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Published: December 5th 2009
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Late this week we set out for Ongole (450 km southeast of Hyderabad) to talk to local entrepreneurs in the granite industry about cluster development within an area SEZ dedicated to stone fabrication and building products. Ongole, located on the coast of Andhra Pradesh, is one of the major centers for tobacco trading in the state; however, during the late 1990’s, Ongole started to focus on leveraging its abundant natural resources. The availability of the unique stone Black Galaxy granite has resulted in the proliferation of granite mining, stone cutting and polishing companies. The granite is uniformly black in appearance and flecked with bright golden reflectors (Bronzite). Black Galaxy is used worldwide but is primarily quarried from Andhra Pradesh. There are three types of Black Galaxy granite: large speckled, medium speckled and small speckled (unsuprisingly dependant on the sizes of the golden flecks).
Today these granite businesses are spread across Ongole; however, a vast majority of the product is being exported in raw block form. The increased focus on the export market has driven prices up domestically due to reduced supply. In addition, the export of the raw block leaves a lot of value on the table in addition to
denying SMEs opportunity to engage in providing additional processing services such as cutting, fabrication and polishing. Value-add services such as those mentioned are primarily being done by small operations vs. in-house by the large quarriers. If even some of these steps could be completed prior to export the value of the granite would greatly increase along with business opportunities for smaller players in Ongole. One large quarrier we spoke with stated that he exports 80% of his raw blocks while 20% remain in India for further processing. Of those that undergo additional processing, approximately 80% of those pieces are then exported leaving very little for use in the domestic market. This case not only illustrates the low domestic supply but small amount of total exports undergoing any type of advanced processing. Interestingly enough, according to Stoneworld.com, Chinese purchasing of small Black Galaxy blocks has risen to 95% of total exports. Many of these small blocks have some amount of veining which is attractive to the Chinese “since they are not so obsessed with the Western culture of a ‘perfect’ natural material”.
The SEZ that is currently in the planning stages in Ongole is sector specific to building products. Similar
to all SEZs, this SEZ is a specifically delineated, duty free area deemed to be a foreign territory for the purpose of trade operations, duties and tariffs. In addition to the aforementioned tax benefits, no import license is required and also the customs process is greatly simplified with in-house customs clearance and self certification for companies located within the SEZ. The purpose of the lvisit was to encourage large players to consider forming a cluster with smaller players and join the SEZ as a cluster group. This would not only engage more SMEs but also increase the value of the products coming from India. The SEZs are split into numerous large plots and in order to enter the zone, the company must buy a plot within the SEZ. For small operations it is not financially feasible to purchase or occupy the plots of land as divided. By entering as a cluster, a group of related companies can occupy the space in one SEZ land plot, share critical resources (such as office space, transport services, etc.) and trade services back and forth in a very cost efficient manner. Additionally, transport costs for fabrication become negligible as all involved parties are located
within the SEZ. Within the cluster, the smaller companies could provide additional fabrication services for the larger quarriers who are currently exporting the raw blocks. Without forming this type of partnership, it is very difficult for SMEs to enjoy the benefits of SEZs and work with the larger players in the SEZ. Without understanding or accounting for the value of the additional fabrication, the larger exporters will continue to almost exclusively sell the raw blocks and limit the overall sectorial growth, particularly for ancillary services.
The greatest challenge is for the larger players to collaborate with the smaller players in order to bring the entire industry up a notch. The block exporters are making enough money as it is exporting the raw material and the incentive to allocate resources to increasing the value add is currently low. The SMEs in processing and fabrication are dependent on these smaller players for growth. By increasing the level of finishing on exports, there is less waste and more valuable material being sent overseas and the average price of the export increases, while at the same time increasing financial prospects and employment within the SME sector in Ongole. There appeared to be some
interest in cluster formation among the block exporters, but lack of awareness about the overall benefits of entering the SEZ, never mind the benefits of forming processing clusters was quite low and there is much to be done to educate the large players about the benefits of SEZ membership and the formation of cluster partnerships.
On a relatively unrelated note, there is a lot of opportunity for waste removal businesses in Ongole. Driving through the areas around the SEZ in particular, there would be a small fabrication plant on one side of the road and directly across the street a large pile of waste in the form of raw block, slabs and pieces of broken or damaged fabricated material would be sitting in a heap on the barren land. This waste continues to accumulate where this rubble could possibly have numerous other uses. A more perplexing issue is the waste from the slurry that is the product of the block cutting. Water is used when the stone is cut to control the heat and a significant amount of sandy slurry is produced. The water eventually evaporates resulting in large piles of gray sand sitting on the side of the road. Local cement companies have found a way to incorporate this byproduct into some mixes; however, the cost to transport the sand is greater than the value of the material itself so it sits on the side of the road. Lastly, the toll the quarrying has taken on the land is noticeable passing through the area. Sides of rising plateaus have large barren patches across the sides and chunks of stone have been removed from the middle of hillsides. Given that the stone located 50-70 meters above ground generally has less surface pitting, the hillsides have been attacked in search of the best quality product with little to no attempt at reforestation. As much of this industry is sustaining the economy of the area, lack of focus on proper waste removal and care for the environment could eventually threaten long term development prospects.
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