The G.R.C.

(Governance, Risk Management, Compliance)

Flaws & recommendations to yield high profit
 
For- J&M Fashions, Gurgaon

BY 

Ankkit Raj 

Abstract
Purpose – The purpose of this research is to throw light on the unchecked
GRC management) and to suggest recommendations to enhance the profit
yielding capacity of the company.

Methodology/approach – Data produced by leading economists from across

the globe in their journals on GRCt & resource management and a study on
organic clothing, industrial internship at J & M Fashions, internet websites &
a paper based survey on 50 people.

Practical implications – The findings of the research reveals the flaws in the
GRC management of J & M Fashions

Scope of the Research

This research aims at distillation of the hidden flaws in the GRC management
of J & M Fashions. With the help of my Industry experience, it also aims at
suggesting ways to boost up the productivity & ideas to shoot up the profit
margin. The recommendations given in this research are based on a thorough
study of the functional mechanism of the company and the ideas given by
some of the finest economists and GRC management auditors on perfect
compliance management.

Hence, these recommendations, if taken into consideration, can surely prove a

boon to the company by enhancing the accountability of the company and
therefore, increasing the profit margin.
Limitations of the research
This research is based on the structural study of J & M Fashion only and the
views given here cannot be generalized for all apparel manufacturing
companies. The recommendations are based on the current work culture and
approach of the company.

GRC is a new term in business and there is no apposite definition available for
it as it is based on two broad factors-

1- Self made policies of the organization &

2- Conventional means adopted by any organization to enhance the
revenues.

Self made policies of an organization differ from any other organization and
so is the GRC. What scores is the quality of management which depends upon
the type of policies, work culture & intellect of the top management.

GRC of a company which makes software is utterly different from a FMCG

company. The staff requirement, production, advertising, financing, marketing
etc of a FMCG company are different from a software making company. For
example, if we consider advertising alone, a FMCG company can choose door
to door marketing but an IT company do not have such advertising strategies.
So evidently the whole GRC structure will differ.

This holds the reason why this research and the recommendations given here
cannot be generalized for all the companies even if they are in the same
functional area.

What is G.R.C.
GRC is an acronym for Governance, Risk management & Compliance). It is
an umbrella term covering the approach of an organization over these areas.
These terms are closely related; governance, risk management activities and
compliance are increasingly being incorporated and aligned in order to evade
conflicts and gaps. GRC encircles proceedings such as corporate governance,
enterprise risk management (ERM) & corporate compliance with pertinent
laws and regulations.

Corporate Governance

Corporate governance is the set of processes, customs, policies, laws,

and institutions affecting the way a corporation is directed, administered or
controlled. Corporate governance also includes the relationships among the
stakeholders involved and the objectives for which the corporation is
governed. A statement of SEBI (Shares & Equity Board of India) committee
(India) on Corporate Governance defines corporate governance as the
acceptance by management of the incontrovertible rights of shareholders as
the true owners of the corporation and of their own role as trustees on behalf
of the shareholders. It is about commitment to values, about ethical business
conduct and about making a distinction between personal & corporate funds
in the management of a company.

(Corporate governance has varied definition as the set of rules vary from organization to
organization. The two definitions given here are in compliance with definitions given by
corporate giants.

Reference http//:www.corporateinto.org, http//:www.forbes.com)

Risk Management

Risk management is the set of processes through which management identifies

analyses and where necessary, responds appropriately to risks that might
adversely affect realization of the organization's business objectives. The
reaction to risks typically depends on their superficial significance, and
involves controlling, avoiding, accepting or transferring them to a third party.
Whereas organizations routinely manage a wide range of risks (e.g.
technological risks, commercial/financial risks, information security risks
etc.), external legal and regulatory compliance risks are arguably the key issue
in GRC.

Compliance
Compliance means conforming to affirmed constraints. At an organizational
level, it is achieved through management processes which identify the
applicable requirements (defined for example in laws, regulations, contracts,
strategies and policies), assess the state of compliance, assess the risks and
potential costs of non-compliance against the projected expenses to achieve
compliance, and hence prioritize, fund and initiate any corrective actions
deemed necessary.

