Professional Documents
Culture Documents
in South Asia
Rags or riches?
Edited by
Gopal Joshi
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Printed in India
Foreword
Garments exports from five South Asian countries (Bangladesh, India, Nepal, Pakistan and
Sri Lanka) have generated sizeable employment in the recent years. However, these countries are
faced with the prospects of declining employment as the quota arrangement under the MFA
(Multi-Fibre Agreement) comes to an end by the year 2005. The smaller countries, which do not
have a diversified export portfolio, are expected to be particularly adversely affected in terms of
potential loss of employment and income resulting from abolition of the quota system and increased
competition from other low-cost countries. The ILO is naturally concerned with the potential loss
of employment and deterioration of job quality in the developing countries in South Asia.
Nepal has already experienced a downturn in its employment in the garment industry from
the peak of approximately 100,000 workers to approximately 30,000 workers due to various
reasons, including increased competition. Bangladesh, which is considered to be performing
relatively well in garment exports among the South Asian countries and which employs 1.5
million workers (90 percent female), is expected to be affected due to its large dependence on the
US and EU markets for its garment exports and also due to its general disadvantage in productivity.
As the competitive pressures from low-cost, high productivity countries increase, not only
employment but also job quality may get adversely affected; and the burden of such adverse
consequences may fall disproportionately on female workers. Therefore, it is
essential to determine how such likely adverse consequences of abolition of quota could
be minimized.
In this context, each country needs to assess its strengths and weaknesses and formulate
a strategy to prepare the industry for the liberalized and globalized environment. In order to
assist in this process, the ILO organized a sub-regional meeting from 25-26 September 2001 in
Kathmandu with the participation of the representatives from the Ministries of Industry, Labour,
and Textiles; workers’ and employers’ organizations; and garment manufacturers’ associations.
By organizing the sub-regional workshop, the ILO has sought to facilitate formulation of strategies
among the participating countries before the quota arrangement under the MFA is abolished.
This publication, a compendium of the country papers presented during the sub-regional
workshop and the proceedings of the meeting, was prepared and edited by
Mr. Gopal Joshi, Senior Enterprise Specialist, ILO New Delhi. I would also like to take this
opportunity to acknowledge the contribution of various resource persons in preparing the country
papers and the rich inputs provided during the discussions by the representatives of the
governments, employers’ and workers’ organizations and the garment industry.
Figures
1.1 Rings of global sourcing 8
1.2 Scattergram of productivity and wages of selected countries 10
2.1 RMG exports from Bangladesh 14
2.2 BGMEA membership 15
2.3 Male and female workers in Bangladesh RMG industry (1990’s) 19
2.4 Productivity and wages in Bangladesh RMG industry 20
2.5 Productivity and wages in selected countries 21
4.1 Ready-made garment exports 85
4.2 Changes in Garment Export to U.S Market 86
4.3 Ratios of male female employment and local foreign labour 87
4.4 Garment export in national total exports 89
4.5 Interactive relationships between job quality, productivity and competitiveness 114
4.6 Cyclic linkages between productivity and competitiveness 119
5.1 Volume of world apparel imports 138
5.2 World imports of apparel – product split 139
5.3 Trend of world imports of apparel 139
5.4 Global imports from Asia 140
5.5 Apparel exports from South Asia 141
5.6 Pakistan’s exports to world 141
5.7 Split of Pakistan’s exports 1999 142
5.8 Share of knit and woven garments in Pakistan’s exports 143
5.9 Trend in Pakistan’s apparel export 144
5.10 Pakistan’s exports to EU 145
5.11 Split of exports to EU 146
5.12 Pakistan’s exports to USA 147
5.13 Split of exports to US 147
5.14 Split of textile products, 1999-2000 152
5.15 Apparel market segments 159
5.16 Composition of apparel trade with US 161
5.17 Global consumption of fibres 168
5.18 US import of men’s knit garments from Mexico 169
A5.1 US import of apparels 173
A5.2 Types of US imports 174
A5.3 Split of Asian exports to US, 1999 175
Page
Exhibits
3.1 Types of retailers and major global sourcing area 56
5.1 Buyers preference in apparel market segments 159
5.2 Key features of textile quota policy in Pakistan – I 165
5.3 Key features of textile quota policy in Pakistan – II 165
6.1 Dependence of competitiveness on productivity and job quality 199
6.2 Transport and hostel facilities available for garment workers 201
6.3 Present garment industry training institutes and programs 204
6.4 Possible impact of globalization on garment industry 210
Overview of competitiveness, productivity,
1 and job quality in
South Asian garment industry
Gopal Joshi*
1. Introduction
During the last two decades, South Asian countries have experienced phenomenal
expansion of employment opportunities and export earnings due to growth of export oriented
garment industry. Exports of garments from Bangladesh has risen from about 4 percent of
its total exports in 1983-84 to about 76 percent in 1999-2000 generating employment to 1.5
million workers. Ninety percent of these garment workers are female, which signifies
unprecedented entry of female workers in manufacturing activities. Similar expansion in
employment has been experienced albeit with varying levels of success by all five South
Asian countries (Bangladesh, India, Nepal, Pakistan and Sri Lanka) as shown in Table 1.1
below.
