Craft in clusters

The million dollar question: should we support our fine workmen and reinforce our manufacturing clusters or lure international corporations to set up their manufacturing facilities in our country?

On 15 August, 2014, prime minister Narendra Modi made a significant announcement “I would like to call people of the world to ‘come, make in India.’ Sell the products anywhere in the world but manufacture here… we have the power, come, I am inviting you.” There is a general consensus that India’s development lies in strengthening its manufacturing sector by getting international companies to set up their manufacturing units in India. Why would these corporations be interested to come to India? The most important incentive offered to these corporations is access to a large, young and extremely cheap workforce. In fact, the country’s laws and regulatory mechanisms are being fundamentally changed to make it lucrative for the investors.

This is probably an opportune moment to pause and examine the various options available to us as a nation. Is there an alternative path of manufacturing which has not only evolved indigenously but has survived over centuries in spite of virtual neglect?

Today, our country accounts for less than 3 per cent of the world GDP (gross domestic product). Yet merely 300 years ago, the Indian sub-continent accounted for 1/4th of global GDP, more than twice the combined GDP of United Kingdom, France, Germany and USA at the time. India exported a variety of goods. The world’s elite could not get enough of the Indian calicos, silks, spices and several other luxury goods. Most of these goods were produced in what today are known as small industry clusters — which basically mean a large number of small units concentrated in a geographical location producing some specific goods. Surprisingly, many of these clusters have survived to the present times. In 2005, UNIDO identified over 2,000 craft, artisanal and industrial clusters across various regions and states in India. They account for a significant portion of our manufacturing output as well as our exports. They also employ millions of workers; and are the largest employers in non-agricultural sectors.

These clusters, many dating back to Mughal times, have exhibited phenomenal resilience in surviving extremely trying times and situations and successfully negotiated colonial neglect and plunder of over 200 years, onslaught of industrial factory and manufactured goods and the overall changes in political and economic environment of global production. They have adapted and innovated effectively to remain competitive even in the contemporary global market. In contrast, the corporate factory form has been around for merely 200 years, and their rate of long term survival is nowhere comparable to these clusters. According to Arie de Geus, the author of The Living Company: Habits for Survival in a Turbulent Business Environment, “The average life expectancy of a multinational corporation — Fortune 500 or its equivalent — is between 40 and 50 years... a third of 1970’s Fortune 500 had disappeared by 1983.”

So, the important question is, what makes these clusters so resilient? Some well-known clusters, such as the brassware cluster of Moradabad, the silk cluster of Varanasi — both dating back to the Mughal times — and the leather cluster of Kanpur which is around 200 years old, yield insights into the resilience and the crisis of the clusters today and holds good for most third world clusters in contemporary times. They show that small industry clusters have survived and thrived for so long because of certain important factors. One is the decentralised production integrated through a complex web of relations. The most fascinating aspect of all the three small industry clusters (SICs) is their organisational form, which is fundamentally different from the rigid hierarchical form of conventional large organisations. These SICs are made up of small and tiny units that are linked together in a complex network of relations both vertically (amongst the buyers and suppliers) as well as horizontally (among potential and actual competitors). Products in SICs are manufactured in a concentrated geographical location but go through several disaggregated steps. Each of these steps in the production process has its own specialised units and is done independently and yet in congruence with the rest of the process. Such an arrangement provides extreme flexibility in the production processes, the key to their successful adaption to changing market demands, products and technologies. The production of a Benarasi sari involves several steps and inputs each of them critical for the final product and except for processing the silk everything is done within the same geographical location. The pre-weaving steps include sourcing the silk yarn, degumming it and twisting it for ease in dyeing. Dyeing is done by a set of family based units which mix and match dyes to create the beautiful colours of the sari and material according to specifications. Then there is zari making, a significant feature of traditional Benarasi saris and fabric, which is done by a specialised set of units. They chemically fuse gold, silver, copper or plated wires with cotton thread and hand wound it into a coil which is used to weave the border and patters of the sari.

