“When you have only two pennies left in the world, buy a loaf of bread with one, and a lily with the other,” says one Chinese proverb. Such is the magic of nature that it can bring a smile on your face when you least expect it. Thanks to China – the world’s factory – the trade in permanent botanicals (the politically correct name for artificial flowers) is soaring at a record pace. The Dollar Business analyses why it could be worth investing precious pennies in this business.
Ahmad Shariq Khan | February 2016 Issue | The Dollar Business
Claude Monet, the famous French painter, once said, “More than anything, I must have flowers always, and always.” This would be the most logical thing in the world for any flower aficionado. However, considering the dearth of space to grow real plants (thanks to urban boom that has forced the greens to retreat) and the fast-pace life where people are finding hard to spare time to follow their passion, this ideal scenario looks somewhat bleak. But then, there comes the man-made version of these real beauties to satiate one’s passion – permanent botanicals or artificial flowers and plants, as we better know them! In today’s world artificial flowers have, to some extent, replaced natural flowers in our homes and offices, and have turned out to be substitutes that are ‘low maintenance’ in comparison to natural flowers. What’s more? Artificial flowers have come a long way since the early days of plastic roses, tulips and daisies in appalling colours that faded in the sun and became brittle with time. In fact, with some of the varieties available today, you will find the task of separating the real from the artificial not so easy from even a close distance.
The USP of most of modern-age artificial flora is not just its life-like beauty but also its natural texture. And thanks to change in technology and the increased usage of new-age materials such as polyester, silk, latex and parchment, colours, etc., they are now more life-like, remarkably brighter and more pleasing to eyes.
“Nowadays, artificial flowers are so good that they’re almost indistinguishable from the natural thing. The rubbery effect makes them feel like real flowers,” Surya Adhikari, Director of Adhikari Flower Mart, Mumbai, tells The Dollar Business. The business and trade capital of the country has seen good growth in demand for artificial flowers lately – a reason why, of late, the city’s Jawaharlal Nehru Port has been leading the pack of destination ports (in terms of total value of imports) for artificial flowers in India, followed by those at Chennai and Tughlakabad.
Artificial flowers are produced using a wide array of materials. Manufacturers producing cheaper versions of artificial flowers use polyester. The less expensive artificial flowers use plastic for stems, leaves, berries, stamens, and other parts of the flower. Today, the products available extend to artificial plants, flowers, floral arrangements, bonsais, hanging creepers, bamboo and floating flowers among others. And, not to say, these artificial beauties are becoming hugely popular in residences, corporate houses, and multiplexes.
A variety of flowers in full bloom, along with dozens of their accessories, sell like hot cakes in Delhi’s Sadar Bazaar, a wholesale market in the capital city. A majority of these flowers are imported from China and Hong Kong. These days, traders say, artificial bamboos are much sought after for their refreshing green look and can double up as just about anything – from a small potted plant to a divider.
Maintaining such artificial flora is easy too. All you have to do is wash them with plain water and if treated well they can last a good 8-10 years. Due to the alarming levels of pollution in Indian cities these days, well-made silk flowers are increasingly becoming a good alternative to fresh ones. As per a recent government study, approximately 20-30% of the total Indian population suffers from at least one allergic disease and among them, many suffer from an allergy to pollen. For them, “it’s pretty logical – artificial flowers don’t bring with them any issues of hay fever or other allergies, and they also don’t attract insects like bees and wasps,” says one corporate buyer at Delhi’s wholesale market.
The “others” menace India’s total import of $9.87 million in artificial flora represents a miniscule 0.48% of the total world imports for this product and it just about makes it to the world’s top 30 importers list.
This item like many others, is a victim of the “Other” category menace. As such to ascertain the exactness of trade magnitude is a challenge. TDB Intelligence Unit ran through millions of import shipment entries over the past 16 months and found over 12,000 (12,201 to be precise) records that mentioned “Artificial flowers”. Problem was – 14% of imports didn’t happen under HS Code 6702 (“Artificial flowers, foliage of plastics and other materials”). In fact, about 10% of imports belonged to HS Code 39269099 (“Other articles of plastic”), whose total import value stood at $763 million in CY2014 (of which total shipments that mentioned “Artificial flowers” were valued at just $1.06 million). We are talking about millions of disguised imports of artificial flowers given the practice of not using the appropriate term in the bills of entry.
