Economic Tsunami and the Global Cotton-Textiles Sector

Seshadri Ramkumar, Professor, Texas Tech University, USA

Textiles and other manufacturing sectors are looking for strategies to ride out the economic storm. Financial support provided by many governments during COVID-19 created aggregate demand for many commodities such as textiles, and electronic items, which led to price hikes and hence volatility in the market. Following this runaway demand scenario, due to inflation, monetary interventions are being imposed by national banks, which may lead to a recession in 2023. IMF predicts slow growth in 2023, with negative growth in developed economies like Germany and Italy.

The economic tailspin and monetary interventions are dampening the demand, which is affecting many sectors particularly, the textile sector. Cotton price has come down steeply since this Summer and spinning mills are operating at a loss in India and other countries. Mills in the State of Andhra Pradesh, India have announced temporary closures, while mills in Tamil Nadu are running at about 70% capacity. “Our normal production capacity is 13 tons/day of cotton yarn, but due to weak demand, we are running at 7 tons/day,” stated Velmurugan Shanmugam, General Manager of Aruppukkottai, India-based Jayalakshmi Textiles.

With adversity comes opportunity. The textile sector should analyze the current situation and explore new strategies that can shield them from such future scenarios. I have articulated the “4S principle,” proposed by the United States Department of Defense say Sense; Shape, Shield and Sustain. How apt this strategy is for the textile industry now! The industry needs to sense the situation, plan (shape) and put forward a growth plan (shield and sustain).

Companies must have “Disaster Management Plans” stated Dallas-based Mr. Ranga Rajan Sampath, an accounting professional with experience in manufacturing, trading, and IT sectors in many countries such as Maldives, India, The Netherlands, and the United States. The plan should involve: 1) Disaster Recovery and 2) Business Continuity (when the business runs smoothly). According to Mr. Sampath, companies should identify risks (some may not be known such as the COVID-19 pandemic), and identify resources, strengths, and weaknesses, such as financial and personnel to handle demanding situations. Such planning will come in handy to manage unforeseen situations as there is a structure in place. More importantly, effective, candid, and timely communication is essential, added Sampath. This has become clear during the ongoing pandemic and the current economic crisis. The way the United Kingdom handled the mini-budget proposal recently without effective communication shows how good intentions can lead to negative results due to a lack of reasoning and clear communication.

Learning and skill enhancement need to be an ongoing education process in the industry. Relying on his own experience in the IT sector, Mr. Sampath emphasized that every day is a learning process. Management should support personnel development by providing opportunities for skill enhancement that can cater to short- and long-term needs. Management should enable interaction among production, finance, personnel, and marketing units, which will help with holistic personnel development and tackling the crisis.

“When we are in crisis, efforts are needed to plan and act differently,” stated Velmurugan Shanmugam. In India, where the spinning industry is at its maximum capacity, we should plan for modernization to cut the cost, enhance quality, and develop new products, added Velmurugan Shanmugam.

As a case in point, in India more interaction with the government is needed to diversify the sector and look for vertical integration. This needs resource planning and allocation, effective communication with stakeholders, particularly with the public, and investments in R & D. As these growth plans involve infrastructure development such as new industrial zones, pollution control, etc., the public must be engaged to garner broad-based support.

The textile industry needs rethinking, retooling, and skill enhancement. The past two years have been a challenge, but the lessons learned will be valuable.

We have all undergone harsh dry runs of handling demanding situations socially and economically. “Dry runs should come in handy to manage future stressful scenarios,” stated Ranga Sampath.