Table 1.1: Employment in the garment industry in South Asia
Rapid expansion of the garment industry within the last two decades has certainly
given a boost to job creation in the organized sector, which is otherwise less than ten percent
in the South Asian countries. Such rapid job creation also has created apprehensions about
the possibility of similarly rapid loss of jobs once the quota system instituted under the MFA
(Multi-Fibre Agreement) is abolished at the end of the year 2004. Prevention of large-scale
job losses due to liberalization and globalization is a major concern for the countries in
South Asia. Furthermore, there are also concerns in some of the countries regarding the
state of job quality, particularly in view of its likely deterioration as a result of the
competitive pressures. Therefore, the issues concerning employment in the garment
industry are:
Ø How sustainable are the jobs in the garment industry?
Ø How important is productivity in enhancing competitiveness of the industry?
Ø How does job quality in the garment industry affect its productivity and
competitiveness?
The issue of sustainability of the jobs in the garment industry, which carry even greater
significance considering the impending removal of quota system at the expiry of MFA
(Multi Fibre Agreement) at the end of the year 2004, can be addressed only by examining
the position and nature of the South Asian garment exports in the world trade, which is also
greatly influenced by bilateral and multilateral arrangements.
garment industry would be in jeopardy when the exporting countries, particularly with
resource endowment, textile and clothing tradition and efficient manufacturing base, jostle
for market share. Not only the number of jobs may come under threat but also the quality
of jobs may suffer as price competitiveness places pressure on wage costs.
Table 1.2: Quota exports of garments from South Asia
In percent
Countries Quota-based
exports
Bangladesh 95
India 73
Nepal 80
Pakistan 90
Sri Lanka 62
Sources: Implications of the phase out of MFA on exports of garments & textiles
and the structural adjustments required, a study by KSA Technopak, India for
Ministry of Textiles and FICCI and Country Papers prepared by Nasreen Khundker
for Bangladesh, M. Vijayabaskar for India, Dinesh Pant and Devendra Pradhan
for Nepal, Asir Manjur for Pakistan, and Saman Kelegama and Roshen
Epaarachchi for Sri Lanka for the Sub-regional Meeting on Productivity,
Competitiveness and Job Quality in Garment Industry in South Asia, Kathmandu
25-26 September 2001.
Although attempts need to be made to respond to the above questions, all the answers
may not be available immediately. However, it is necessary that the South Asian countries
accurately assess their competitive situations. The growth being experienced in the garment
exports may provide illusory confidence among some exporters and the governments in their
competitive capabilities.
2. Illusory competitiveness
It is natural that the South Asian exporters and governments remain complacent in the
belief that they are uniquely placed to export with the strength of low wages or that they
have the various sourcing companies in the West locked into a business relationship or that
they have natural resource endowment and clothing and textile tradition to weather the
competitive pressures. The levels of wages in South Asia are certainly lower than in many
other garments exporting countries (Table 1.3). However, such low wages may not be
enough for achieving competitive edge since wages occupy only one percent in the cost
structure of the apparel industry.1
Table 1.3: Labour costs in selected countries (in US $/hour)
While it is true that the sourcing companies or retailers in the West may not wish to
breach the trust developed with the suppliers and may stick with them even in times of
adversity; nonetheless, the past behaviour of garment manufacturers has proved that they are
ready to relocate the manufacturing plants if they perceive benefits from doing so. South
1
http://www.stanford.edu/class/e297c/trade_environment/rights/haddress.html as quoted in M. Vijayabaskar, “Productivity,
Competitiveness and Job Quality in Garments Industry in India,” a discussion paper prepared for the Sub-regional
Meeting on Productivity, Competitiveness and Job Quality in Garments Industry in South Asia, Kathmandu 25-26
September 2001.
