Successful adjustment in Indian industry: the case of Ludhiana's woolen knitwear cluster

This paper examines the case of adjustment in a labor-intensive export industry (woolen knitwear) to understand how traditional sectors in developing regions cope with external crises and rise above them. India's woolen knitwear industry, concentrated in Ludhiana, recently survived two crises-the collapse of its largest export market (the former Soviet Union), and the simultaneous opening up of the domestic market to freer trade. After an unusually short downturn, the cluster not only recovered rapidly, but is increasingly diversifying into more demanding and competitive external markets. Four factors are key to explaining this surprisingly resilient recovery. First, the best performing firms had a strong and simultaneous presence in dynamic segments of the domestic market alongside exports. This generated key organizational learning, and built managerial and production capacities that helped firms adapt quickly to more demanding markets later. Second, an important feature of the learning relationship between first-time exporters and their foreign buyers was the small-scale nature of contracts and a "customization of fit" between the producer and the feedback-giving intermediary. Third, better performing firms paid equal if not greater attention to making organizational changes in their work practices than to the purchase of new equipment. Fourth, the embedded nature of production networks, and the government's past programs to assist local firms have indirectly helped create a dynamic middle-tier of locally-rooted exporters who appear to be leading the duster's transformation and modernization. (C) 1999 Elsevier Science Ltd. All rights reserved.