Compliance management of a company is the management of its fundamental

resources and maintenance of adequate facilities like cafeteria, proper parking,
sound electrical wiring, needed appliances like fan, air conditioners, water
coolers etc and the maintenance of hygiene. These facilities promote
competent work culture and the employees tend to respect the organization as
a whole.

Upholding a proper compliance management is a law under Company Act-

1956 and is subject to audit by special compliance auditors frequently

GRC is a relatively new term, as governance, risk management and

compliance are all considered "new-fangled" categories of business
management. While it may be difficult to assign a specific definition to GRC,
since it can mean many different things to many different businesses, it is
generally accepted that GRC is an approach taken by firms to ensure they act
in accordance with the self-imposed guidelines set for each category.

.
GRC frame of reference (Source-http://www.wikipedia.org)

Introduction
Fashion industry is amongst the leading businesses across the globe. The word
fashion displays many meanings when searched in a lexicon however; in
general we relate it only with apparels. The history of clothing goes back to
prehistoric periods as we see that clothing is one of the basic needs of humans.
The DNA of the company

J & M Fashions is an export house run by Mr. Manish Sarin. The company is
celebrating its second anniversary as a successful exporter to the buyers like
Tarun Tahiliani Ready-to-wear, Zara, Zero, GAS, Greystone etc.

Mr. Manish Sarin has 20 year work experience with Tarun Tahiliani. The
company runs as a stereotype export house. The staff consists of mostly young
people with a progressive mindset. The goal of the company is to satisfy the
demand of client by providing super quality finishing and high definition
packaging. To achieve this goal, company has employed some of the finest
Merchandisers, Pattern Masters & Tailors.
Any organization requires a specialized analysis that involves specifying the
objective of the business venture or project and identifying the internal and
external factors that are favorable and unfavorable to achieve that objective.

This special methodological analysis is known as SWOT analysis which is an

acronym for Strength, Weakness, Opportunities & Threats. A study of the
work system of J&M Fashions concluded to the following analysis on SWOT
degree.

STRENGTHS

J&M Fashion is a newbie. It’s a two year old venture founded by Mr Manish
Sarin who has a massive work experience in the same functional area. The
experience of the founder adds up to 60 percent of the whole organizational
strength the other 40 percent though coming from reliable workforce and
proficient workmanship. With the help of his unparalleled flair in marketing
and brilliant PR, he has successfully gained buyers from the entire sub
continent who keep the venture wheeling. This rotation of the products adds to
the total revenue and fetches finance to the company in terms of profit.

WEAKNESSES

Considering it a new venture, it has N number of flaws, one of which (GRC)

is described in this research. Some of the other points are mentioned below-

a- The colossal work pressure on the middle and lower management.

This results in diminished production.
b- Flaccid attitude towards modern technologies.
c- Non involvement of the experts in the top managements decisions.
d- Lack of lucid instruction flow from the top management to the middle
management to the workers.
e- Use of conventional means of production.

OPPORTUNITIES

Mr Sarin has immense experience in this functional are which can result into
gain of lot of opportunities. Company is located at Hero Honda Chowk. A big
brand by the name Orient Craft is located in same area. This can be useful in
two ways-
 1- Being a big brand, orient craft has quality workers and experienced
staff which, if hired by J&M Fashion can fetch them bigger outcome.
2- Being the only brand working is that area has reduced the competition
to a perceptible extent.

Fashion market is an ever growing market and with the pace its growing, it is
expected to touch a global revenue of $600 billion in the forth coming year.
This brings up an opportunity to cash the market by involving innovative
techniques of marketing and by investing in the promotion of customer
lucrative products like organic clothing.

THREATS

J&M Fashion has many threats, the first one coming from competitors. Being
a rewarding market, Fashion industry is enthralling many business giants to
invest in this area, especially production. Many of these business giants either
are either owner of big textile brands or are planning to set up textile factories.
Producing textile will surely cut cost of their production and hence
competition will further go fierce.