OVERVIEW 15
Asian countries are destinations of such third relocation, after the first and second waves of
relocations in East and South East Asian countries. There is evidence of such shift in
sourcing taking place in other regions as well.
There have also been periodic changes in such intraregional trade depending on the
latest agreements reached among groups of countries on the basis of various considerations.
Until recently, Caribbean countries enjoyed a surge of as much as 3.3 percent growth in
1997-98 in such garment exports to the US market due to the CBERA (Caribbean Basin
Economic Recovery Act) launched by USA in 1983 and subsequently amended as CBTPA
(Caribbean Basin Trade Partnership Act) in 2000.2 However, once NAFTA (North American
2
“The textile and clothing industry in developing countries after the Multi-Fibre Arrangement,” an ILO discussion paper
prepared for the Sub-regional Meeting on Productivity, Competitiveness and Job Quality in Garment Industry in South
Asia, Kathmandu 25-26 September 2001.
16 GARMENT INDUSTRY IN SOUTH ASIA
Free Trade Agreement) came in force, Mexico has been able to increase its garment exports
to the US by increasing its market share from 3.8 percent in 1992 to 12.6 percent in 1998.
EU also has increasingly started assembly of the garments in central and east European
countries due to proximity and probably for the political reasons.
There have also been evidences of growth of intraregional trade within East and Southeast
Asia. How far the South Asian countries become a part of such intraregional trade would
determine their ability to bargain and compete in the garment industry. The complementarity
of comparative advantages brought about by such intraregional trade may enhance the
competitiveness of these countries.
The garment exports from South Asia may be quite vulnerable to sudden shift in the policies
of developed countries or swings in the market. Each of the South Asian countries has its
3
K.V. Ramaswamy and G. Gereffi, “India’s Apparel Sector in the Global Economy – Catching Up or Falling Behind?”
in Economic and Political Weekly, 33/3: 122-130 as quoted in M. Vijayabaskar, “Productivity, Competitiveness and Job
Quality in Garments Industry in India,” a discussion paper prepared for the Sub-regional Meeting on Productivity,
Competitiveness and Job Quality in Garments Industry in South Asia, Kathmandu 25-26 September 2001.
4
M. Vijayabaskar, “Productivity, Competitiveness and Job Quality in Garments Industry in India,” a discussion paper
prepared for the Sub-regional Meeting on Productivity, Competitiveness and Job Quality in Garments Industry in South
Asia, Kathmandu 25-26 September 2001.
OVERVIEW 17
strengths and weaknesses in garment exports. Bangladesh had had the largest annual growth rate
of almost 17 percent in garment exports during the nineties.5 This may be largely due to the
lowest wage rate among all the countries in the region, in addition to other factors such as
technological upgradation and union free EPZ. Nepal has shed jobs in large numbers from around
100,000 to below 40,000 while maintaining a growth in garment exports. It is beset with the
problems associated with a landlocked country and costs associated with it. 6
All three countries, Bangladesh, Nepal and Sri Lanka have no natural resource
endowment while India and Pakistan are both amply endowed with cotton production. Yet,
cotton tends to be the source of problem in both countries, whether in terms of contaminated
cotton in Pakistan or over-dependence on cotton (as much as 70%)7 as the input material
in India.
In India’s case, large percentage of cotton component in the apparel has held back any
progress that could be made in moving up to the high-value added garments with inputs of
various fabrics. Furthermore, government cottage and small scale reservation policy has held
back the prospects of productivity improvement. Sri Lanka is the only country, which has
markedly moved up in the value chain. Pakistan, on the other hand, suffers from dependence
on very narrow items of quota based exports as a result of the government policy of
allocating quota only to existing exporters, thus depriving incentives to new entrepreneurs.
5
Export Promotion Bureau, Government of Bangladesh as quoted in Nasreen Khundker, “Productivity, Competitiveness
and Job Quality in Garments Industry in Bangladesh,” a discussion paper prepared for the Sub-regional Meeting on
Productivity, Competitiveness and Job Quality in Garments Industry in South Asia, Kathmandu 25-26 September 2001.
