Gujarat's pride: A remarkable success story in Morbi

Morbi has evolved from scratch to the second largest tile manufacturing cluster in the world in just 18 years.

Some months ago, the BJP hype machinery went into an overdrive promoting all the great things to have come out of Gujarat over the last decade as an indication of what the country could expect if Narendra Modi became PM. 

Surprisingly, it missed a sitter. The Morbi Effect. 

For all those who have made good money on ceramic tile stocks in the last few years, they have Morbi to thank.

This speck on the Indian map has helped organise Indian tile manufacturers outsource production, rebalance their Balance Sheets and enhance margins.

The result is that in just a few years, a joint venture between established tile brands and Morbi back-room manufacturers is no longer a recommendation; it is an imperative if they desire to survive. 

The remarkable thing then is that Morbi remains one of the most remarkable - if curiously under-researched - manufacturing success stories to have come out of India in the last decade-and-a-half. 

Because Morbi has evolved from scratch to the second largest tile manufacturing cluster in the world in just 18 years. 

Because it is a remarkable instance of how small-scale manufacturers created such a collective clout, difficult for organised manufacturers to outcompete, that the latter did the next best thing - collaborate. 

Because it is just another instance of how cluster-based manufacturing can emerge as a world-beating weapon that translates into lower collective overheads as opposed to the apprehension that such a model would only translate into under-cutting that would drive manufacturers out of business. 

Because it is an amazing instance of how an agricultural community - Patels - entered a business space where they possessed virtually no sectoral experience and grew into possibly the most competitive force (outside China) within the global tile industry. 

Because the Patels may not have been good at marketing, branding or distribution but they did one thing better than most - cost management - born out of a centuries-old tradition of thrift.

This thrift was manifested in diverse everyday instances - promoters assuming shopfloor responsibilities; companies sharing technical resources; manufacturers borrowing spares from each other rather than nurse expensive inventory; companies selecting to outsource specific manufacturing sections (kiln management, for instance) to specialists for a fraction of the cost that would otherwise have been paid to resident executives. 

Because the Patels selected to address the funding needs of their growing businesses through cross-financing - 'X' competed with 'Y' at one level but financed an equity stake in Y's company at another - that translated into knowledge transfer and competitiveness. 

The scorecard: This one location accounts for more than 70 per cent of all ceramic tiles manufactured in India; the town generates more than Rs 15,000 cr in annual revenues; the location enjoys the highest density of digital printers in the world; it manufactures the largest tiles in the world (2m x 1m); not counting logistics, Morbi matches, overhead-to-overhead, the lowest cost manufacturers in China; the location enjoys a bankruptcy of less than 1 per cent.

What Modi can still say is "We will create 1,000 Morbis across India…" 

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed.