Even though many Western organizations considering sourcing from India often spend countless hours thinking through all of the supply risk implications of doing business in the region, it turns out we're not alone in having trading partner concerns. According to a recent article in Busines Standard, "Indian garment exporters are wary of taking new orders from US buyers fearing non-payment …Industry observers feel that this sentiment is justified, because today even the letter-of-credit does not guarantee the payment." With the credit crunch impacting retailers more than others -- thanks to declining consumer spending and tight margins -- perhaps Indian manufacturers are justified in their sentiment.
Last week, retail sourcing/supply chain goddess Paula Rosenblum opined in a comment on Spend Matters that she was "getting ready to post a short piece next week on one of the dirty little secrets in retail -- all retailers of all shapes and sizes have asset based lines of credit that they use to buy landed merchandise. As far as I can tell from my research, the largest tend to not bump up against the edge of the line, but mid-sized and smaller ones surely do. The thing about these loans is they are heavily laden with covenants. With a bunch of very nervous bankers out there, there is tremendous risk if a company falls out of covenants (covenants vary by type of merchandise sold and business model) the loans will be called and the company pushed into chapter 11." For Indian and other global suppliers to the US retail market, this should be scary indeed.
- Jason Busch