6
Dinesh Pant and Devendra Pradhan, “Productivity, Competitiveness and Job Quality in Garments Industry in Nepal,”
a discussion paper prepared for the Sub-regional Meeting on Productivity, Competitiveness and Job Quality in Garments
Industry in South Asia, Kathmandu 25-26 September 2001.
7
Handbook of Export Statistics, AEPC as quoted in M. Vijayabaskar, “Productivity, Competitiveness and Job Quality in
Garments Industry in India,” a discussion paper prepared for the Sub-regional Meeting on Productivity, Competitiveness
and Job Quality in Garments Industry in South Asia, Kathmandu 25-26 September 2001.
18 GARMENT INDUSTRY IN SOUTH ASIA
Source: G. Gereffi, “Capitalism, Development and global Commodity Chains,” in L. Sklair (ed.) as quoted in M. Vijayabaskar,
“Productivity, Competitiveness and Job Quality in Garment Industry in India,” a discussion paper prepared for the Sub-
regional Meeting on Productivity, Competitiveness and Job Quality in Garment Industry in South Asia, Kathmandu 25-
26 September 2001.
terms of unit price of the garments exported (Table 1.6). Excepting for Sri Lanka, very few
garment export items from South Asia fetch high value. Low wage rates have probably gone
into manufacturing low priced products. Bangladesh has the lowest wage rate, and it has none
of the export items securing high value. In many instances, low wages are also accompanied
by low quality and low productivity, as it would be seen later (Figure 1.2 in Section 3).
Table 1.6: Unit price realization of selected garment exports (in US $/piece)
Although South Asian countries can claim to have some of the lowest wage rates, such
advantage is negated by low levels of productivity. When the wages and productivity of a
few selected countries are plotted in a scattergram (Figure 1.2), it is obvious that the advanced
countries, such as Italy, U.S. and Japan, have high levels of productivity to match their high
20 GARMENT INDUSTRY IN SOUTH ASIA
levels of wages. On the other hand, most low wage countries are clustered around the left
bottom of the graph.
Figure 1.2: Scattergram of productivity and wages of selected countries
45000
w
40000
w
35000
w
30000
Productivity
25000
20000 w
15000 w
w
10000 w
w
5000 w w
www w
w
0
0 5000 10000 15000 20000 25000 30000
Wages
Sources: Adapted from S. Islam, The textile and clothing industry of Bangladesh in a changing
world economy (Dhaka, University Press Ltd.), 2001 as quoted in Nasreen Khundker,
“Productivity, Competitiveness and Job Quality in Garment Industry in Bangladesh,” a
discussion paper prepared for the Sub-regional Meeting on Productivity, Competitiveness
and Job Quality in Garment Industry in South Asia, Kathmandu 25-26 September 2001.
through installation of sanitary and air-conditioning facilities, not only the product quality
is improved through cleaner handling of the garments but also the working environment for
the workers is improved. Similarly, reduction in excessive working hours, correct work
posture, and less hazardous working environment, all contribute to better productivity.
‘High Road’ of high value addition, quality product requires the garments manufacturers
placing less reliance on exports of low-priced discount merchandise and increasing the share
of branded merchandise being produced through the use of latest technology and upgradation
of the worker skills. Such strategy requires examining the human resource development
policies of the manufacturers in treating the workers in two different groups - skilled master
craftsmen and semi-skilled assembly workers. In most instances, female workers presently
predominate in the latter group. Skill development among the workers in the semi-skilled
category would determine the ability of the enterprises to enhancing the quality and value
of the product.
4. Common strategy
While there are numerous initiatives that can be undertaken by the individual countries
and enterprises in improving the competitiveness, the countries in South Asia would need
to evolve a common strategy to deal with the onslaught of increased competition in the
post-MFA environment. There may be several areas requiring common strategy from
building complementarity among the countries to avoiding non-tariff barriers against the
garments exports.
As stated earlier, there is a growing trend of intraregional trade in Europe and North
America for benefiting from proximity and flexibility of the production platforms within the
regions. South Asian countries could benefit from developing linkages to the intraregional
trade, particularly in Asia. Their complementarity among themselves as well as with other
countries in Asia could enhance competitiveness. However, it would be essential that
productivity, quality and value added in manufacturing of the garments would need to be in
tandem with such growth in complementary relationship. Then only, the South Asian countries
could become a part of the regional designing, branding and marketing. Such enhancement
in productivity, quality and value added requires improvement in job quality and skills
upgradation.