China supplied artificial flowers worth $9.03 million in CY2014, which constituted 91.5% of India’s total imports in this segment. This was followed by 2.4% from US, 0.8% from Indonesia and 0.8% from Thailand in the same period. China’s share in world exports also stands at a whopping 82.3% in this segment, and that very well shows the supremacy of China in this particular trade. And it’s not limited to just numbers. The Chinese have also earned a reputation for quality in this segment!
Traders, whom The Dollar Business quizzed, confessed that working with China is a profitable proposition for them, citing margins in the range of 5% to 15%. What’s more? Many importers, despite having an option of sourcing domestically at 2-3% lower costs, prefer Chinese versions of artificial flora. Echoing such sentiments, Alankar Srivastav of Artificial Décor, a South Delhi-based importer, says, “We deal in artificial flowers imported not just from China but also from Indonesia, Thailand, USA and France, and I must tell you, out of my experience, Chinese products are the best – in terms of quality and price.”
Interestingly, many manufacturers, across the country, first get the prevailing rates confirmed in various domestic wholesale markets, and then they reduce their prices (slightly) accordingly just to have a price advantage over the Chinese varieties. Despite this, a majority of local traders, The Dollar Business spoke to, opt for the Chinese versions. “The Chinese not just offer a wide range of varieties but their quality is far better than ours. They have a broader range. If an Indian manufacturer has 30 varieties, one can source over 200 varieties from China,” Manmeet Singh, MD, Eikaebana Flowers tells The Dollar Business.
It is no wonder therefore that in the Pearl River delta area of Guangdong province in China, thousands of 40-feet containers of polyester flowers and plants, lie ready to be shipped to many countries at any given point in time.
Several importers, The Dollar Business spoke to, also highlighted their concerns with respect to the ‘Make in India’ campaign. Nothing significant has happened on ground they feel. Sanjay Rathee, MD of Tejasvi Exports, a Delhi-based 100% import-oriented entity that deals majorly in artificial flowers, feels that under the present tax regime for importers, taxation is too much, and too complicated. “A country’s tax policy is always a key factor for facilitating or discouraging a business’ growth. Frankly speaking, we really don’t have that margin on which tax is levied. If the government reduces taxes, we would be in a better position to transfer benefits to customers. Also, we really do not have the support for the ancillary/allied sub-units for this sector. Whereas, in China they have dedicated units to manufacture every single part of the plant. We need to groom such a culture in India,” says Rathee. He also stresses on the need for bringing in innovation and R&D, which in turn could result in more varieties, the USP of Chinese so far.
India, it seems, has a long way to go before it can become a significant player in manufacturing (and exports of excess supply) of artificial botanicals. Till then, importers of artificial flowers will continue to rule the roost. And what’s even better, this product is not seasonal. Translation: Profits can bloom 366 days in a leap year!
“China’s Product Range Just Bewilders Us” - Sanjay Rathee, Md, Tejasvi Exports
Manmeet Singh MD, EIKAEBANA FLOWERSTDB: Can you give us a sense of present status of consumption as well as production of artificial flowers in the country? Also tell us about your scale of operation in India.
Sanjay Rathee (SR): In this segment we import most of our goods from China. The market for artificial flowers has witnessed steady growth in recent times. However, there is negligible presence of Indian manufacturers in this segment and we mainly look towards China and Thailand to cater to our domestic demands.
TDB: Quality-wise, how do you see Indian products vis-à-vis the Chinese variety. What is China’s USP in this business?
SR: The Chinese are very good in this segment. Compared to us, they offer a wider range of varieties. Their range simply bewilders us. Quality-wise also, our Indian products lag far behind. Chinese manufacturers offer quality depending on the price – from low quality to high quality; they have everything. It all depends on an importer’s pocket i.e., how much one wishes to shell out.
TDB: How do you see the government’s much touted Make in India campaign? Any plan to join the bandwagon?