Lack of adequate facilities and non employee friendly environment of the

company may hamper the accountability of the staff.
P.E.S.T.E.L. ANALYSIS

PESTEL is an acronym for Political Economical Social Technological

Environmental and Legal factors affecting the company.

POLITICAL

Disinvestment and globalization policy of the government has always been

favorable to the industries. The policies of the government are in favor, the
only repulsive factor being the taxes.

Tax Policy- Sales tax has not observed any remarkable growth in the recent
years for domestic enterprises. VAT is the only new tax which counts 4.1% of
the total turnover. This tax tends to negligible in counted on “single quantity”
scale.

Environmental Law- Government of India has strict norms for the

environmental issues. With numerous NGOs working is the same bearing, not
abiding by the environmental laws may bring with it perilous consequences.
Being a production house, there is almost negligible air pollution but J&M
Fashion is inert towards proper disposal of inorganic waste and putrid fabrics.

Trade Restriction- The Import Export Policies of GOI are flexible and they
vary from trade to trade depending only upon the total revenue of the
company. Medium Scale Enterprises (MSEs) like J&M Fashion enjoy many
trade concessions like low tariffs, right to trade in any part of country and
abroad.

ECONOMIC

Economic Growth- Apparel market has always been an ever growing

business. With a gross revenue over $300 billion, it’s a huge market to invest
in. In India, garment business is on a boom. With the increasing demand for
quality garments, more buyers from across the globe are investing in India
which can be extremely profitable to an Export House like J&M Fashion.

Interest Rates- With the new banking interest rates amendments it has
become much easier for the SMEs and the MSEs to expand their businesses
further. J&M Fashion is a recent venture and government loaning policies has
helped it a lot. Due to high interest rates in the share market, the company
may also look for a chance for further investment in share market.

Inflation Rates- Apparel industry was one of those chosen few which was
either very partially or not at all affected by the blight of recession in early
2008. The cost on machinery used and labor have not seen any remarkable
inflation.

SOCIAL

Population Growth Rate- Garments are basic need of a people. This is the
reason why garment business is directly proportional to the increase in
population growth rate. A country with population over 1.2 billion provides a
sheer platform the growth of the garment business. Population growth always
decreases the number of jobs per person otherwise increasing number of
person per job which results into cheap labor. J&M Fashion may utilize the
above data to enhance the profits of the company.

Distribution- J&M Fashion is an exporter of high end fabrics. Heavy and

costly garments are a cake walk for the rich. In India, there is very uneven
pattern in the distribution of the people. Most of the elite class who can afford
high end garments lives in the metro cities like Delhi Mumbai etc. J&M
Fashion, located at one of the NCRs, comes in one of the profit making
regions. Raw materials, transportation, labor etc are easily available and
cheap.

Age Distribution-

This data (courtesy- http://www.investmentsu.com) provides an overview of

the percentage of dependents in India. This graph shows that the young age
people (capable of working) are more on a higher side. This ratio is very
helpful result that there is no dearth of able employees in India who are way
cheaper from the countries like the UK & the US.
TECHNOLOGICAL

Technology is one the major factors which contributes in the progress of any
organization. Use of proper innovative technology reduces work load, saves
time and increases the total revenue.

R&D- Research and Development in the backbone of any technological

advancement. J&M Fashion being a newbie has no R&D department. Being
an export house, the R&D part may be ignored but there should be a strong
knowledge of the recent developments in the technology which are profitable
to the company.

Technological Change- Fashion is no more a paper art today. Everything has

been mechanized and computerized. Computer Aided Designing (CAD) has
become a very important tool in the garment business. Many software like
SWICH COREL ILLUSTRATER etc are being used by different
organizations even SMEs to cut short the time and cost of production. J&M
Fashion on the other hand is absolutely passive towards the innovative
techniques.

