had a friend from London who was buying from importers and selling the goods to specialty shops, who asked Dhingra to get 1,000 shirts made in India, so he could use the proceeds as seed capital. Dhingra borrowed Rs. 15000 ($300) from his father, found some tailors to make the shirts, and 105 First two units visited by the researcher. 106 From an interview with the Managing Director.

shipped them to London. When his friend repaid him the Rs. 15000 plus a small portion of the profit (Rs. 6000 ~ $133), he decided to break into the industry. “At the time, you had to be a tailor to be in the garment industry, not like today. And being a tailor is like being a janitor, they’re not looked up to, they’re looked down upon.” His father gave him one year to start up business, and he rented a house, set up a pressing line on the dining table and the production line in the garage. During the first few years, he estimated a production capacity of about 150,000 pieces and an annual turnover of around $40-50,000. Then after a few years, the Indian-inspired fad went away and he had to spend six to seven months traveling to get rid of inventory stock. During this traveling, he was able to observe fashion trends and the kind of things that were selling. When he returned, he hired more people, and set up a manufacturing plant in the late 1970s with a assistance of a government program that give 150% of exports sales as incentives to burgeoning enterprises, though he stated that it was difficult to actually get the money from the government. During his traveling, he also encountered some buyers, and restarted business with a trial order of 1200 pieces for a customer in L.A. Then while in Germany, found another buyer. Both were wholesalers who sold to specialty stores. Then, when he got back to India, he obtained a factory processing site of 240 sq. yards and outsourced actual manufacturing. Orient subcontracted until the early 80s, then consolidated supply chain into one roof. Orient’s first factory was established in a village in Hauz Marg and it is still there. Orient got clients by word-of-mouth from their L.A. and Germany buyers. In the mid 1980s, Dhingra wanted to improve the standards of quality and infrastructure to globally competitive standards. He “knew [he] had to look at the industry from a global perspective and globally what textile buyers needed and what the competition was from the suppliers, not just in the limited Indian context.” Dhingra wanted to move production out of the village and industrialize the area and put as many skills in-house as possible. Liz Claiborne sent an American technician to help Orient with worker training and modernization. In the 1990s Dhingra set up a bigger plant with 100 machines, 200-300 people. The first Gurgaon plant was established in 1993. The first plant in Maruti Industrail complex was the first plant in India that was over 80,000 sq. ft. with 1800 people, and that plant is still there, only now it is 136,000 sq ft. with 3500 people. Dhingra states that others followed Orient Craft’s example, as Gurgaon is the single largest manufacturing sector in India, with more than 350 modernized factories. Dhingra “is also Executive Member of the Advisory Committee of AEPC and an active member of reputed associations such as FICCI, CII, ASSOCHAM, CIAE, CMAI, and others.”107 107 Biography for Sudhir Dhingra for the International Fashion Technology Forum. National Institute of Fashion Technology. May 2006. <http://www.niftindia.com/iftf.htm>.

