Pearl Global looks to reorient India ops for non-US orders amid tariff pressures

Pearl Global Industries, a key supplier to fashion brands like Gap and Zara, plans to repurpose its Indian operations to serve non-US markets if steep American import duties remain in place, chief executive officer Pallab Banerjee told Moneycontrol in an exclusive interview.

Pearl’s Indian operations account for 25 percent of its total export capacity, with roughly half of that output dedicated to the US market, the company said.

The company has 25 manufacturing units with a total capacity of 93.2 million pieces per year. Of the 25 units, eight are in India, four in Bangladesh, two in Indonesia and one each in Vietnam and Guatemala. The Bangladesh unit exports the most pieces, including woven, knits, denim, sleepwear and loungewear, activewear and athleisure, and tops and bottoms for men, women and kids.

Pearl Global’s move has been dictated by the 50 percent tariff imposed by the Trump administration as trade talks between the nations came to a standstill. Garment exporting companies such as Raymond Lifestyles, Arvind, Pearl Global, Kitex Garments and Gokaldas Exports rely primarily on the US markets for exports, of which apparel constitutes the largest share of the pie.

For Pearl Global, exports account for 99 percent of revenue, and about 50 percent of all shipments are to the US. The company manufactures T-shirts, activewear, shirts, dresses and sleepwear for US brands such as Gap,  Kohl’s,  Calvin Klein,  Tommy Hilfiger,  Polo Ralph Lauren,  Macy’s,  Walmart, etc., according to its annual report.

However, growing uncertainty has led these brands to consider shift sourcing from India to low-tariff countries like Vietnam and Bangladesh, where the tariffs are currently pegged at 20 percent.

Pearl Global can tap into that shift as it already operates manufacturing units in Vietnam, Indonesia and Bangladesh. “Most of this production will be moved out in case this problem is not solved, repositioned to countries like Vietnam, Indonesia and Bangladesh. Guatemala cannot make most of these products because the raw material is not available there,” Banerjee said.

The company is preparing to take a call on moving its export-oriented production to its overseas facilities.

“We will pull the trigger if nothing happens by the end of the month. At least the planning—you have to do it so I don’t lose the customer,” said Banerjee.

The company cannot divert Indian production to the domestic market due to its limited presence here. Moreover, domestic buyers are often unwilling to pay the premium that global brands do for higher compliance standards and maintenance costs, according to Banerjee. Thus, there is a “short-term concern of the Indian factories” until the company manages to replace the US orders with those from the eurozone, the UK, Japan and Australia, markets where demand remains strong and tariff barriers are lower.

“My first trial would be to bring the (production for) non-US markets that I’m executing from other regions back into India. If I’m not able to do that, then unfortunately things would be bad. But in the short run, there could be a little bit of time gap to bring the other businesses out here,” Banerjee said.