Brain Stormer: Not well spun at all

Ordinarily, news about Indian textile supply company Welspun India Ltd losing one of its most lucrative foreign clients, America’s Target Corp, following allegations that it had been selling fake Egyptian-cotton bed sheets to the US retailer, would have been only of passing interest to the general reader. But this is not just any business story about rising evaluations or falling share values. This is a story that speaks of a fundamental problem with Indian businesses which must be addressed if the country is serious about emerging as a global manufacturing hub.

 

The Welspun crisis is an especially good example because the firm is no start-up struggling to find its way and, therefore, possibly cutting corners to survive. Welspun is a well-established global giant in a field where India has for quite some time now been a major player. Today, Indian manufacturers control close to half of the global bed sheet market. Home furnishings, in general, is important business for Indian suppliers who sell to major Western big box companies like JC Penney, Walmart and Target. India has built its presence and leadership in this field – now, it needs to hold its place.

 

Quality control is an important factor in this regard. The sort of jugaad and chalta hai attitude that is acceptable within the country is not acceptable in the competitive developed markets of the world, where consumers fully expect to get what they are being promised. In other words, when they pay for bed sheets made of Egyptian cotton, they expect original Egyptian cotton. The problem for Welspun was that over the years the production of Egyptian cotton has fallen significantly while demand has continued to rise. Consequently, about 90 per cent of goods labeled as Egyptian cotton were found to have not a thread of cotton produced in Egypt, according to one survey.

 

The Egyptians are aware of this and now issue a gold seal for authenticity – Welspun is one of three companies permitted to use this gold seal. Yet, when push came to shove, Welspun, in spite of its priviledged position as a market leader, ignored the sanctity of its brand and business and seemingly resorted to fraudulent practices to protect its bottomline. The result: It has now lost a $90 million client and more than Rs 6000 crore in market value.