III. BASIC PROFILE Legal composition of the Company Orient Craft is a privately owned company but deemed public limited. Up until 10 years ago, Dhingra was the sole proprietor. Now he owns 60% of the shares, and gave 20% to his nephew and 20% to his friend. Owners/Directors Mr. Sudhir Dhingra (Chairman and Managing Director), Mr. K.K. Kohli, Mr. Anoop Thatai EOU Information The company has three 100% export oriented units (which can import all raw materials and trims free of duty). Exports/Imports 100% exports. However, Orient Craft Ltd. is looking into breaking into the domestic market. Product Mix Areas of specialization include blouses, skirts, pants, shorts, dresses, jackets, outerwear, men’s shirts, kidswear, coordinates, knitted shirts/t-shirts, ropers. The company also has a specialized home furnishing division that sources soft furnishing products such as pillow and duvet covers to brands such as William Sonoma, Donna Karen, ELM Street, and Marks & Spencer. Clients Armani Exchange, Marc Jacob, Dillards Stores, Ann Taylor, Loft, Express, Esprit, Zara, Banana Republic, GAP (kids), Old Navy (women’s), Limited, J.G.Hook, Tommy Hilfiger (men’s, boys’, women’s, sportswear, and jeans), J-Crew, Ralph Lauren (Lauren, Polo Jeans), Marks & Spencer, Liz Claiborne (LizDresses, LizWear, LizSports), Jones of New York, Susan Bristol, Abercrombie & Fitch, Next Retail Ltd., Oasis Stores, Rocawear, Dockers, Lands End, Calvin Klein Jeans, Macy’s, Diane von Furstenberg. Dhingra states that Orient is the only factory in India to manufacture for Marc Jacobs and Louis Vuitton, Orient used to source for Wal-Mart in back in 2003 but has since stopped. The company does not do that much business with Zara and Miss Sixty (Italy), because of “language and cultural differences” with the European business partners. Awards Additional information: Orient Craft Ltd. was set up in 1978 and has been India’s number one garment manufacturer and exporter and is the recipient of the ‘Gold Trophy’ given by the government of India for highest global exports out of the country for 1977, 1998, 2000, 2001, and 2002.

IV. FINANCIALS Turnover FOB USD $105 million for 2002-2003 FOB USD $118 million for 2004-2005108 FOB USD $165 million for 2005-2006 (Rs. 742 crores) Other Financials Last years profit was $8 million (40 crores), despite more competitive pricing. Breakdown of Sales Revenue109 Est USD 2006 % of Sales Per

Garment110 % Retail Price111

Material Cost 82.5-99 million 50-60 $5.00-6.00 0.08-0.12 Labor 19.8-24.8 million 12-15 $1.20-1.50 0.02-0.03 Overhead112 19.8-24.8 million 12-15 $1.20-1.50 0.02-0.03 Profit (target)113 16.5 million 10 $1.00 0.02 V. BRAND INFORMATION

Orient Craft's Export Market

80%

15%

5%U.S.A.

Europe

Canada

108 Basu, Kaushik. “Winners and losers in textile shake-up.” BBC News. 2 March 2005. <http://news.bbc.co.uk/2/hi/south_asia/4294679.stm>. 109 These figures were estimated by the Managing Director in the space of 5 minutes, so they can only be thought of as a rough approximation. 110 Based on the company’s average unit price of $10 USD. 111 Average retail markup is five to six times the unit price of the garment. 112 Overhead (mostly energy, which has doubled in a year and a half-as mentioned by NITRA president-used to be Rs. 4 per unit, now it is Rs. 9 per unit) 113 Dhingra stated that Orient usually ends up with half of the target profit.

Major Clients Brand Length of Relationship Turnover Diane von Furstenberg114 1 and a half years - Macy’s 2 years115 - Marc Jacob 4 years - Marks & Spencer 4 years - Ann Taylor 4-5 years - Loft 4-5 years - Ralph Lauren 4-5 years - Express 6 years - The Limited 6 years - Dillards 8 years $17-18 million Tommy Hilfiger 8-9 years - GAP 12 years - Liz Claiborne 15-16 years - Buying Agency or Direct Most companies are represented by an agent and very few are direct. Marks & Spencer is currently direct, but they will open up their own office soon. Limited used to be mostly direct, but they just opened an office last year. Dhingra states that it is easier to deal with buying offices. Unit Prices (paid to factory per piece of garment supplied) Average116 Retail Markup Avg Retail Price Type $10 USD 5 to 6 times $50 All FOB Unit Prices Since MFA Phase-out There has been an estimated decrease in unit prices of 10-15% across the board in most categories. There has also been an expansion of volumes and an estimated 15-17% growth in orders. There has not been a huge shift in the composition of customers, however. Some things have increased greatly, like cotton pants, depending on the quota category and how much they were previously restricted. Orient tends to deal in higher quality and higher unit prices and lower volumes; Orient would not take a Wal-Mart order. Recently, they made one skirt for Polo Blue that will retail at $1199 (did not state unit price). 114 Dhingra stated that Orient manufactures 80-90% of what Diane von Furstenburg (high-end maternity clothes) sources from India. 115 Restarted business with Macy’s 2 years ago, however used to source to them about 10 years ago. 116 According to Dhingra, the industry-wide average unit price in India is $3.50 USD (from US companies, European companies pay higher unit prices). Dhingra stated that Orient’s average unit price is $10, however an article written for the BBC in 2005 (Basu, Kaushik. “Winners and losers in textile shake-up.” BBC News. 2 March 2005. <http://news.bbc.co.uk/2/hi/south_asia/4294679.stm>.) stated that on the date of the author’s visit in 2005, Orient was manufacturing skirts that would be sold for $4 USD per piece.

