Saturday, November 3, 2007

Dead wood

Yesterday I happened to watch a news item on a business channel re how the Indian garment industry is coping with the strong Rupee . It profiled one of the large garment companies of India and included an interview with the MD of the company.

The stated strategy of the company is :

- to reduce the low margin products

- to enter the Indian retail sector possibly as a franchisee of one of their client brands ( a brand of European origin )*

Nothing radical about either approach. Most conventional companies would adopt the approach to reduce very low margin products . And with India being touted as an strong , growing market a lot of companies are seeking to enter the Indian market across various categories. An international brand seeking to enter Indian retail would feel comfortable to have a partner they know . A common approach is to ally with someone you already know. In this case a supplier of garments will be the partner to enter retail (whether the company has the skills or more importantly the mindset is perhaps a secondary consideration ) .

* I suspect that the European company may have been looking to enter the Indian market . And thought of joining hands with an existing supplier . It may be more of a timing of the sequence of events rather than a planned strategy on part of this Indian garment company .

What was appalling was the manner in which the MD spoke about the reducing of the low margin business . The footage showed workers in the factory . Then zooms in the MD saying 'over the years we have accumulated dead wood which we have to / will reduce ' . The "dead wood" being the 3000 people who stand to lose their jobs . Clearly the man has a lot of respect for the people who work in his various factories .

In several cases it happens that one MD/CEO or several, successive CEOs make decisions . And someone , someday has to deal with the consequences in a changed context . In this case this MD has been the one at the helm all along . So any 'dead wood' is his creation . Yet he blithely spoke about people as "dead wood" as though they were washed on the shores of his company by some tsunami.

If I was interviewing this MD the question to him would have been " Your business approach all these years has been to compete largely on price . You followed the no-brainer strategy of volume as the means build your business . If you had built a business based on value (and values !) the margins would have been higher and the business would have been able to withstand the impact of a strong rupee . Why refer to hard working people as 'dead wood' when in fact the origin of the problem lies to a large extent in your approach to business ? And now 3000 people will face the consequences of your quality of thought. "

As someone who's been in the clothing business for several years I have seen the manufacturing end of the business quite closely . Even in the best factories in India the work is demanding - physically and mentally .

The rise of the Rupee has hit the clothing industry in India . Thousands have lost their jobs . Especially hit are the smaller companies . What would be the plight of a worker who's been diligently working on his/her job only to find one day that the job no longer exists ? I wonder if they can even comprehend the reasons . ' Rupee has become strong .' What would this mean to someone who has seen only one currency all his/her life - the Rupee ?

Larger companies have the possibility and more importantly the responsibility to enable their stakeholders to tide through the challenge . This could be done in a variety and combination of ways - for a temporary period the larger margin businesses can subsidize the low margin business which can be done at cost prices if necessary for a while , explore other markets , sell domestically , offer value added products / services which will fetch higher margins . To resort to layoffs at the first touch of pressure is irresponsible .

The wider issue is the very basis of business which forms the stated and unstated philosophy of most companies . Profit is pursued as the sacred end which justifies all means .Business is esentially a human activity . The core of business should be respectful of the people involved .

1 comment:

sunlit sapling said...

"The core of business should be respectful of the people involved ."
I couldn't agree more with this statement.

Real growth will be a distant dream, until and unless the people as at the top realise that 'PEOPLE' are not just another 'RESOURCE'.