SR: Yes, we believe the ‘Make In India’ is a good initiative. It was much needed. I believe this can empower us with the necessary skillsets and technical knowhow needed to compete more efficiently in today’s largely global competitive marketplace. Yes, in near future, we plan to set up a few raw material producing or ancillary units in Delhi NCR.
TDB: Competition from China has been hurting domestic players in many segments for quite some time now. How is the situation in your segment? How can it be countered?
SR: Given the negligible presence of Indian manufacturers domestically, I believe, there is hardly any competition. The Indian landscape is flooded with importers competing with each other and operating on not-so-great margin these days.
The government needs to enhance capacity building of Indian manufacturers in this segment. I believe this is when real Make in India can see the light of the day. Currently, we really do not have the support for ancillary or allied sub-units in this sector. In China, they have dedicated separate units – each for making plastic parts, for making petals, or for making bases of the plant. We need to groom such a culture in India.
TDB: How do you see the current state of Indian manufacturing? Do you see it becoming a force to reckon with in near future, especially in your segment?
SR: Of late, yes, I believe the overall Indian manufacturing sector has become more competitive. These days, compared to China, in all our labour intensive industries, costs are going down while in China they have shot up. We need to capitalise fast on this advantage. Waiting and watching will not make us better.
TDB: How do you see the proposed Goods and Services Tax (GST)?
SR: Yes, definitely GST will be good for manufacturers. Once rolled out, it will bring in increased uniformity and streamline the taxation process across states in India. That will be critical.
“It’s Easier To Import From China Than Buy From Chennai”
TDB: You are both a manufacturer as well as an importer of artificial flowers. Please give us a sense of the present status of domestic consumption and production of artificial flowers?
Manmeet Singh (MS): Domestic consumption of artificial flowers is steadily rising but now customers demand better quality and are very specific with their requirements. There is an increase in institutional buyers who specialise in decorations for events for malls, parties or in some cases TV or film sets.
Domestic production is quite low for fast running items, and I feel sad to say that it is not up to the mark, at least for the quoted price point. However, domestic production for specialty items such as pots or other handicraft items is good and is slowly picking up.
TDB: Being a leading player in the segment, which one major challenge would you like to mention that you face while producing in India?
MS: In one word – inconsistency. Production is inconsistent due to a myriad of factors, be it lack of infrastructure or non-reliable power supply or multiple layers of taxes. All these factors together make survival difficult for a marginal producer. The government can help by supplying a line of credit to marginal manufacturers and companies like Eikaebana can promise a minimum purchase from them every season.
TDB: How are you countering competition from Chinese suppliers?
MS: We are not countering it, and have no such plans for the near future. Until and unless India has a strong manufacturing base, China shall remain a reliable supplier. The sad truth is – it is less cumbersome to import from China than buy from Chennai in the current systems of taxation and transportation.
TDB: What according to you is the possible solution going forward?
MS: GST seems like a good first step. Before we even consider the risk of setting up a manufacturing unit, we must be assured of a unified reliable market that will help us greatly in determining our pricing structure. The Government has a Mudra scheme for easy access to credit for manufacturing, but then again a sound taxation policy is a must.
TDB: Why are Indian manufacturers unable to meet the demand?
MS: Manufacturing of artificial flowers in India lacks scale and that is certainly the main issue. As manufacturers, it is our job to meet the market demand and we have to meet it reliably and China has been a reliable supplier for a long time now. For Indian manufacturers to reach a similar scale, they would have to not only cater to the huge demand (and in terms of a variety of products) but also improve quality.
TDB: In terms of quality, how would you rate Indian artificial flowers against the Chinese variety?
MS: For us, the imported varieties from China work best. Honest truth – better quality, better availability, better pricing and, above all, greater variety.
TDB: What kind of profit margins can an importer expect in this trade?
MS: Profitability in this business depends on several factors such as quality, variety, currency fluctuation and demand. However, currently, an importer can expect a minimum profit margin of about 5-10% in this trade.
TDB: What would be you recommendations to the government to protect domestic manufacturers?
MS: I would say the government should not do anything to protect domestic manufacturers. A policy of domestic protection emboldens the domestic player to produce inferior goods. The aim should be to compete with international players and if we cannot do it in a market of a billion consumers, where else will we be able to do it?
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