All this is put together based on the designs — unique patterns created by skilled designers who have honed their art over generations. These designers not only create new patterns to cater to the changing tastes of the buyers but are also the keepers of the traditional patterns of the cluster. The designs are then drawn out into graphs which are then translated into cards which are mounted onto the loom for the weaver to weave out the sari. Card making is a delicate job requiring close attention — every square of the graph needs to be translated accurately for a perfect design. Then there are ancillary operations like bobbin filling, stretching the warp yarn on the loom and only then would a weaver sit down for the actual weaving. Having a number of specialised small units for each operation gives the cluster a flexibility and range not possible in large integrated units.

Clustering also helps in small units taking advantage of both economies of scale (the factors that cause the average cost of producing something to fall as the volume of its output increases) and scope (factors that make it cheaper to produce a range of products together than to produce each one of them on its own). Conventional scholarship claims that these advantages are the defining features of gigantic corporations and in fact are used as justifications for their existence.

The other critical factor is trust and cooperation among various players within the cluster. The units in a cluster compete for the same market and buyers but given their interdependence there exists strong trust based ties among the various actors. Thus, they share common facilities, know-how and skilled artisans to ensure the effectiveness of the cluster as a whole. They also collectively institutionalise norms and practices for their operations which is imperative to deal with opportunistic behaviour by individual actors, and ensure smooth functioning across the clusters. Anecdotally, one would like to cite a nonagenarian tannery owner of Kanpur who had been in the business for over seven decades, and was lamenting the loss of trust and cooperation in the cluster. At one time the supply of babool (the bark used for vegetable tanning) had reduced significantly and there was a lot of unpleasantness among the tanners in the market. Some of the elders in the business decided that they would distribute the supply among themselves even before it reached the market. They then sat down and calculated what their demand was and what the supply was and then made a complete schedule and allotted the supplies accordingly. A man was employed exclusively to ensure that as soon as a cartload of supplies arrived, it should be sent to the premises of the allotted person and not reach the market. These men knew they needed to cooperate to survive. But this is not possible now as everybody takes care of their individual interests only. The whole ethic has changed — individuals have gained but not the industry as a whole.

Further, in spite of fierce competition within the clusters, the overriding concern is to be able to capture and hold on to the market share by the cluster as a whole. There are regular instances where rival units shared a large order, even if it is bagged by an individual unit, to meet specific deadlines or specialised design requirements by the buyer. Such an arrangement provides them protection from corrosive competition with each other. The buyers of the products of the clusters are usually large and powerful organisations compared to individual units of the clusters, hence one on one negotiations can be exploitative. Cluster players at times resort to collective negotiations to provide some check on such squeezing by buyers.

Skills of artisans and craftsmen are, arguably, the most crucial competitive advantage for clusters and key to their sustained existence. The skilled artisans are able to adapt themselves to changing markets and technology and also regenerate the skills at almost no cost to the producers through informal methods of family traditions. Not only in medieval times, these artisans and craftsmen have innovated and adapted to the demands of the dynamic contemporary global markets. Each market cycle brings in new challenges and the skilled workforce is able to meet them. The process is not merely to fill in a specific time-bound demand but also to ensure diffusion of knowledge. Most persons pick up the skills in the household, family and extended community which serve as unique training institutions. For example, the most critical operation in the decorative brassware of the Moradabad cluster is engraving and pattern making requiring high level of skills. The strength of the cluster lies in supplying small orders at the cheapest rates while maintaining internationally accepted standards. The skill requires a long time to learn and is learnt by doing. Generations of artisans have been nurtured in the most cost -effective institution — the family. As an arhatiya in Varanasi silk cluster puts it, the budding weavers start picking up their skills on the job by watching and working with their fathers on the loom. The workforce not only executes a demand but also carefully nurtures knowledge and skills, ensuring seamless intergenerational transfers over hundreds of years.