Whether the countries in South Asia remain in the low skill, poor job quality and low
price bracket or whether they would move up to high skill, better job quality and high value
bracket would have to be determined by themselves individually. But a common strategy
among these countries would need to be evolved through mutual discussions and agreements
in order to be a part of the regional complementarity in the garment trade. Hence, a common
strategy for the region may be in:
ü Enhancing competitiveness of the sub-region as a whole through complementarity
and integration within the sub-region as well as with East and South East Asian
22 GARMENT INDUSTRY IN SOUTH ASIA
Nasreen Khundker
1. Introduction
Bangladesh’s industrial base, which has remained stagnant over the past two decades,
is very narrow, contributing to about 11.5 percent of the GDP (BBS, 2001). Within this
narrow industrial sector, however, the ready-made garments (RMG) industry has flourished
as its most dynamic sector. Since its modest beginning in the early 1980s, the industry has
contributed to the economy appreciably in terms of employment, output, and foreign exchange
earnings. Moreover, employing as it does more than 1 million young women, the industry has
brought about a noticeable change in society as well as in intra-household gender relations.
Apparently the two most important factors behind the success of the RMG industry
in Bangladesh are:
l the availability of cheap labour; and
l the GATT/WTO-controlled international textile and apparel trading system through
the operation of the Multi Fibre Arrangement (MFA).
The phasing out of the MFA by the end of 2004, together with ever-increasing
globalization, will exert intense competitive pressure on Bangladesh’s RMG industry. As the
future of the manufacturing sector and the overall economy crucially depends on the
performance of this industry, a matter of serious concern is how far, and in what manner,
the RMG industry will face up to the challenge of the post-MFA trading scenario.
In this connection, there is growing apprehension as to whether the industry, in order
to remain competitive, will see both a reduction in the already very low wage levels and a
further deterioration of the already very poor working conditions.
This study aims to:
l analyse the current status and future prospects of the RMG industry in Bangladesh
in terms of its growth, employment, and exports;
l assess the likely impact of globalisation and liberalization (with special reference
to the phasing out of the MFA) on the RMG industry; and
l investigate whether the reduction in wage rates and worsening of working
conditions in the RMG industry figure as strategies to continue to be competitive
in the world apparel market.
* The paper was prepared under the UNDP Dhaka funded Globalization SPPD and is being published by the ILO as a
part of the Globalization Report titled, Bangladesh: Economic and Social Challenges of Globalization, University Press
Ltd., Dhaka (2002).
24 GARMENT INDUSTRY IN SOUTH ASIA
The paper examines the static versus the potential dynamic competitive advantages of
Bangladesh’s RMG sector, and the inter-linkages between job quality, productivity, and
competitiveness in this industry.
8000
7000 w
6000
US$ (in millions)
n
n n
5000
n
w
4000
n
n
w
3000 w
n n
w w
2000 n n
n
n n n
w w w
1000 n n n
w w
w w w
0 w w w
83- 84- 85- 86- 87- 88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99-
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
Years
w RMG Exports n Total Exports
Source: Export Promotion Bureau, Dhaka, September 1999 and Bangladesh Garment
Manufacturers and Exporters Association
1
BBS, 2001.
BANGLADESH 25
3000 n
n
n
No. of Members
2500
n
n
2000
n
1500 n
n
1000
n
500
0
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99
Years
Source: Export Promotion Bureau, GOB.
2
Bhattacharya, 1996.
3
Bakht, 1997.
4
Bakht, op.cit.
5
According to the BGMEA, the growth of the RMG industry can be sustained during the post-MFA years, given
appropriate adjustments.
26 GARMENT INDUSTRY IN SOUTH ASIA
Once the quota system comes to an end and trade is liberalized, however, Bangladesh
is likely to face intensive competitive pressures. The most trend as shown in Figure 2.1
above do show a slowing down of the growth rate of RMG exports.
Due to extensive involvement in household and agricultural activities, the female labour
force participation rate (FLFPR) is lower in urban areas (26.1 percent) than in rural areas
(40.6 percent). With regard to the age cohort in urban areas, female labour force participation
(FLFP) is found to be highest in the 15 to 24 year age group (36.4 percent) compared to the
overall urban average of 26.1 percent, implying that the rate of female labour absorption in
the manufacturing sector is markedly higher among younger women (see Table 2.3).