VI. INFRASTRUCTURE Company has 21 production facilities, of which four are in Delhi, six in Gurgaon, and one large plant is located in Noida. The second plant visited was 380,000 sq. ft. and employed 5000 people.117 Previously, in 2003, the company had only 17 production facilities spread over 600,000sq. ft. in and around Delhi. In 2003 Orient established a manufacturing complex of 340,000 sq. ft. (unclear if it is the same facility visited) at the cost of over $10 million USD, which was at the time the “single largest multi-product manufacturing plant in the whole of India.”118 Subcontracting Orient does not appear to subcontract, though it does use labor contractors. Production System Orient Craft uses an assembly line system. Production Capacity 2002-2003: 480,000 woven per month, 720,000 knitted per month 2005-2006: 720,000 woven per month, 1,200,000 knitted per month119 2006: More than 125,000 per day120 2006: In an average day, Orient makes 130,000 pieces and production capacity has grown at least 25% over the past year.121 The average order size is 10-12,000 pieces, sometimes 25-45,000 or even 100,000 pieces. Orient also deals in some very small volume orders for high-end buyers like Oil Lily. Design/Sampling Orient has ramped up its design department in the past five to seven years using mostly in-house skills with some help from U.S. companies. As Dhingra stated, after 9/11, even a little bit before, product development became the key thing that most Western companies were looking for, as traveling became restricted and Indian companies needed to build a competitive advantage. Orient has put a lot of human resources into product development and now boasts 900 product development personnel at 5 different locations. Orient has a display store in NY on Park Avenue that it opened up 3 yrs ago. It picks up fashion from around the globe, gives feedback, and creates new designs for each season, whose samples are then sent to potential buyers. Orient has created a niche with their diversified product line (mostly cotton/knits or wovens, but other fabric from silk, chiffon to denims and outerwear).

117 Plot No. 13, Khansa Road, Sector 37, Udyog Vihar, Gurgaon, Haryana. 118 According to the company profile. 119 According to the company profile. 120 Biography for Sudhir Dhingra for the International Fashion Technology Forum. National Institute of Fashion Technology. May 2006. <http://www.niftindia.com/iftf.htm>. 121 According to an interview with the Managing Director.

Quality Control The company has in-house lab testing for garments, fabrics, and trims. The labs are equipped to test for all parameters including color fastness to light. Approximate number of workers in all facilities Number of people employed in 2002-2003: 12,000 in-house Number of people employed in 2006: 23,000 Machinery Orient has in-house computerized embroidery machines, washing plants and dry cleaning units. In 2002-2003, the company had 7300 sewing machines. Departments No information on specific departments was obtained through the interview. However according to G. Manicandan’s CEC report, one facility’s production department, consisted of 12 production managers each in charge of about 250 workers (tailors and helpers) at 100 machines with 12 line supervisors. More contract workers and women (especially thread-cutting) are in the finishing department, which is generally equal in size to the production department. Productivity Schemes Orient uses incentive schemes to reduce absenteeism and has implemented worker welfare schemes. VII. WORKING CONDITIONS The workers are 80% male and since Delhi and Orient is mostly multiproduct, the workers are skilled and come from a tailoring background and are usually from UP, Bihar, MP and some from Haryana. According to Dhingra the “girls” in the South are operators and less skilled, and since Orient produces high-end clothing with lots of embellishments, they “can’t be like Golkadas, who manufactures 80-90% jackets/ outerwear, shirts, trousers, with very little embellishment.” Dhingra stated that 70% of Orient’s workforce is direct employment, not through a labor contractor. According to G. Manicandan’s CEC report, “most of the permanent employees are supervisors and perform high-end work such as production in-charge and finishing in-charge.” From to Work timings 9:30 am 6:30 pm Tea Break 11:00 am 11:15 am Lunch break (30 min)122 12:30 pm 2:00 pm Tea Break 4:00 pm 4:30 pm

