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Collaborations In Textile And Clothing Sector

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Questions:

1. What are some of the challenges for the Welspun group as it continues on its path of growth through globalization?
 
2. Are the high growth rates sustainable? If Yes, what will be the key success factory for the group? In no, What  should be future’s strategy?
 
3. Can the group’s growth strategy serve as a ‘role model’ for companies elsewhere? How and under what conditions?
 
4. What will be the one single factor that has had the biggest impact on the group’s high growth trajectory?
 
 

Answers:

1. Most of the companies have their origin in Japan, US and Europe and now looking expanding their operations to take advantage of cheap labor and newer markets preferable South-east Asia. However, Welspun has its origin in India, Asia and is expanding to countries worldwide. One of the most important challenge of this expansion and globalization is increasing compliance and quality policies, environmental guidelines, labor laws, and anti-money laundering rules in developed nations. For instance, it is a well-known fact that labor conditions in these Asian countries like Philippines, India, Malaysia, and Indonesia to name a few are quite pathetic and some also employs child labor to keep the costs low. However, US clients have very strict compliance polices for their suppliers and suppliers has to mandate it. Welspun does not have experience of such rules and this is a reason Target has stopped doing business with Welspun due to the quality problems and false claims made by the Welspun. Soon after this incidence, Walmart also stopped selling Welspun towels in its stores because they were not made of authentic Egyptian cotton. Walmart has filed case against Welspun and also refunded the money to its customers who had purchased such products (https://www.bloomberg.com/news/articles/2016-11-14/bed-bath-beyond-stops-selling-welspun-sheets-after-controversy ). However, Walmart is selling other products of Welspun. The biggest challenge for Welspun is now to meet the quality requirements of its clientele otherwise it credibility will further go down and it find itself difficult to comeback.

Moreover, it is growing at a rapid rate both by exploring new markets as well as by acquiring and merging with established brands. It is now facing stiff International competition worldwide after getting attention due to rapid growth. Another challenge that company has is to improve its credibility and reputation after Walmart’s issue.

Also, it had setup a facility in US near its major customers and those customers have now stopped the business not fully but partially. Also, New York is quite expensive city and cost structures, labor is quite expensive. Brand recognition, rising cost of compliance and local requirements of each country are some of the other challenges as it will continue to expand.

2. Such high growth rates are sustainable only if the company is able to maintain its quality and core values and does lose focus while expanding. However, 2 of its major clientele Target and Walmart had stopped some part of their business with Welspun due to quality issues. This means that Welspun has expanded at a very rapid rate and unable to maintain its focus and quality. Also, as the company is also diversified into other products, existing customers are perceiving that Welspun is not giving proper attention to its textile business which is creating quality issues. During such challenging times, such high growth rates are not sustainable. Instead of focusing on the growth rate, Welspun should focus on getting its clientele like Walmart and Target back by improving the quality of its products and signing more strict contracts having clause of penalty with such customers. Future strategy of the company should be to get the lost customers back by improving its quality and if it is successful in doing so, once again it will witness decent growth levels due to improved credibility and reputation. The focus strategy should focus on below points:

Clearly defining future priorities like expanding into newer markets, product diversification or getting the lost clientele back (Soni, 2016). Once the company has define the priority, it should create appropriate plan to put it into action.

It needs to decide whether it should continue to grow by using Merger and acquisitions approach as in past or focus on growing organically. Acquisitions sometimes lead to loss of focus as monitoring too many companies will be difficult to monitor and has risk of tarnishing the reputation of the company and Welspun cannot afford to take such risks after a couple of events in past (Kar, 2015).

 

3. Absolutely, the group’s growth serves as a role model for the companies worldwide. The rapid growth becomes possible at the Welspun due to its knowledge of the markets and venturing into new geographies and new products at the right time.

It has diversified itself by launching new products and by exploring new geographies simultaneously which could be a risky proposition for any company. It started with textile business and soon ventures into pipes, energy, steel and Infrastructure sector. Diversifying and scaling together is not easy process and requires superior leadership skills.

