The Indian rupee has never experienced such a drastic decrease in value against the US dollar. This has had a serious impact on the overall working of the national economy, corporate earnings and market unpredictability. Foreign travel, education, imports, raw materials, products, etc. have also been affected.
Also feeling the pressure is the cleaning industry which caters to the very high demand for cleanliness and hygiene in all quarters. To the extent that imports experienced a steep dip in the last quarter. Some of the suppliers have reported nil purchase in the last two months.
Sharp growth in the institutional sector, rising cleanliness standards, increasing number of residential dwellings, Government’s plan to boost tourism with additional 90,000 new hotels were all expected to increase the demand for cleaning product.
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The margins have gone down. We are finding it difficult to maintain the prices. Things are pretty bad in the industry
– George Oommen
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“But as of today, the Government is discouraging the imports and has increased the import duty of many products, says George Oommen, MD, Excel International. “Products like plastic dispensers, air-freshener and refills, etc., are witnessing a rise from 10-20% or even more. On top of that, a 15% increase in the dollar value is making import impossible.”
The Catch 22 situation in the Indian market is that the demand for imported products from certain segments remains irrespective of price fluctuation. Given the fact that multi-national and sectors like hotels enter into a contract with global vendors as a matter of policy, they go ahead with the contract. Moreover, some of the companies, especially the MNCs, have set norms for quality and standards not allowing room for changing the brand. They stick to policy and face the additional expense involved. This goes with the pharma manufacturing industry as well.
Facility management companies and cleaning industry work on a yearly rate contract which generally gets renewed in the month of April. Hence the vendors are not able to incorporate the price hike in supply and have no other options than reducing imports which affects the industry very badly, states George Oommen. “Increasing the rate in the middle of the year will have an impact on the business and won’t be viable. As a result, we are not coming out with any new product and are cutting down our profit margin.”
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The harder the time, the better the success rate. This is the testing time for real players in the market that without affecting the cost if they are still providing quality product those people will be successful in the market
– Nadeem Siddiqui[/box]
The fall of the rupee also witnessed a surge in the raw material cost especially for chemicals. Commenting on the situation, Nadeem Siddiqui, Director, Pulizia Industries Private Limited says, “Majority of our business depends on the raw materials from our channel partner in the UK. As the import costs have increased, the raw material and fragrances which are brought into India have increased the production cost.
“The reason why people go for international product is the consistency. In case of Indian players, they start with a quality product but are not able to sustain it in the long run. People are interested in brand, but there is no brand loyalty as of now. We are looking for cost effective solutions which are customized and people who develop raw materials in India and supply to us. In fragrances, there are couple of suppliers who are developing on their own. But they also depend on the raw materials from the foreign countries. So, we are exploring the possible domestic players who develop in house raw materials in India, to reduce the cost of production and avoid the dollar impact.”
In contrast, George Oommen believes that Indian products of equal quality are not available. They intend to wait for the rupeedollar situation to come under control and only then will they take a step ahead in the proper direction. “We have no other option but to reduce imports which is going to affect the industry adversely.”
The balancing act
Already there are several companies which have set up their base in India. But a few feel that the quality of Indian products does not match with the foreign standards. Even the service providers prefer international products rather than the Indian ones.
Speaking from the facility management end, M.K. Padmanabhan, COO, Faber Sindoori Management Services Pvt. Ltd, feels that the fluctuation of dollar-rupee rate has not impacted their sector as yet, as they have a contract with most of the vendors. “The dollar rate has not made an impact on the consumables and chemical purchases. But if the dollar rate goes beyond Rs75-80, one may see a 4-5% change in price.
“The good news for Indian Manufacturers the block in the import provision has resulted in adding up more on the Indian products to be used. Make in India product consumption will be more, and if the quality improves, people’s approach in utilizing the product will also increase. Companies like Diversey, Charnock, Roots, etc., are using raw materials from India itself and producing it.
“Indians have a mindset for giving importance to foreign goods. If the same quality and appearance are given to the product ‘Made in India, the mindset would change.
“There are a lot of good Indian products available locally that are better than international brands. India is a huge market, even 2-3% of the market trend will make a huge impact into the revenue margins to any manufacturer or the provider.”
In India, the entire supply chain management is a process to unite vendors and ask them for quotes, review the products and finalize. There is not much time invested made on investigating the quality of products and custom-made manufacture. Vendor development is almost non-existent in India. Hence, when there is fluctuation, even if there is a 0.5% difference it is a serious impact. This is a big blow with the difference in the dollar rate which has never happened in India.
Companies are facing massive problems trying to do a balancing act, because they have already purchased, and when they make the purchase order they are making it for the time ahead. There is a 90 days lean period to pay. In that time if the dollar rate increases, the day of the payment will be at the current dollar cost. The lean period of 90 days for payment has to be reduced.
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– M.K. Padmanabhan
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Perhaps if a purchase and the payment is made in the same month, neither the seller or the buyer is at risk of facing this fluctuation in the international currency.
The fact remains that India has a fast-growing economy. This situation is likely to continue for a period. However, by fast tracking local vendor development and producing indigenous products of international quality, the possibility of the situation getting altered for the better or a complete change could become a reality.
Yash Sama