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Gandaki Carpets
Moving up the
Production Chain
What ups and downs did
this company go through
in its metamorphosis
from a yarn spinner to an exporter of carpets?
Gandaki Carpets exported over 20,000 sq. m. of carpets in the year that ended in mid-July 2005, but the firm’s Managing Director, Mrs. Shova Gurung, is still not satisfied. The firm used to export over 20,000 sq. m. of carpets per year before the fiscal year 1993/94, but the quantity then onwards declined gradually and reached a mere 1,700 sq. m. in 2003-04. The lesson learnt is simple and very important, but the learning process was really very hard.
The decline in Gandaki’s exports coincided with the decline in the carpet exports. But while the latter phenomenon was due to the overblown issue of Azo dyes and child labour used by the Nepali carpet industry, the real reason for the decline was different in the case of Gandaki Carpets.
“It was due neither to Azo-dyes nor child labour that our exports declined. It was entirely due to our mistake of depending on a single buyer,” says Gurung.
When selling to a single buyer, Gandaki was saving a lot in terms of the possible hassles involved in dealing with various buyers. The more important factor, however, to stick with a single buyer was the buyer’s preference. A buyer prefers that you do not deal with other buyers so that the exclusiveness of the carpet’s design, colour and material used are kept secret till the products reach the market. “And we were comfortable with this arrangement. But when our buyer started facing a downslide in his business, we too were caught in the downslide,” she recalls.
Then followed a frantic search for the other buyers—a process that lasted about a year. Fortunately, they got into contact with another German buyer (whom Gurung describes as the biggest German importer of Nepali carpets) who approved the designs submitted by Gandaki. So, by the end of the fiscal year 2004-05, they received an order of over 21,000 sq. m. of carpet. A big achievement out of an effort that lasted only one year.
Then how are they managing such a big swing in the business volume? “It is not a problem as we have a very flexible business model,” says Gurung. According to her, the firm does not manufacture the carpets on its own. It gets orders from the buyers and passes those orders on to manufacturers with the item specifications and as per the terms of the contract Gandaki has with the manufacturers.
But it is not that the firm was outsourcing the manufacturing job from the very beginning. The company still has a manufacturing unit, though not operational now. “When we were manufacturing on our own, there were a lot of hassles from the Maoists and also from the security authorities. While there were frequent demands for donations from the Maoists, the security authorities would suspect some workers to be Maoists. As it was not easy for us to address this twin problem, we decided to outsource the manufacturing,” says Gurung. “Though the profit margins are low this way, we have been saved from the drudgery.”
This case illustrates one typical problem of not just a small enterprise alone but also of a big one in which many people are employed.
Perhaps more peculiar to a carpet industry is the problem what Gurung calls as “advance culture”. Every carpet factory worker thinks it is his or her right to get advance payments for his/her wages. Since there is no guarantee that the worker will stay with the same employer, the employers try to avoid paying wages in advance, but as the culture is very much ingrained they cannot run the business without following this practice. Many workers just vanish after taking advance wages. This way all the carpet industrialists have lost considerable amounts of money which adds to the cost of the articles making it less competitive in the international market. Though all the entrepreneurs in this industry realise this problem and there have been decisions taken by industrialists not to resort to advance payment of wages, the decisions are always breached by one or another industrialist.
Another problem, according to Mrs. Gurung, rampant in this industry, particularly being faced by exporters who get the articles made by other manufacturers, is related to the secrecy of designs. Though it is understood that the manufacturer should not sell the rejected articles in the market till a certain period after the export consignment is dispatched, frequently the manufacturers do not honour this condition. In such a situation, the exporters have to face litigation with the foreign buyer.
Equally vexing is the problem of punctuality. “In exports business, punctuality is important as the articles have to be dispatched in time. But the manufacturing units do not supply the articles in time, thus forcing the exporters to dispatch the articles by air instead of sea and thus incurring considerably higher cost,” says Gurung.
Another dimension to the punctuality problem is related to the spinning. The exporters buy the wool as required for fulfilling the orders and give it to the spinners who are normally farmers and work from their own homes and get paid on the basis of the job done (the quantity of yarn spun). During the planting season, the spinners are not available and though available, they give first priority to farming, thus delaying the spinning work. Similar is the problem during the festivals.
“On such occasions, we are their hostages. We have to accept even substandard products as we cannot afford to delay the shipment. But this may again tarnish the image of the Nepali carpet industry,” concludes Gurung.
What about the problem of child labour in the carpet industry? Gurung says that the problem was reduced drastically after the introduction of Rugmark label. But now the compulsion to use that label is gradually dying away. “Therefore, there is the threat that this problem may blow up once again.”
Gandaki Carpet started business as a thread spinning unit in 2040 B.S. (i.e some 22 years ago) though the firm was officially registered as a cottage industry about seven years later (i.e. in 2047 B.S.). It was made a private limited company the following year and then it started exporting carpet as well. Initially the paid up capital of the firm was Rs. 5 million and it was increased to Rs. 50 million when the export business started.
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