Tables 2.2 and 2.3 present the most recent picture of women’s employment in
Bangladesh. Unfortunately, the various labour force surveys have frequently redefined
categories, making it difficult to present trends in women’s employment. Nonetheless, survey
data suggest that FLFPRs in the overall national economy in general, and non-agricultural
and manufacturing activities in particular, have experienced some improvements.
The improvement in urban areas is attributable to the growth of labour-intensive export-
oriented manufacturing enterprises, especially in the RMG industry. In the rural areas,
meanwhile, increasing female participation in economic activities is attributable to the
expansion of non-governmental organization (NGO), micro-credit schemes and other forms
of organizational support.
One short-term impact of recent industrialization is thus the incremental absorption of
female labour in export-oriented manufacturing enterprises. Both wage and non-wage factors—
low opportunity cost of female labour on the one hand, and docility and amenability to
6
LFS, 1995-96.
28 GARMENT INDUSTRY IN SOUTH ASIA
By increasing their bargaining power at the household level, such increased female
participation in the labour market is empowering women. It is also contributing to poverty
alleviation by generating extra earnings for poor households. At the same time, however, the
nature of this employment is making women vulnerable to fluctuating global demand. The
“footloose” nature of export-oriented manufacturing enterprises thus affords less job security
for women.
Women’s employment in the manufacturing sector, moreover, is confined to only a
few industries. According to the most recent Census of Manufacturing Industries 7 , about
200,000 women (15.3 percent of the total manufacturing employment) were employed in the
manufacturing sector. Of these, 85 percent (about 12.9 percent of total manufacturing
employment) were employed by the weaving apparel sector (BISC 323); followed by textiles
manufacturing, including cotton synthetic and jute textiles (BSIC 321 and 323), accounting
for about 6 percent (i.e. about 1 percent of manufacturing employment); and food processing
(BSIC 311 and 312), accounting for about 3.2 percent of female industrial employees. The
woodwork, cigarette manufacturing, and pharmaceutical industries employ about 1.84 percent,
1.47 percent, and 0.58 percent of female industrial employees respectively.
The RMG industry currently employs about 1.5 million people, 90 percent of whom are
female. Between 1990/91 and 1997/98, the average annual growth rate of total employment was
23 percentage points. The corresponding growth rates of female and male employment were
25 and 10 percentage points respectively (Figure 2.3 below and Table A2.4 in Annex).
Consequently, the share of female employment in total employment in the RMG sector has
increased from 85 to 90 percentage points over the past seven years. In addition to this direct
employment, 0.2 million people are also employed in other industries linked to the RMG sector.
7
CMI, 1991-92.
BANGLADESH 29
Employment of women in the RMG industry, furthermore, has led to significant rural-
urban migration, as most women RMG workers are migrants from rural areas. This has also
increased women’s visibility in the public sphere, with important sociological implications.
Figure 2.3: Male and female workers in Bangladesh RMG industry (1990’s)
1600000
1400000
1200000
No. of Workers
1000000
800000
600000
400000
200000
0
91-92 92-93 93-94 94-95 95-96 96-97 97-98
Years
Male Female
Source: BGMEA
8
BBS, 1999.
30 GARMENT INDUSTRY IN SOUTH ASIA
in Hong Kong, China; 20.7 in the Republic of Korea; and 24.0 in Sri Lanka.9 Trends in
labour productivity from 1981-1992 using United Nations Industrial Development
Organization (UNIDO) data show only modest increases of around 14 percent in labour
productivity (Figure 2.4 below and Table A2.6 in Annex), along with a very modest 11.5
percent increase in wages over this period. While the share of wages in value-added has
remained more or less same around 38 percent, share of value-added in output has declined
during the period to about 25 percent from 35 percent. Labour productivity is also higher
in knitting mills, compared to the apparel, spinning, weaving, and finishing industries,
according to UNIDO data, while productivity growth in the spinning, weaving, and finishing
mills appears to have declined in the early 1990s.
Table 2.4: Inter-country comparative average hourly wage in the
RMG industry
Country Wage/hour (US$)
Germany 25.00
USA 16.00
Republic of Korea 5.00
Mexico 2.40
Poland 1.40
Sri Lanka 0.45
China 0.35
India 0.35
Nepal 0.30
Bangladesh 0.15
Source: The Financial Express, Dhaka, 15 June 1995.
