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Fabindia Weaves in Artisan Shareholders


The rapidly growing Indian retailer Fabindia offers ownership stakes to the artisans who supply its handcrafted goods

Fabindia, a purveyor of hand-woven garments and home furnishings, is one of India's premier retail brands. It has reached that level in part by bringing its suppliers inside the tent. The private company encourages the artisans who make its wares to become shareholders. Selling suppliers a piece of the company is unconventional, especially when most of the partners are illiterate. But if it succeeds, Fabindia could become a model for all kinds of companies, especially in the developing world.

Fabindia was founded in 1960 by John Bissell, an American working for the Ford Foundation in New Delhi, and is now run by his 42-year-old son, William. It has 97 stores in India's big cities and small towns. In 2008, it had revenues of $65 million, an increase of 30% over the previous year. And as Fabindia has grown, it has come to depend entirely on some 22,000 weavers, block printers, woodworkers, and organic farmers to provide the handmade goods it sells. "We're somewhere between the 17th century, with our artisan suppliers, and the 21st century, with our consumers," says Bissell.

Bissell and his staff have worked with the artisans to integrate them into Fabindia and, by extension, the modern economy. At first that meant helping artisans refine their traditional homespun designs to appeal to more chic urban tastes as well as improving the consistency of their wares.

Two years ago, Bissell went even further. He set up 17 centers throughout India, each organized around a particular region's artisanal tradition. These centers, in turn, were incorporated as companies in which artisans collectively own 26%. Fabindia encourages each artisan to buy shares, which cost $2 apiece—a reasonable sum for a weaver who might make a monthly profit of $100 from selling his woven cotton to Fabindia.A wholly owned Fabindia company controls 49% of each subsidiary; the rest is held by other Fabindia employees and private investors. So far, 15,000 artisans have become shareholders. The ownership structure is mutually beneficial for Fabindia and the artisans; the retailer ensures it has the supplies it needs, while the weavers, dyers, and so forth lock in steady income. "We pool our effort and funds, the artisans pool theirs, and we share the risk," says Bissell.

One believer is Mohammad Yaseen Chhipa, who dyes fabric in the dusty village of Pipar in Rajasthan and has been a Fabindia supplier for two decades. Chhipa, 52, is a prosperous man now. His yearly income has grown as Fabindia has, from $8,500 in 1989 to $170,000 today. He owns 560 shares and would like to buy more, but they're in such demand that few people are selling. The artisans can sell their shares to each other only twice a year. Although not many transactions have taken place, there have been enough to triple the share price to $6. Chhipa and other shareholders receive dividends, too, based on how much they produce.

As Bissell makes plans to open 150 more stores in the next four years, he's had to think about how to overcome the natural constraints of his business model. While offering his suppliers a chance to own a piece of the company has helped him lock in suppliers, Bissell won't find it easy to scale up. A yard of khadi, the traditional cloth worn by many Indians, takes two hours to weave—and right now Fabindia requires hundreds of thousands of yards a month. Bissell estimates he might need to triple his number of artisans to grow as quickly as he'd like, which would mean setting up several more regional centers. Maintaining the standards of quality would be a challenge. Even if he can solve those two problems, there's still the vexing issue of inventory control. "The whole idea of the Japanese just-in-time inventory is difficult to manage," Bissell says. "Here, it's more like just-in-a-year."

Bissell has been wrestling with possible solutions. One idea is to shift responsibility down the supply chain to the regional centers. His hope is that one day they might be able to do much more in the way of distribution, warehousing, and design. To that end, Bissell has arranged bank credit for these companies so they have access to working capital. And he is bringing some of the centers' employees to Fabindia's New Delhi headquarters for basic business training. The key, says Bissell, is to use what's intrinsic to India. "When you have an appropriate structure," he says, "all the forces flow in your direction and work with you."

Return to the Game-Changing Management Ideas Table of Contents

Kripalani is BusinessWeek's India bureau chief.

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