122 The line does not stop during lunch, workers do not go to lunch at the same time. Information on work timings was taken from G. Manicandan’s CEC report and could vary factory to factory.

Wages The average wage starts at Rs. 3000 per month for an unskilled worker salary, no piece-rate. 60-70% of the workers are unskilled helpers. With incentive programs for more highly skilled workers, the salaries average Rs. 5-8,000 per month plus ESI and PF. The payscale is adjusted twice a year according to inflation, and most people are above the minimum wage. Dhingra stated that in the 1980s and 1990s Orient used a piece-rate system, and in 1993-1994 they started moving away from piece-rate and a few years ago they did away with piece-rate completely. However, according to G. Manicandan’s CEC report, semi-skilled and unskilled workers that are hired through labor contractors are paid under a piece-rate system, “particularly [those] working in the Finishing department.” Furthermore, workers are paid much less than Dhingra asserts. The payments and benefits for contract employees are given to the contractor, who takes a 5% commission before paying the rest to the worker. Bonuses are given during Divali, but he makes no mention of any other incentives. Category Average Wage (Rs./month) Tailors 2850 Helper 2344 Trainees 2000 Contract Worker 2850 Labor Turnover According to Dhingra, the turnover for Orient Craft is fairly low, probably around 8-9% and as Orient is expanding, labor turnover is decreasing. VIII. HUMAN RESOURCE POLICIES Dhingra stated that there are common HR policies and productivity schemes across plants. Worker Training Dhingra stated that all the facilities have training schools and they want to make them more formalized, where workers can be trained and work for other companies if they choose to. They are trying to start a training school NGO with a founding member of NIFT, Dr. Sartrushi. Recruitment Policy Orient Craft employs contract workers for at least 30% of its workforce. Some of these contractos are R. K. & Company, Viet Kumar & Company, and Vasisht & Company. Union Though unions were not explicitly mentioned in the interview, the following was mentioned in a business article: “Till a year ago, the company's chairman and managing director Sudhir Dhingra dreaded the idea of setting up huge factories - all for the fear of