1200
1000 n
n n
n
n
n n n
800 n n
n
n
US $
600
400
w w w w w w w w w w
w w
200
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Years
w Wages
Source: Islam, S., 2001. n Prouctivity
9
See Technical Evaluation of the ILO/UNDP Project no. BGD/85/153.
BANGLADESH 31
Table A2.7 in Annex shows a substantial productivity gap between Bangladesh and
other countries (for the year 1992 with the latest data available). Nevertheless, the very fact
that RMG exports from Bangladesh have shown sustained high rates of growth suggest that
the country enjoys certain comparative advantages in the world apparel market.
Low labour productivity is compensated for by low wage rates; and it is arguable that
low wages and low productivity together make Bangladesh competitive at the labour-intensive,
low-value product end of the international apparel market. Thus, for products of similar
quality, Bangladesh is generally cheaper than China or India by 5 to 20 percent.10
In order to assess the potential competitiveness of the RMG industry in the coming
decade, however, one needs to go beyond the static comparative advantage of cheap labour
to look at potential dynamic comparative advantages related to labour productivity, linkage
industries, and the overall industrial base and business climate, as has been pointed out by
several authors.11 In this connection, a detailed international comparison of cost structure is
essential, although it is currently difficult due to the unavailability of data.
In fact, interviews with entrepreneurs indicated that considerable uncertainty prevails
regarding the competitive edge of Bangladesh’s potential competitors in the post-MFA era.
Adequate information in this respect is likely to be a key factor in determining Bangladesh’s
strategy in maintaining competitiveness in the future.
Within the RMG factories, gender discrepancy in wage levels for comparable jobs is
small, especially when accounting for factors such as age, education, and experience. In the
production process, however, female workers are mainly concentrated in “less skilled”
operations, and thus are low paid. In the RMG industry, most women work either as operators
(where almost all workers are female) or as helpers (40-60 percent of the total work force
in this category are females). It is extremely rare to find women working as production
managers, supervisors, finishing and machine operators, or as “in-charges” who draw salaries
varying from 2-10 times that of the average operator, depending on the type of operation
involved (Table 2.5 below).
Elsewhere,12 the author has thus argued that the female labour market in Bangladesh
is largely segmented by jobs (tasks) and by type of industry, as is clear from the discussion
in Section 3.1.4, above, and factors such as age, education, and marital status 13 account for
the low average wages of female workers, since they are prone to “crowd in” to certain
specific jobs and occupations. Thus, discrimination in wage payments between male and
10
IFC, 1999.
11
Siddiqui, 2000.
12
Khundker, 1997.
13
Also see Mazumdar, 1983, for a more general discussion on segmented labour markets in less developed countries.
32 GARMENT INDUSTRY IN SOUTH ASIA
female workers may be very limited, but discrimination in terms of education and training
and various barriers to entry explain the low wages and low opportunity costs of female
labour, a factor which needs to be addressed at the policy level.
Table 2.5: Gender discrepancy of participation and wage rates in
export-oriented RMG
One feature of the RMG industry in Bangladesh has been its rapid but unplanned
growth, responding to global opportunities, which has affected both the working environment
and job quality in this industry.
Besides low wages, women and also men are subject to long working hours beyond the
eight-hour day. Few workers receive such advantages as formal contracts or appointment
letters, or maternity benefits; and there have been complaints about arrears in payments.
Labour turnover is also high in this industry.
Working conditions, however, improve with the size of the factory and have also
improved over time, although fire hazard safety precautions are inadequate despite special
programmes executed by the ILO. This is mainly because factories are not functionally
designed, and are mostly located in urban areas. Lack of unionization remains an issue,
when discussing the slow progress in improvement of poor wages and working conditions.
Both wages and working conditions are also said to be better in the export processing zones
(EPZs), compared to the domestic tariff area (DTA), though in the former workers suffer
from a ban on freedom of association. Some factories have initiated health schemes in
collaboration with NGOs.
The possible impact of globalization on employment and quality of jobs in the RMG
industry will depend on Bangladesh’s ability to withstand a more competitive global
BANGLADESH 33
environment. It is arguable that this competitiveness on the other hand will depend amongst
other things on measures taken to improve productivity and job quality.
