One of the crucial and trying moments that a purchase department encounters – in a manufacturing facility or corporate office, mall, hotel or hospital – is when product prices fluctuate. Especially when it comes to procuring products internationally, based on the exchange rate against a limited annual budget. In this given scenario, should purchase cut down requirements, or compromise quality in the absence of equivalent local product or should allocate additional budget to meet price fluctuation? Clean India Journal weighs the dollar-rupee imbalance in the wake of the recent rise in exchange rates hitting the import of cleaning products.
The Indian rupee has never experienced such a drastic decrease in value against the US dollar. This has had a serious impact on the overall working of the national economy, corporate earnings and market unpredictability. Foreign travel, education, imports, raw materials, products, etc. have also been affected.
Also feeling the pressure is the cleaning industry which caters to the very high demand for cleanliness and hygiene in all quarters. To the extent that imports experienced a steep dip in the last quarter. Some of the suppliers have reported nil purchase in the last two months.
Sharp growth in the institutional sector, rising cleanliness standards, increasing number of residential dwellings, Government’s plan to boost tourism with additional 90,000 new hotels were all expected to increase the demand for cleaning product.
The margins have gone down. We are finding it difficult to maintain the prices. Things are pretty bad in the industry
– George Oommen
“But as of today, the Government is discouraging the imports and has increased the import duty of many products, says George Oommen, MD, Excel International. “Products like plastic dispensers, air-freshener and refills, etc., are witnessing a rise from 10-20% or even more. On top of that, a 15% increase in the dollar value is making import impossible.”
The Catch 22 situation in the Indian market is that the demand for imported products from certain segments remains irrespective of price fluctuation. Given the fact that multi-national and sectors like hotels enter into a contract with global vendors as a matter of policy, they go ahead with the contract. Moreover, some of the companies, especially the MNCs, have set norms for quality and standards not allowing room for changing the brand. They stick to policy and face the additional expense involved. This goes with the pharma manufacturing industry as well.
Facility management companies and cleaning industry work on a yearly rate contract which generally gets renewed in the month of April. Hence the vendors are not able to incorporate the price hike in supply and have no other options than reducing imports which affects the industry very badly, states George Oommen. “Increasing the rate in the middle of the year will have an impact on the business and won’t be viable. As a result, we are not coming out with any new product and are cutting down our profit margin.”
The harder the time, the better the success rate. This is the testing time for real players in the market that without affecting the cost if they are still providing quality product those people will be successful in the market
– Nadeem Siddiqui
The fall of the rupee also witnessed a surge in the raw material cost especially for chemicals. Commenting on the situation, Nadeem Siddiqui, Director, Pulizia Industries Private Limited says, “Majority of our business depends on the raw materials from our channel partner in the UK. As the import costs have increased, the raw material and fragrances which are brought into India have increased the production cost.
“The reason why people go for international product is the consistency. In case of Indian players, they start with a quality product but are not able to sustain it in the long run. People are interested in brand, but there is no brand loyalty as of now. We are looking for cost effective solutions which are customized and people who develop raw materials in India and supply to us. In fragrances, there are couple of suppliers who are developing on their own. But they also depend on the raw materials from the foreign countries. So, we are exploring the possible domestic players who develop in house raw materials in India, to reduce the cost of production and avoid the dollar impact.”
In contrast, George Oommen believes that Indian products of equal quality are not available. They intend to wait for the rupeedollar situation to come under control and only then will they take a step ahead in the proper direction. “We have no other option but to reduce imports which is going to affect the industry adversely.”