[worker] strikes.”123 According to G. Manicandan’s CEC report, “around five years ago there was an attempt to establish a trade union (at the 7-D, Sector-18, Maruti Industrial Complex unit). But the management suppressed and ousted all the workers who [were] involved in the establishment of a Trade Union. Since then the company started sourcing their manpower from labour contractor[s]. This strategy effectively stops any attempt to consolidate workers towards creating a Trade Union.” Worker Committees/Grievance Policy/Dismissal Procedure Dhingra was reluctant to give specific information regarding worker committees in person, stating that he would forward the company’s code of conduct and a list of their worker committees through his personal secretary. However upon further inquiry, he stated that such information was confidential and would hurt Orient’s competitive advantage. According to G. Manicandan’s CEC report, Orient had no worker committees at the facility visited, no formalized dismissal procedure, no sexual harassment committees and workers are not involved in wage negotiations or target setting. There is no grievance policy procedure in place for complains against workers or management. Punishments are given to workers without any formalized procedure, and if a manager finds a worker guilty of an infraction, workers are fired with no redress. Corporate Responsibility Dhingra stated that Orient has a fund to help workers who need to take a day off if they are sick or have to attend a wedding, and that Orient pays in full for the schooling of female children of workers and for 65% of the schooling of male children. GAP gave Orient $35,000 and Orient spent $20,000 building a community welfare center that provides medical care for community members. Orient also helped train 300 women from the nearby village in hand embroidery at international standards. The “village panchayat said that Muslim women can’t go out…but now that they are trained, they feel very proud to bring in income, sometimes more than their husbands. One woman told me, ‘my husband doesn’t beat me anymore.’” They built a four story structure to house the embroidery tailors. Although Dhingra stressed how this was all for the benefit of the women and the community, he also mentioned customers were concerned that if hand embroidery was subcontracted rather than done in-house that it would not meet quality compliance standards. According to Dhingra, “if someone asked me what my one single reason for success, it would be people. I have always been very people-centric-- it’s not just about the bottom line, it’s about what we can do for the community. Twenty years ago we had over 1000 workers, ten years ago we had 5000 people, now we have 23,000. Some of our workers are second-generation workers. Thirty years ago we employed a women who worked as a thread-cutter and got paid Rs. 400 per month. Now she is a finishing manager and gets 123 Rajshekar, M. and Surendar, T. “Preparing for 2005: Dressing up for the party. Clusters are reinventing themselves. Global players are looking for India bases. But will we be ready in time?” Businessworld. <http://www.businessworldindia.com/apr0504/coverstory01.asp>.

paid Rs. 50,000 per month, and her son is working here… I have always thought about social welfare. It is the soul of our company.” His words are interesting when you consider that Orient uses labor contractors and didn’t build up any of the community welfare projects until external forces like GAP pressured them. According to the company website:

The new complex is designed to create a very worker and management friendly environment in terms of esthetics, comfort, and ease of working. This facility is completely air-conditioned and dust-proof to facilitate higher efficiency levels during summer months as well as better quality of sewing and finishing for some of the higher end apparels.

Besides being compliant by the current standards, in an endeavor to go beyond compliance we have adopted the village next door as one of the community welfare programs under which we are helping the local community build a primary school as well as a garment sewing and embroidery unit.

We have created great recreational areas for workers and middle management by building great cafeterias, in-house fully functional gym and an Executive Club. IX. BUSINESS BOTTLENECKS Productivity is relatively low, since Orient Craft products tend to be high-fashion, highly tailored outfits with additional embellishments like embroidery and special washes, which includes a more complex manufacturing process. Seasonality is an issue, as Orient usually doesn’t have as many orders May through August. “India is still not good at producing fall fabrics, but Orient has taken up some holiday decoration work, which eases strain some as well as the other diversification of profits, such as home furnishing.” They started up home furnishing about three and a half years ago, for Bed Bath and Beyond, Pottery Barn, Marks & Spencers, Donna Karan, White Co., Macy’s. Home furnishings is still smallish industry and comprises about $15-17 million of Orient’s sales. They started producing denim products 5-6 years ago and just started manufacturing men’s suits at a plant for Liz Claiborne and Express. Labor flexibility is also an issue, Dhingra wants increased flexibilization otherwise it is more difficult to expand and it hurts business. Specifically, he wants to extend the length of time it takes to become a permanent employee to 12 months. Although happy about Orient’s success, Dhingra stated there are companies who do $1 billion (mentioned China and Lian Thai from Hong Kong, “they have 100,000 people, we only have 23,000), and Orient needs to do competitive pricing to stay in the game and

