To support the Small and Medium Enterprises (SMEs), cluster development has been high on the agenda of the Indian government for decades. Supporting government initiatives and the SMEs, are organizations like Cluster Pulse Economic Development. Dr Jagat Shah, Founder, President & Mentor, Cluster Pulse Economic Development has been working closely with SMEs in various textile clusters, helping them to develop innovative strategies to access the international markets. In an exclusive interview with Reena Mital, Dr Shah outlines his work in the clusters, his innovative project – Mentor-on-Road, his contribution to developing smart villages, ease of doing business, and much more.
Tell us about Cluster Pulse and how you became involved with the textile industry?
A few years before export quotas for the textile and clothing industry were to be abolished, the Ministry of Textiles, Government of India was worried that the SMEs may not survive the international competition. So my not-for-profit organization – Cluster Pulse – was given the task to work in 20 textile clusters.
I had to identify progressive, open-minded entrepreneurs, train them in international market access, take them to various countries and help them get business. And I had to work with non-exporters. I had to select 15 companies from each cluster and groom them. And take 10 companies to the markets.
So I worked in the 20 clusters and we took 19 trade delegations in two years. In the very first year, we were able to do shipments of almost Rs 100 crore from these 20 clusters. And then when quota regime was phased out, these SMEs were ready and confident.
How was the experience – these were companies that had never exported before, probably did not have any quality or management systems in place?
Yes, that was the difficult part. Though my task was to connect them to the international market, but I spent 70% of the time on improving production processes, upgrading their machinery, seeing that they have the right practices in HR, finance, etc, as all of this is connected. That is why it took six months. International market access part was very easy because that is our expertise.
Today, international buyers are very strict about compliances. What do you observe in the clusters?
In any textile cluster, 70% of business is done by 30% of the companies. In my observations, in every cluster, at least 20% of the manufacturers are compliant. So those who are compliant are doing good, and others are trying to follow.
But it’s a slow process. Market challenges like demonetisation, GST, etc have impacted the SMEs’ psychology. To adopt all these compliances means expenditure, in manpower especially and there are other costs involved too. So some units are slow to move ahead.
What is the success rate of these SMEs in exports?
Most of them have become big today. And SMEs are especially in an advantageous position. Over the years, international buyers are demanding smaller quantities and more designs. In India, the large exporters do not prefer small lot orders.
But our SMEs are very competent to do this kind of business. To give a recent example, during the international road shows we did for Vibrant Terry Towel in Solapur, we found buyers generally wanted small quantities, and our SMEs can offer as low as 250 kgs competitively.
What challenges do the SMEs face in direct exports?
I find one of the biggest challenges for these units is pricing. Pricing is not understood. When a customer approaches them, they ask him where he is buying from, and at what price.
And readily offer a lower price. But what is the costing? Is it profitable? Many SMEs are not aware of this. That is why we see export prices are very low, but costs are increasing. Massive cluster-based training on pricing is the need of the hour.
Can you tell us about some success stories in these clusters?
Most of the companies we work with have become good exporters, some have opened offices abroad, some have opened warehouses and started the concept of stock-and-sell.
This was an interesting strategy by one of the SMEs. Instead of waiting for an order, they hired an international design team, forecast the trends for the next season, manufactured accordingly, and then shipped the containers to their market, to stock the same in a hired warehouse.
The company offered next-day delivery, the buyer could go to the warehouse to check the quality and design. The SME opened a one-way bank account to receive payment via local cheque.
This was good service to the buyer – very quick delivery of assured quality, instead of waiting 1-2 months to get the order from India.
Another SME opted for a joint venture. This company was working with a buyer for some time, and as the orders went up, they proposed that the buyer invest in the factory, become a partner in manufacturing too, and have a share in that business.
Thus the SME got an assured market, as the buyer will now not go away because it is his own company too. Sales went up. And because of the JV, the SME was able to adopt best practices in technology, marketing, management.
Many companies are going in for ecommerce, while also continuing with B2B exports. Ecommerce is more advantageous for them, as they enjoy a good finance cycle. In B2C the SME gets advance payment, while in exports the unit will have to offer 90-120 days credit.
The government has put a lot of emphasis on cluster development. Going forward how do you see the performance of the clusters?
I believe the government policy on cluster development was not a balanced one. A lot of textile parks were promoted, with the aim of boosting physical textile infrastructure, as this was considered a challenge. But the soft skills were ignored. Factories moved into the parks, but they didn’t have skilled manpower. Thus, many textile parks failed. Today, we are a knowledge based economy. Soft skills intervention is much needed if clusters have to succeed.
How useful is Skill India in this scenario?
Skill India is one of the important programmes of the government. Challenge to the industry’s growth is absence of skilled manpower. On one of my visits with Mr Narendra Modi to China, Chinese leaders and officials we met had the same experience to share – China’s success they said is due to the emphasis on skill development. And therefore when Mr Modi became prime minister, one of his first initiatives was to set up the Ministry of Skill Development.
