Text books are fond of linear supply chains that move in a logical flow from concept to consumer; cow to fridge (dairy); from a sketch to the clothes rack (textiles) and, from a bauxite mine to the fridge (coke). Process mapping takes us from raw materials to manufacture and, through various modes of transport to the retail outlet or, even the on line store. And yet, for many products such neat moves are far from reality as each step fragments into a multiplicity of interdependent actors – formal and informal. Take traditional carpets or rugs – from loom to room.
If history is the written record of past events then the tradition of carpet weaving is older than history itself and invading armies and travelling traders generated a serious global trade at an early stage. Oriental and classic rugs are made and traded by centuries old methods from countries such as Iran, Afghanistan, Pakistan, India, Turkey, the Balkans and China. These high quality carpets are rarely purchased for their functionality and are often valued for aesthetic qualities that command dizzy prices as viable investments. Though high end retailers from Tokyo, London, Berlin and New York are the epitome of formal society, the informal sector dominates in most of the countries where the trade is based. For example, according to Rasmussen in his work on rural finance in Afghanistan, 80 to 90% of the Afghan economy is informal. It is a paradox of the industry that its informal roots belie the high levels of organised skill that are needed to satisfy exacting consumer tastes.
Classic rugs are made to traditional designs and are classified according to location or design – geometric or floral. There is much controversy on the accuracy of location as designs associated with one place may have been produced elsewhere as demand dictates. Production is largely in the home – constellations of homeworkers in well defined villages or regions – and mainly by women who operate independently or, on a contract basis. Rugs come in various traditional sizes and can take up to 9 months to produce. Merchants aggregate production capacity and move “collections” to the bazaar or, on to the main overseas markets of the UK; Europe or the US and specialist retail outlets.
The market is significant – the US rug market alone has been estimated at $1.25 billion which could mean a total market of over $2.25 billion. However, any numbers are subject to massive fluctuations due to the impact of major geopolitical events in the homelands of this ancient craft. For example, the Iranian Revolution led to the total US Trade embargo with Iran in 1987 – though Europe did not participate; the 1979 Soviet invasion of Afghanistan dislocated the industry massively. And these events triggered other shifts in demand and supply as capacity was either wrecked or, lacked skilled workers to work it. Then, there are the droughts and monsoons that devastate these regions frequently.
Plagued by such major geopolitical events and, natural disasters traditional market leaders such as Iran have lost market share to emerging countries such as India or, better technology in places such as Turkey. A major factor has been the migration of skilled weavers from one place to another or, into other sectors such as construction or agriculture. Often, the offer of a wage and three meals a day is more attractive than months of work that could be destroyed by a bomb. Traditionally, women have been the major producers of rugs in all of the traditional markets whilst men have been the traders and retailers. It is an area worth greater study as the impact of dislocation on the welfare of women in this industry has been severe.
So, we have a traditional industry, characterised by informal production generated by women from remote rural areas with men responsible for aggregation and trading relationships moving quality heritage products to organised retail markets. Professor Adam Pain, who has specialised in mountain economies for many years, takes this physical flow further and explores the role of different forms of finance on the route to market. It is a highly complex subject area. After all, as Pain quotes in his study on the carpet trade in Andkhoy; “if money is a language, there have been many tongues spoken in Afghanistan.”
This work on carpets in Afghanistan explores wages paid, credit given in differing credit cycles and mark ups all along the supply chain. In particular, Professor Pain’s work on Afghan carpets and, other mountain economy products such as wild honey in South India and the Opium Trade in Afghanistan illustrates the complexity of financial options ranging from interest free family based loans to microcredits and then, more sophisticated micro finance services as export is scaled up. It is not as simple as the availability of micro credits. More to the point, the collapse and dislocation of these societies has left most businesses with no choice but to use informal finance to rebuild business from ground zero. The formal sector is not a viable option because it has ceased to exist.
The whole issue of finance is heavily nuanced and perceptions of formal banking good / informal financial transactions bad need to be addressed. After all, Hawallah is a service that works and yet is far too often plagued by the innuendo of money laundering when it may be the only efficient way to move goods to market and get paid for it on time and in full.
Other developments add to the value of understanding the carpet industry – the use of RFID technology. Pilot testing is in progress to develop greater transparency for manufacturers, wholesalers and retailers throughout the supply chain. The patent pending IntelliRug RFID Tagging System (IntelliRug RTS) assigns a standard and globally recognizable unique Id to each valuable Perian and Oriental rug as it moves towards wholesale and retail markets across the world.
All in all, these informal markets combine physical, information and cash flow elements that are worth looking at more closely. Above all, an end to end map of the process from loom to room triggers all sorts of issues in the interaction of informal and formal actors in a significant global market demonstrating how logistics can play a significant role in transforming an industry and its fortunes on the global stage.
1. Adam Pain & Moharram Ali, Understanding Markets in Afghanistan – a Case Study of carpets and Andkhoy carpet market.