Exporters in Tirupur - Opportunity Loss - Buyers undercut the prices

Rupee falling not to help exporters in Tirupur – New options to explore

December 19, 2016
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Rupee falling will not help exporters in Tirupur – To adopt loss minimising techniques for benefits.

Garment exporters in Tirupur didn’t find any benefits on rupee falling behind 68.50 as the many of the exporters and t-shirt manufacturers in Tirupur have closed the deals with 66.50 rates as the season booking for SS17 has already begun in the garment city. Now export companies in Tirupur to adopt newer techniques to minimise losses and increase profit that would help exporters to benefit.

TEA president Shri Raja M Shanmugam with his new team addressing the voice of about $3 Billion value of exporters has said that exporters in Tirupur can reap benefits only if rupee depreciation against dollar continued. In regards to 68.50 rates, Tirupur exporters would have got about 3% extra on their markups if they would have locked in at 68.50 rates rather than 66.50.

How did the opportunity got lost?

Most of the export companies in Tirupur have exporters who do business ranging from $10 million to $12 million a year. It directly means an average of 3$million a quarter.

In reality,

1 Million = 10 Lakhs.

$1 Million = 10,00,000 X 66.50 = 6,65,00,000( Rates at which most of the exporters closed the deal )

$1 Million = 10,00,000 X 68.50 = 6,85,00,000( Rates after Rupee Fall )

Where the exporters in tirupur had a opportunity loss of profit

Loss per Million USD in Indian Rupee stands at
6,85,00,000 – 6,65,00,000 = 20,00,000 ( 20 Lakhs )

Per quarter, Its an average of $3 Million = 20 Lakhs X 3 = 60 Lakhs per exporter per quarter.

Which indeed is a 3% Percent Markup lost just in the fluctuation which basically means crucial in their average margins.

Exporters in Tirupur has lost in two ways:

Apparel Exporters not only lost opportunity profits. Buyers from western markets have falsely assumed that exporters in Tirupur have benefited in large volumes due to local currency depreciation and demand lower prices in future orders. TEA President Raja M Shanmugham highlighted the statement that exporters in Tirupur & India are suffering from no benefit yielded from rupee depreciation.

Battling fierce competition already from Bangladesh, China, Vietnam & other garment competitors, Tirupur as the garment export pioneers would have had the cutting edge in aggressive pricing for the buyers so it would have indirectly brought considerable surplus in orders increasing the profits & opportunities as experiences of low demand from major western markets in still prevailing.

How can opportunity losses be addressed?

Instead of going with most traditional contracts like forward contracts & future contracts has to be replaced with simple options to promote the liquidity to the exchange of rates.

Source : Thehindubusinessline  & Wikipedia

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