But the industry says that Skill India has not really helped?
Yes, because the industry has not taken the lead to participate in the programme. If the industry says they don’t get skilled manpower, it is their pain point. So why is the industry not coming forward.
Why is this considered a government programme? To give the example of the auto component sector, their skills council is doing very well – because the industry took the initiative, and the government supported. The Electronics Skill Development Council is doing very well, again the industry took the lead, and the government supported. So skills development is the work of the industry, with the support of the government, and not the other way around.
Tell us about the training programmes that you organise for the industry.
We have two programmes, one is a one-day programme, the other is a detailed five-day programme. In the one-day programme we introduce participants to the techniques of international market access. We have developed 10 innovative approaches of entering the international market. We share with them real time examples of cluster companies, of how they were successful, and trainees can contact these companies too. In the five-day programme, we also include international logistics like procedures, documentation, shipping finance, HR, besides marketing.
Are these programmes sufficient for a non-exporter?
No this only opens up their mind, gives them 10% of the knowledge. Then we have a one year mentoring programme. That is more useful. About 25-30% of the people who have attended the first two programmes, opt for this one.
So after this mentoring are they capabe to export successfully?
Yes. In 3-4 months itself they start shipping.
What are the fees for these programmes?
The fees for the one day programme is Rs 5000, for the 5-day programme Rs 22000. And for the yearly mentoring programme Rs 120000, per year.
You recently organised Vibrant Terry Towel in Solapur.
In Solapur too, most of the companies work through agents. So we are tyring to bring in the direct buyers. We invited national hotel chains, national hospital chains, retailers, chain stores, etc. to directly connect the buyers and sellers.
We brought direct buyers by going to their country and explaining to them about the capabilities of the cluster. We also invited buying agents to the show.
Why did you choose Kolhapur for the Global Network Institute?
Our institute – Global Network Institute – is very popular. We are now into the 145th batch. We started the first batch in 1997, we have organised 600 seminars in 20 countries so far. Around 2007-08, we started giving franchise but had to close them all in 2012, due to my health reasons, when I had to cut down work.
In 2014, Mr Modi became the prime minister and I started getting a lot of assignments. Mentor-on-Road is one project where I drive around the world, and across the country and mentor entrepreneurs.
From there Smart Village programme came up. And then we have the Vibrant series – Vibrant Gujarat is popular, we did Vibrant Kutch in 2015, Vibrant Saurashtra , Vibrant Ceramics, Vibrant Tamil Nadu, Vibrant Goa, Vibrant Terry Towel, and next year Vibrant Haryana.
During all these programmes, I met a lot of people who evinced interest in franchising for the institute, knowing our deep understanding of global trade. So now I am giving franchise, but not on commercial model. It is just as a way to spread knowledge.
We have a unique model. We only give franchise to those people who have attended our 5-day course. We charge a small fee, we help them to set up the institute – course material, faculty, training of local faculty, help in gathering students too. We started the institute in Coimbatore, and one in Kolhapur. And we have requests from 15-16 cities including Udaipur, Delhi, Mumbai, etc. The headquarters are of course in Ahmedabad.
Tell us more about Mentor-on Road.
Driving is my passion, every year I take off for 1 week to 1 month, and travel places by road. In 2012, Mr Modi said to me, “You are just driving and enjoying yourself. Why don’t you attach a cause to it.”
In 2013, Right To Education Act was introduced. Mr Modi told me to go across the country and find out if school teachers, children, parents know about right to education and give him a report.
So I did it, and I enjoyed it. When he became PM, he told me to go across the country to 26 states, meet 10,000 businesses, and give a field report on ease of doing business. He said, “My bureaucrats are telling me that ease of doing business is good, then why is our rank 142 out of 189? So I want to hear from the industry.”
I gave him a 61-line report, pointers basically. In reality at the field level, things are not so good even as we have improved our ranking. Now if we want to go from 77 to 50, in true earnest we will have to improve. Till now it was improvement in paperwork.
In 2017, I did a 22,000 km road tour, with US government, US Deparment of Commerce, and Startup India as my partner. We met American universities, young start-ups, women-owned businesses to understand women in US workforce. This again was something that Mr Modi wanted to know.
Women account for 68% of the workforce in the US, 62% in China, and just 19% in India.
Our PM believes that India can prosper only when this 50% of our population is also an active part of the workforce. My task was to find out best practices to involve women in the workforce.
We also met American SMEs. I met the Indian business community of 200-300 people, and made them an offer that whichever village you belong to in India, you adopt it and we will convert it to smart village. During this tour, 62 villages were adopted in 19 Indian states.
What makes a Smart Village?
We have developed 70 parameters, a village that meets all the 70 parameters is a Smart Village. Some of the parameters are – digital schools, primary health centres should be telemedicine centres, solar rooftop on every house, covered drainage system, 100% school education, 100% vaccination, and much more.