 "Ranjan Mahtani")
I get most of my thoughts in the shower and this morning I thought, 'With Narendra Modi coming in, there is a possibility I might invest in India,'" says Ranjan Mahtani, as we sit down to lunch in one of the conference rooms at the Hong Kong headquarters of the Epic Group.
Coming from Mahtani, who is CEO of a company that has 25,000 workers in Bangladesh and another 2,500 in Vietnam in state-of-the-art garment factories, this counts almost as a scoop. Despite the rapid growth of Epic's manufacturing business in Bangladesh, Mahtani has never hitherto expressed an interest in investing in India. He is little-known in the country, where the obsession with the diaspora is limited to CEOs of multinationals such as Microsoft and PepsiCo. The BJP government appears to be serious about encouraging labour-intensive manufacturing, judging from recent moves in Rajasthan to make it easier to hire and fire workers there, and it could not do better than to pay attention to manufacturers like Mahtani.
As jobs move out of China because wages for factory workers have been rising at double-digit levels over the past five years, India, hobbled by its reservations for the small-scale sector and archaic labour laws, has been losing out to Indonesia, Vietnam and Bangladesh. China's workforce peaked this year at 802 million. I remind Mahtani, 49, that two years ago when I bumped into him at Hong Kong airport, headed for New Delhi, I had put two and two together and made five: I immediately assumed he was scouting for locations to open factories in India. Mahtani, in fact was headed to Delhi for dinner at Bukhara with the regional head of a large US multinational retailer. He laughs at the recollection and encourages me to help myself as lunch is served before returning to the millions-of-jobs question as to what will bring him back to India. The spread before us could not be more different than Bukhara, but for the portions for the guest, which are enormous. Mahtani's efficient assistant, Glory, has ordered Chinese food for me - a mix of dim sum such as barbecued pork buns and shrimp dumplings, with a main course of chicken in soy sauce, fried rice and the vegetable choy sum. Mahtani's food has been sent from home and is much more abstemious - grilled chicken cutlets and grilled tofu with brown rice, accompanied by an Indonesian peanut and chilli sauce, which turns out to be delicious.
After we help ourselves, he returns to the subject of investing in India. Aside from the well-known problem that Indian garment manufacturers have to manage several small-scale units instead of building economies of scale as he has done in Bangladesh and Vietnam with factories of thousands of employees, Mahtani says the other big hurdle in India is a very high attrition rate. "Ten per cent attrition a month in India is unworkable for us because with 10 per cent attrition, you also have ten per cent absenteeism in India," he says. The high attrition rate is a function of most garment jobs being in places such as Gurgaon and Bangalore, where employees can switch jobs frequently. The absenteeism is partly driven by many migrants' need to return home to visit family. The answer to both problems, Mahtani argues, is to set up dedicated zones for garment manufacturers in more rural areas, which would create opportunities for labour-intensive work where none currently exists. "If you set up dorms for workers, absenteeism will come down. The choices (for jobs) get more limited as you move into rural areas and people would not have to migrate to get jobs if they can get them close to home," he says.
Having laid out this optimistic view, he punctures it by observing that "efficiencies in Bangladesh are much higher than in India. The quality levels are higher there. I wouldn't compare them." I feel deflated; it is one thing to belong to a country that suffers by comparison with China, but being told the productivity of factory labour for garments in India falls well short of Bangladesh is depressing. "Small scale manufacturing in India is the problem. In India they do the cutting in one place and the stitching in five or six places. It's ridiculous," he says. In Bangladesh, by contrast, Epic has nine factories of about 2,000 to 2,500 workers each.
Epic pays workers in Bangladesh a monthly salary of $150 to $200, while it pays workers in Vietnam $300 to $350. "It's not the labour cost that is the determining factor between Bangladesh and India. It's only the efficiency," he says. The size of the factories aside, one reason for this is that the workforce in Epic's factories in Bangladesh are as much as 75 per cent female. In Vietnam, the figure is closer to 90 per cent. "Women are more stable and efficient. This is a job that requires dexterity and skill. You will hear the same in China," he says. I have heard many factory owners in China complain that as factories there had to compete with the service sector for employees, they lost many of their best employees who were women to retail stores and restaurants. "You want women to come out and work," he says emphatically. "That's how you change the destiny of the country."
Epic has walked that talk by ensuring there are day care centres at its factories where women employees can leave their children. The factories also offer a medical centre. Employees are now being paid by bank transfers. "As of six months ago, 99 per cent of our employees in Bangladesh have ATM cards. We are now installing ATM machines. The medical centre has become a mini hospital for employees, he reports, and workers' birthdays are celebrated. "Not everyone does that," he says, in the understatement of the afternoon.
After the horrific Rana Plaza factory fire, which led to the collapse of a nine-storeyed building and claimed more than 1,000 lives, Bangladesh's success at attracting labour-intensive work has almost been overshadowed by its notoriety for allowing factories that are dangerous. Epic's reputation for running large, safe and modern factories has resulted in European retailers switching their business to the company. This shift means that the share of the European Union (EU) in Epic's sales is up to 20 percent from just five per cent 18 months ago. The company remains heavily dependent on the US, where its customers include Walmart, Gap and Abercrombie & Fitch.
To manage this growth, Mahtani has brought in a new head of finance and is in the process of bringing in an American as the company's chief operating officer, who will look at improving the company's performance on sustainability and lean manufacturing. Mahtani is determined to grow from the $500-million company that Epic is today to $1 billion in sales in three to five years. "Creating this foundation (of management) will make it easier. Large growth won't come until you change the culture of the company. Everyone was trying to please the boss. If the boss says so, they want to comply with it in places like India and Bangladesh." This modest, self-effacing entrepreneur sees the world differently: "Don't do it unless it makes sense."
I am presented a tiramisu large enough to build the foundation of a house on and plead that I am too full. Then we leave the conference room for a quick look at the showroom Epic keeps for customers. Mahtani lets slip that in 2013, Epic accounted for four per cent of the total imports of chinos and shorts to the US market. It is a market where Epic's information technology systems are so embedded that the sale of a pair of trousers at, say, Walmart triggers a self-replenishing order in Epic's warehouses in the US. The company makes 48 million chinos for US customers and 12 million denims.
Given the efficiency of its operations and the demands of western retailers, I leave wondering whether Mahtani could ever afford to do business in India. During lunch, he told me his customers have just invited a couple of Epic's executives to Johannesburg this month to look at the possibility of production in Ethiopia and Kenya, which have preferential trading access to the EU. Mahtani handed me a provocative report from the Economist Intelligence Unit that I scan on the drive back into downtown Hong Kong. It reports that China's productivity growth continues to outshine Bangladesh and Vietnam. The EIU predicts that a possible challenge to China will likely come in 2015, when the Association of South East Asian Nations turns its 10 member states into a "single base for production and manufacturing". I can't help notice that the report scarcely mentions India.