bring in buyers, as they need to grow the base of buyers and price is a compelling reason to do that. X. INDUSTRY COMMENTS Orient recently bought a Levi’s plant in Spain for its technology. From business articles: The company… acquired a Levis unit in Spain in mid 2005 for Rs 60 crore (approximately 13.3 million dollar)…Orient Craft by its own admission acquired the unit because of its superior machinery content. The company has since then stripped the Spain unit of its machinery and fitted them in its plant here at Gurgaon. India’s lack of world-class machinery producers domestically has seen a lot of companies look to the West for help. And retribution has come in the form of dying sick units in EU which are suffering as a result of lower labour costs in China, India, Bangladesh and Pakistan. Ironically it is the same Indian companies who are buying the units for their machines.124 The machinery from the newly acquired plant will form part of the company’s expansion plan at Manesar, near Gurgaon…Levi’s was looking for a buyer due to high maintenance and labour costs in Spain. The company’s deal with Levi’s is the second such significant international venture. Earlier, Orient came up on the global radar when it started its first overseas facility in New York two years ago. At present, Orient has 20 production units spread across Gurgaon, Noida and Okhla in Delhi. The expansion plan envisages setting up of two new facilities at Manesar. The company expects the expansion plans to boost its revenue generation. Mr Dhingra estimates the annual turnover to be in the excess of Rs 800 crore, growing by over one-fourth from last year. As of now, Orient Craft manufactures and exports about 30 lakh units of garment every month, and aims to increase it to over 40 lakh units after the expansion. The company’s management is also planning to raise an IPO later this year. “The lifting of quota has brought humongous demands on one side and on the other, buyers are getting increasingly quality conscious. In the changed business scenario, it is important to have machinery comparing to global standards,” said Mr Dhingra. Since the quota system has been reimposed on China, India is in an advantageous position. However, the textile industry in India still has a long way to go before it can catch up with Chinese volumes. World over, the garment industry presently stands at approximately Rs 15,00,000 crore, of which China contributes one-sixth, (despite quota regulations) and India adds to a minuscule 1.5%.125

124 Dipankar, Kumar. “Indian textile companies on acquisition spree.” Industrial Economist: Textiles Report. PTI Economic Service. <http://www.indeconomist.com/30thjune06p4.htm>. 125 Jha, Mayur Shekhar. “Garment exporter Orient Craft buys Levi’s plant in Spain for Rs 60 cr.” Times News Network. 16 September 2005. <http://economictimes.indiatimes.com/articleshow/msid-1232753,curpg-1.cms>.

Though most people in India, probably about 80-90% still get clothes from tailors, the ready-to-wear demand in India is growing. Orient is considering getting into the domestic market now. “Three years ago, there were only three shopping malls. Now there are 500, and every day a new one is opening up—there’s space available in Karol Bagh, etc. Why would people go through rain, dirt, heat, if there is a mall…Real estate is growing, retail will explode…People say that Indians don’t have disposable income, but look how large the population is—out of one billion, if even 5% are rich and 15% have disposable income, that’s 200 million people. That’s more than the people who spend in the U.S.—only about 30% of the U.S. population spend; only about 60-70 million have disposable income. So the spending power is in India.” Italian and French mills are setting up joint ventures in India. Banswala Mills, which is a joint venture of Caramin (France) and Bairb McNutt (Ireland, where there are higher labor costs, but best linens) are setting up facilities in India and selling back in Europe. From business articles: Orient Craft Ltd plans to develop an exclusive special economic zone (SEZ) for garment units in Andhra Pradesh. The SEZ is likely to come up on a 300-acre plot with an estimated investment of Rs 2,000 crore. "The SEZ will house up to 50 companies," Mr Sudhir Dhingra, Chairman and Managing Director of the company, told reporters on the sidelines of the CII conference on `Textiles forum - Emerging opportunities and the road ahead' here on Thursday. Earlier, delivering the inaugural address, Dr Y.S. Rajasekhara Reddy, the Andhra Pradesh Chief Minister, said the company was "welcome" to set up the SEZ. He announced the company would be given 10 acres of land at Nacharam to set up a garment manufacturing unit.126 Orient Craft… has entered into an outsourcing arrangement with Sumukin Bussan (SBC), a leading Japanese buying house. SBC is the buying arm of Kashiama, the exclusive Japan licensee of some well known international textile brands including Calvin Klein, DKNY and Ralph Lauren. The deal is likely to be signed later this month. As per the arrangement, Orient Craft will be the exclusive suppliers from India to SBC, which plans to source $1-1.5m worth of textile products in the next couple of years. Yoshiaki Kamiyama, consultant, SBC, told ET, “An increasing number of Japanese buyers are looking at Indian export houses for their sourcing requirements. In the next couple of years, we ourselves are looking at buying 2-3 lakh pieces from India.” For Orient Craft, at present Japan is a relatively smaller market, lagging behind US and Europe. However, according to Sudhir Dhingra, the company’s MD, the market will contribute a significant share of Orient Craft’s overall business pie. “The tie up with SBC will give us a good foot hold in the Japanese market. In 2-3 years, we aim at scaling our Japanese business up to $30-40m,” he said. 126 “Orient Craft plans SEZ for garment units in AP.” The Hindu Business Line Internet Edition. Financial Daily from THE HINDU group of publications. 25 November 2005. <http://www.blonnet.com/2005/11/25/stories/2005112502590900.htm>.

