Can Gokaldas Exports help buy out Gap?
it would be audacious to suggest that a Liliputian supplier like Gokaldas would eye an icon of American Cool. But I believe there is a way to do this, writes Narayanan Madhavan.india Updated: Jan 11, 2007 18:46 IST
This week it is my turn to fantasise about the possibility of the next big Indian global takeover. My question is: can Bangalore-based Gokaldas Exports Ltd (or for that matter, Arvind Brands) try and take control of ailing US retailer Gap Inc?
Yes, I am talking of the company that owns brands such as Gap, Old Navy and Banana Republic, symbols of trendy, casual US clothing. At the current market value of a little more than $16 billion (Rs 72,000 crore), it would be audacious to suggest that a Liliputian supplier like Gokaldas with a market capitalisation of about Rs 1,000 crore ($227 million) would eye an icon of American Cool. But I believe there is a way to do this.
Finance Minister P Chidambaram remarked earlier this week that ten years ago, the Tata group would not have dared to think of acquiring a company like Anglo-Dutch steel maker Corus group, which even today is larger than Tata Steel in size. But Tata Steel, being the world's cheapest steelmaker, can bank on its efficiency and management power to go for Corus.
Can something similar be done in the glamorous world of branded apparel? I think India stands a good chance, but needs some imagination and diligence.
Gap is pondering its next move which could involve selling the entire company, or spinning off separate units like Banana Republic. It still has a healthy cash flow of about $650 million, though its sales have been falling for about 30 months. Some blame it on merchandise, and some blame the lack of old brand magic. Whatever the reason, the simple fact is that branded apparel is a high-margin business for those who can nurture brands and keep their eyes and ears glued to fashion trends.
Now consider a unique advantage India has. For decades it has been a source for apparel manufacturing, and brands such as Lee and Levi's have now made Indian companies their suppliers. While China, Taiwan and even Bangladesh remain competitors in manufacturing efficiency, India has the additional advantage in its emerging role as a global leader in knowledge economics.
Indians churned out of business schools, with their knowledge of English and US-style marketing and brand building, can provide that extra edge. Companies like Tata Consultancy Services (TCS) and Infosys specialise in mixing information technology and management consulting for global retailers.
Imagine for a moment that Gokaldas brings manufacturing and merchandising expertise to a table, where IT experts join management consultants. Add to this the fact that India has produced marketing wizards like Muktesh Pant, who ran Reebok's marketing for years, or Ramesh Vangal or Indra Nooyi who have helped build a brand such as Pepsi. If such minds get together for a special purpose vehicle of the kind the Tatas are building for Corus, there is a good chance for Indians to play a pivotal role in a company like Gap.
India's knowledge process outsourcing (KPO) companies can help Gap do more efficient market and fashion research (mix National Institute of Fashion Technology graduates with IIM-types!). Private equity firms and bankers would be happy to fund a company that can build such back-end strengths.
Gap's US executives will still be needed to measure the ups and downs of American fashion, and the buyout price has to be right. Whatever the detail, at a strategic level, it is time for Indian apparel makers to think big. Or bigger.