Welspun supplies it products to more than 50% of the global retailers and has clients like Macy’s, J C Penny

As the sales were rising in US, it had setup a plant in US in New York although it had to pay a huge cost to setup a plant in such expensive place. However, it helped company to gain the confidence of its clients and better understand their requirement and quickly fulfill their requirements by reducing lead times.

Besides organic growth, it also dared to merge, acquire and entered into joint venture with companies worldwide aligned with its motto of “Dare to commit” and become a known name quickly. Some of the examples are as below:

It had entered into joint venture with Vincenzo Zucchi of Italy for terry fabric bath robes and quickly acquired the market intelligence and right expertise needed for the Bath robes markets. Welspun Zuchi has now plant setup plant in India with finest technology and supplies superior world class quality bath robes in more than 34 countries (Cavusgil, Rammal, & Freeman, 2011).

It also entered into joint venture with Mannesmann DEMAG, German company for pipes. With this joint venture, it not only acquired world class German technology, it also acquired the global established clients like Saudi Aramco, Shell, ONGC, Unocal, Exxonmobil to name a few (Prasad, 2004).

It acquired 76% stake in Sorema, Portugal based firm exclusively for marketing of products in Portugal and Spain. Sorema is a leader in shower curtains and bath rugs.

4. Deep Understanding of the global markets and foray into numerous products had the biggest impact on the aggressive growth path of the Welspun. It started in textiles business, increased its presence in bath rugs, curtain showers, foray into pipes, energy and infrastructure sectors and also developed capability to manufacture carpets. This extensive product mix has helped the company to climb to the new heights quickly.

Not only this, Company is always at the forefront in adopting a new technology be it in its manufacturing processes or its company internal processes. It has signed a deal with HP, 100 million US dollars contract where HP will be developing IT solutions, implementing ERP and providing support to the company. In terms of its manufacturing technology, it had signed partnerships and joint ventures with numerous companies like Mannesmann DEMAG, Dystar, Archroma, Huntsman textiles, Tsudakoma, Picanol helped the Welspun to get access to superior technology without reinventing the wheel and also saved lot of resources and time (Hansen, 2007).

Joint ventures, Collaborations, Merger and acquisitions with established brands helped the Welspun to get quicker access to new geographies, new markets and new clientele quickly. Having a joint venture with Italian firms for bath robes and then shifting the plant for bath robes manufacturing at a cheaper place in India helps the company to save a cost. These strategies help Welspun to mark is presence globally in a very less time.

Strong leadership that have deep knowledge of markets and also have risk taking ability also helped the company to grow at very rapid rate. Leadership have acquired the right company at the right time and thus acquiring capabilities necessary for the Welspun to grow further and acquire larger markets (Gahlaut, 2008).

Lastly, its flagship businesses are Textiles and pipes and each of which needs a cyclical raw material which is cotton and steel respectively. It also helped the organization to develop hedging strategy.

 

Reference

Cavusgil, S. T., Rammal, H., & Freeman, S. (2011). International business: the new realities. Pearson Higher Education AU.

Gahlaut, V. (2008). India-Rising power in International M&A.

Hansen, M. W. (2007). Outward foreign direct investment from India: theory and evidence. Centre for Business and Development Studies Working Paper, (8).

https://www.bloomberg.com/news/articles/2016-11-14/bed-bath-beyond-stops-selling-welspun-sheets-after-controversy

Kar, M. (2015). The Role of Foreign Collaborations in the Textile and Clothing Sector. In The Indian Textile and Clothing Industry (pp. 69-82). Springer India.

Prasad, R. (2004). Emerging Paradigm of Strategic R&D alliances vis-à-vis corporate international competitiveness. Technology Experts, 7(1), 1-6.

SONI, A. B. (2016). MERGERS AND ACQUISITIONS IN INDIA AND ITS LONG TERM IMPACT ON SHAREHOLDERS WEALTH. CLEAR International Journal of Research in Commerce & Management, 7(8).

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