Depending on the volume of the orders, the company may go for a specific capacity expansion. Orient Craft manufactures and exports about 30 lakh units of garment every month, which it may have to take up to over 40 lakh units, to cater to new deals in the pipeline. At present the Indian textile exports to Japan add up to $296m which is just about 1% of the country’s total textile imports. Like most other economies, China is the largest exporter to Japan, claiming more than three-fourth of the pie. However, a share of the Japanese market isn’t an isolated case and the textile industry in India has a long way to go before it can catch up with Chinese volumes.127 The biggest Chinese firms have a turnover of $800 million-1,200 million - about 10 times the size of the Delhi-based Orient Craft, which, at Rs 450 crore of revenues, is India's largest garments exporter. Bangladesh churns out as many garments as India from a fifth as many factories. Thailand does almost the same business as India with a workforce a third the size. India lags in technology, productivity and scale. Clearly, skill-intensive manufacturing could be a way to compete. India's biggest exporter Orient Craft has also begun to realise that. Till a year ago, the company's chairman and managing director Sudhir Dhingra dreaded the idea of setting up huge factories - all for the fear of strikes. Today he is spending Rs 40 crore on a new factory in Gurgaon that would employ 2,000 people. The centrally air-conditioned facility will combine all the stages of garment manufacturing, design to finishing. Says Orient Craft's executive director Anoop Dhanda: "For the next few years, we will have to invest in new capacity every year if we have to keep pace with the industry." Orient Craft and Fabric & Fibres are among a few who have been pulling ahead of the pack. Others include Gokaldas Exports of Bangalore, Meru Exports and Richa Exports of Delhi, and Shahi Exports. The turnovers of these exporters range from Rs 100 crore to Rs 250 crore. Most are family-run. But what distinguishes them is a relatively larger scale, and smart use of technology.128 XI. PERSONAL EXPERIENCE Orient Craft does not have a website, which made finding up to date contact information difficult. Current contact information was finally obtained through a Professor at NIFT, and Dhingra was surprisingly available for an interview. Dhingra was fairly open in his responses, probably because most of the specific questions about workers and working conditions were asked after he was giving his views on the industry and general strategies for expansion. His personal secretary was not useful in obtaining any information, though he stated that she would be able to forward company codes of conduct and additional information that could not be covered in the interview. 127 “Orient Craft ties up with Japanese co.” The Economic Times: Garments Textiles. Times News Network. 20 April 2006. <http://economictimes.indiatimes.com/articleshow/1496902.cms>. 128 Rajshekar, M. and Surendar, T. “Preparing for 2005: Dressing up for the party. Clusters are reinventing themselves. Global players are looking for India bases. But will we be ready in time?” Businessworld. <http://www.businessworldindia.com/apr0504/coverstory01.asp>.

first tier garment exporters in delhi: industry and company perspectives

Government & Nonprofit