In recent years, however, the clusters have been going through a serious crisis which threatens to destroy the institution built over decades and centuries. The crisis stems from the peculiar logic of the global value chain. All the three clusters at Varanasi, Moradabad and Kanpur, as well as other clusters operating throughout the country cater to a global market; technically they are part of global value chains (GVCs). Value chain describes the full range of activities that firms, workers and intermediary actors do to bring a product from its conception and production to its end use and beyond. Even historically these clusters have catered to a ‘non local’ market, which in simple terms means that the producers and consumers are separated geographically and a chain of actors are involved in reaching the product from its production site (usually in a developing country) to the final buyers (usually in developed countries). Such an arrangement implies that the clusters are disproportionately dependent on the middlemen — the transportation, marketing, sales and the retail actors of the global value chain. This aspect makes the middle actors the most powerful faction of the global value chain — in effect they control the chain. The situation is aggravated by the fact that in almost all sectors this crucial middle link of the global value chain is dominated by large multinational corporations and their agents. This is borne out by the fact that almost 4/5th of the price at which the final consumer buys the product constitutes of post-production costs. Thus, for a product costing Rs 100 to the ultimate retail buyer, the cluster receives merely Rs 20 (or even less) for producing it and this includes packaging costs, too. In other words, marketing efforts of the global value chain account for the bulk of the costs. These middle actors, given their disproportionate control on the chain, squeeze the clusters to extract the most competitive prices. The effect of price squeeze of global value chain on clusters has been devastating, to the point that their very existence seem at peril.

The powerful middle players compel the clusters to meet impossible delivery schedules at non-viable prices. Clusters are forced to compete on price instead of their conventional advantage of unique products and innovativeness. This mad race to remain competitive has serious implications, eroding the very advantages which sustained the clusters traditionally. It leads to breaking down of trust ties and delicate organisational networks among the cluster units. In a demand-driven, long-distance market, the buying agents call the shots and prices are depressed even further by fuelling both intra-cluster as well as inter-cluster rivalry. With no counteracting institutional mechanisms in place, the downward spiral of suicidal competition continues unabated. The most damaging effect of this price squeeze is the crushing decline in wages of the skilled craftsmen and artisans. Given that prices of all other inputs are non-negotiable, the only factor of production whose cost gets squeezed is labour. At present, the skilled families of artisans and clusters work under extremely exploitative conditions for a pittance. Many of them are forced to migrate both geographically as well as to other sources of employment, usually as unskilled cheap manual labour. There has been a systematic deskilling of craftsmen across clusters which has disrupted the mechanisms of sustenance and regeneration of precious skills nurtured over centuries. The starkest irony is that even this extreme wage squeeze is ineffective in bringing down the costs, as wages account for merely 2 per cent of the final price to the buyers. The very survival of the clusters remains an uncertainty given the present state of affairs.

Hence the question we face today — should we strengthen our traditional skills, upgrade them to meet domestic and international markets, provide institutional support to negotiate with the powerful players of the global value chain, support our fine workmen and reinforce our manufacturing bases which have withstood the test of times? Or alternatively, lure international corporations to set up their manufacturing facilities in our country with promise of the largest and cheapest workforce in the world? Should we appreciate our skilled multitudes and dignify their endurance with appropriate policy support or should we use their vulnerability to strip them of any semblance of self-esteem and offer them to the lowest bidder? We are on a crossroad today and we as a nation need to decide wisely the path we choose to take for our development. For what we decide today would forever etch the contours of our future.

To rephrase the lines of Robert Frost’s immortal poem The Road not Taken:

Two roads diverged in a yellow wood,

And sorry we could not travel both….

Somewhere ages and ages hence:

Two roads diverged in a wood, and we—

We took the one less traveled by,

And that has made all the difference.

(Dr Manali Chakraborty is a freelance writer and researcher who focuses on labour organisation)

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