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The Rupp Report

The Rupp Report: Global Textiles Billing On The Move

By Jürg Rupp, Executive Editor

While the US dollar is not bad for exports out of the United States, other currencies are suffering more than ever from the weak dollar. As some local Indian journals report, this also is a problem for the emerging Indian textile industry. Indian textile exporters are faced with an increasing value of the Indian rupee. This has forced Indian export manufacturers to undergo steps to bill their exports in rupees for the first time, not in US dollars. Their aim is protecting their margins by passing on the fluctuation of the currency risk to their customers.

Hopeful Of Converting Some Contracts
It is reported that India’s largest garment exporter, Gokaldas Exports Ltd., has already started billing two of its European buyers in rupees. On the other hand, the JVS Group — which has the world’s largest retailer, Wal-Mart, as its customer — has begun negotiations with buyers and is hopeful of converting some contracts by the end of the year. According to top people from the Indian textile industry, rupee billing will be established in a short time.

The Indian rupee rose 11 percent this year, and this has severely affected the profit margins of textile exporters, who work on single digit margins in a very hard and competitive global market. According to the Apparel Export Promotion Council of India, the net margins in apparel exports differ between 5 and 8 percent. During a 12-month period ending in March, textile exports from India reached US$17 billion. Out of which apparel exports totaled US$8.4 billion.

Shift Of The Risk
Exporting through rupee billing shifts the currency risk to overseas buyers, allowing Indian exporters to earn profit from manufacturing only. With this, international customers will pay more if the rupee goes up and less when it’s the other way round.

JVC Group says the shift to rupee billing is inevitable and hopes to start with this billing method by the end of the year. The company said it has started converting US dollar billing of European customers to their local currencies. Compared with the US dollar, the pound sterling and the euro have gained 7.5 percent so far this year.

Gokaldas Exports said it is talking with three buyers to move from the euro to the rupee, and expects to account for 20 to 30 percent of its total exports in the Indian currency, which has appreciated against the dollar — the currency it bills most of its customers with.

Not An Easy Task
However, this move is not so easy. A. Sakthivel, president of the Tirupur Exporters’ Association, said today’s is a buyers market and it’s very difficult to convince customers to accept rupee invoices. However, members have started making efforts in this direction. In response to rupee appreciation, an exporter of garments in Coimbatore said a few European customers have raised prices between 3 and 4 percent without affecting their profit. Time will tell if the markets will accept this move, and if this is just the beginning of a global billing shift.

October 23, 2007