Outsourcing- Outsourcing is done to diminish the work pressure. The number

of orders is high and the total number of the workmen is less. This hampers
the accountability of the company. Many SMEs work as fabricators who seek
for exporters who outsource their work. J&M Fashion has not taken any step
in this direction even when they no the fact that outsourcing is very common
now a days in every part of the globe.

ENVIRONMENTAL

Climate- India has a varied climate which gives opportunity to the fabricators
to get a hand on experience with different type of people. The changing
climate never affects the garment industry or a fabricator adversely as no such
chemicals are used which can alter due to climatic change. Further more, India
has no dearth for raw materials

With the strict government norms, all the production units are liable to be
audited on a regular basis. Environmentalists are much concerned even with
the quality of scrap and the way these are dumped.

LEGAL

Consumer Law- Consumer rights given to the customers have given them
special power to file a suit against and company in the special Consumer
Courts, who in any way sell bad quality or false priced products. This
apprehension has promoted quality and lowered the cost of the products.
Being an exporter, J&M Fashion may become a pray of the consumer law if it
deviates from maintaining the quality and quality can only be maintained by
using modern technology.

Discrimination Law- India does not promote discrimination on the basis of

cast, creed, color and state. There is a scenario of reservation in India but that
is not implemented in private businesses. This gives the liberty to the
businesses like J&M Fashion to choose employees from every part of the state
independent of their background.

Employment Law- Employment law states that every employee enjoys some
special rights. One of those rights includes working in a safe and healthy
atmosphere with basic minimum facilities.

.
The Flaws
The goals of the company are set high and its employees hold the right
aptitude to achieve it. The crisis is with the infrastructure, security & the staff
management. As this is an innocuous fact that right management is the
backbone of a company and any defect in the management can result in
several obnoxious consequences. The organization is suffering from few
managerial disorders, inadequate infrastructure and flimsy security
management.

A methodical scan of the company pushed forward N number of flaws in all

the three roots of GRC. J&M Fashion is a new endeavor and hence these
flaws are inevitable. What should be taken into account is the fact that the
company should consider jeopardy of these flaws and install the
recommendations suggested so as to avoid system overlap and to promote
profit yielding capacity of the company.

Here, the flaws at all level are discussed separately considering the roots of
the GRC.

Governance Flaws
As it is known that corporate governance is a set of processes and rules on
which any corporate decides its policies, governance is the most fundamental
of all the roots of GRC.

The study of the Governance of J&M Fashion brought forward an unusual but
expected fact. The fact is that from the way the company functions, one can
easily wrap up that the top management is not aware of even the initials of
Governance. Till date company follows conventional rules of garment
construction. There is no acceptance for the newbie technology, recent
policies of the government and most importantly, the flaw in the flow of
instructions from the top management to the lower management to the
workers and flow of complaints vice versa.

To understand this flaw we will have to consider the work flow chart of the
company which is as follows
The chart above shows the typical workflow of the company. The MD of the
company alone is responsible for taking orders from the client (buyer). After
the deal is signed, the MD distributes the work to three managers holding
three different departments and finally they transfer the work to tailors,
drapers & Masters. In a single go it seems to a mechanic which all the
companies follow and seems flawless as it is very conventional, but it is NOT.

The flaw lies in top management as well as in middle management.

Flaw at Top Management- As it being an export house, the survival of the

company depends upon the buyers. In the scenario of J&M Fashions, the MD
of the company is the only person who gets involved in dealing with the
buyers. It should not be the way it is. The competence of the MD is
incontestable but, for the success of any corporate, the one to one decisions
should not be taken by a single authority rather it should involve a panel of
experts who can intellectually criticize the validation of the decision and
suggest means for up gradation.

Flaw at Middle Management- There are three managers at the middle

management level with different work silhouette.

a- The Manager upholds a dual responsibility of both manager and

merchandiser, both being two separate area of work though they seem
to be similar. This system creates a lot of confusion and instruction
overlap resulting in the degradation of the actually flair of the person.
Over pressure hence impede the whole process of the business.
b- Production manager should not hold responsibility for the quality
check. Quality maintenance is very crucial for any product and hence
there is always a separate department for quality assurance which
unfortunately is not there at the J&M.

Security & Risk Management Flaws

The overall management is not organized and company has no policy for risk
management. This reflects in its poor infrastructure and lack of responsibility
of the top management to take this issue into consideration. Company has
adopted no innovative way to increase the production and is working on the
same old fundamental. Workers of the company are not insured which means
that there is no third party insurance of the workers. The consequences of this
error can be disastrous.
Compliance Flaws

Inadequate Infrastructure

The company is located at the suburbs of Gurgaon (at Hero Honda chowk).
This area is still under development and lacks many requisite facilities like
restaurants, cigarette shops etc..

• The company has no cafeteria where one can find something to eat
and, as mentioned earlier, there are no eating joints (not even dhabaas)
here.
• Then one can also find broken switch boards with live wires popping
out. This can lead to short circuit or some other huge casualty.
• Cleanliness is also a major issue.

Defects at Managerial Level

The flowchart of the work distribution shown above indicates that the post of
Manager (operations) & Sr. Merchandiser is handled by a single person who
they call manager cum merchandiser. Operations Manager of the company has
wide range of responsibilities and it is very hard for a person to cope up with
the dual responsibilities of operation manager and merchandiser. Several
tribulations pop up due this dual responsibility which ends up in clashes and
misunderstandings between the manager and the operational staff.

.
Recommendations

Every management has some or the other flaws and there are several reasons
for the same. J & M Fashions is a just two year enterprise and these flaws are
just because of the result of lack of experience. The company has got much
potential and has a long way to go. Here are few recommendations that can
exterminate these flaws and can be helpful in quality enhancement and can
increase the profit which is the bottom-line.

1- Two separate cafeterias should open up. One should be for Top and
Middle management staff and one should be for the lower staff. This
recommendation is based on the fact that no one can work efficiently
with empty stomach.
2- Instead of checking for the compliance management just for the sake
of escaping from the compliance audit, it should be taken as a routine
process. A better compliance management results in the employee’s
accountability for the company The company never goes short of
manpower if the employees of the company have full faith in the
company.
3- The software used by the company for CAD/CAM are outdated and
new software like SWICH 2010 etc, which are way too fast and
accurate, are available in the market.
4- A Merchandiser should not be made to hold dual responsibilities as it
hampers the net outcome. Manager (operations) should only take care
of the operational affairs. Merchandising is a task with vital
responsibilities and a separate person should take care of
merchandising part. Asst. Merchandiser should be the whole sole
responsible for the merchandise and he should report to the manager
(operations).
5- To avoid getting into legal affairs, company should do third party
insurance of its employees. There are always chances for the mishaps
especially if the company is lacking in inadequate compliance
management.

Special Recommendation

A lot of surveys and polls conducted by World Bank, UNO and other
environmental agencies brought forward an interesting fact a large segment of
people in India are ready to pay extra for the green products especially for
organic clothing, which somehow, has become a status symbol.

Being an export house, J & M Fashions neither can earn profit nor can
promote green consumerism directly as it has to work according to the buyer.
But indirectly, by working on the following concept, it can both promote
green and earn profit. Promoting green can be profitable as the company will
be automatically advertised by environmental activists.
The company can appoint a person who is adept in environmental affairs and
also proficient in sales. After taking order from the buyer, the Managing
Director call this environmental expert and he/she can suggest the buyer about
the profit they can make if they promote green. He should work on the fact
that people are ready to pay extra for green products and by working on green
products they can enhance their profit. If the buyer is convinced, he may give
order for organic textile. Since there is no price limit set for organic products,
the company can quote high prices to the buyer again keeping in mind the fact
that customer is ready to pay extra for the green tag.

.
       THE CONCLUSION

SURVEYS BY UNO 
AVERAGE EARNING 
& NON 
PEOPLE