In the worst scenario, a failure to maintain competitiveness will lead to enterprise
closures and increased sub-contracting from larger to smaller units. This will obviously lead
to unemployment among mostly women workers, a possible reverse trend of rural-urban
migration, and a reduction in the household earnings of workers. A greater degree of
subcontracting may also adversely affect job quality, since working conditions and job
quality have been found to be inversely related to the size of RMG units.14
Deterioration in job quality is likely to have serious consequences. Entrepreneurs must
recognize that labour is not simply a commodity; and that better working conditions are
desirable from the point of view of productivity and efficiency, as well as from that of
fairness and justice.
Workers’ rights include freedom of association, which is currently prohibited in the export
processing zones, while unionization is actively discouraged in the industry as a whole.15
Interestingly, the entrepreneurs interviewed as part of this study expressed divergent
views regarding job quality. Most were worried about the impact on costs, and some regarded
labour retrenchment and subcontracting as a way out. A few more enlightened entrepreneurs
believed attitudinal changes were needed, and that wider dissemination of information would
help. Others thought that the imposition of a social clause should be delayed, giving
entrepreneurs a chance to adjust to the phasing out of the MFA, as well as helping them to
relocate factories outside Dhaka, where there could be more available space for canteens and
other facilities, and where factories could be functionally designed to meet safety standards.
In any case, measures to increase productivity and competitiveness may involve some
rationalization of the workforce and technology upgrading such as the introduction of
computer-aided design (CAD). It has been suggested that the latter will lead to a substitution
of male for female workers, given the higher educational and skill requirements of the new
technologies, and the currently disadvantaged status of women in this respect. Sub-contracting
may again be more actively pursued as a cost-cutting strategy by larger and more successful
firms. Other measures to improve productivity and competitiveness such as skill upgrading
will, on the other hand, improve job quality and earnings for workers.
If Bangladesh were to remain competitive in the post MFA era, one inevitable strategy
would be to take the necessary steps to increase labour productivity. In order to realize the
14
Mazumdar and Chowdhuri, 1991.
15
Khan, 2001.
34 GARMENT INDUSTRY IN SOUTH ASIA
incremental gains from the expansion of the global apparel market, the country also needs
to diversify its market, instead of putting all its eggs in one basket, i.e. continuing to exploit
the same niche market.
Though Bangladesh now exports garments to about 25 countries around the world, the
USA is the single largest importer of its RMG products, amounting to 43 percent of total
garment exports. Bangladesh is the sixth-largest supplier of apparel in the US market (Rahman
and Rahman, 2001). Considering the European Union as a single market, the USA then
becomes the second largest. Over the past few years, Bangladesh’s RMG exports to the EU
have expanded rapidly, with the EU currently importing about 52 percent of Bangladesh’s
total garment products. The inter-temporal evidence of the narrow market base of Bangladesh
RMG exports in the 1990s is provided by the concentration of exports to the US and EU
market (almost 96 percent in 1998-99, see Table A2.8 in Annex).
While the export share to the USA has witnessed an annual average rate of decline of
1.5 percentage points, however, the corresponding share to the EU has experienced an
annual growth rate of 1.6 percentage points. Thus, the increment in the EU share has simply
replaced the declining share in the USA market, which suggests that, instead of diversification,
Bangladesh’s export market has remained concentrated over the past decade. The combined
market share of the USA and the EU has thus increased from 95.5 percent to 95.6 percent
between 1991-92 and 1998-99.
Bangladesh so far has been unable to gain access to ASEAN or Indian markets, although
it imports a huge quantity of fabrics and yarn from these countries. Similarly, although it
imports about 95 percent of its total garment machinery from Japan, its market share of
apparel export to Japan is a mere 0.1 percent.16 Bangladesh’s inability to gain access to these
large markets in turn suggests that the country has yet to establish its claims, as advocated
by the WTO, to the principles of reciprocity and market access.
The North American quota system and GSP facilities afforded by the EU have
contributed to the undiversified RMG export market in Bangladesh, in that entrepreneurs
have focused on taking advantage of these special opportunities. Thus, the entire national
clothing export business will be endangered by the year 2005, when the MFA is eliminated
and GSP schemes may cease to operate.
The country must thus make immediate and vigorous attempts to diversify its
export markets.
16
Rahman and Rahman, 2001.
BANGLADESH 35
A fundamental constraint on the potential of the RMG industry is the general absence
of backward linkages. In their absence, despite abundant cheap labour, the country’s local
value addition has so far been only 25-30 percent of gross exports.
The RMG industry is currently heavily dependent on imported raw materials.
Roughly 80 percent of the woven fabrics and 50 percent of the knitted fabrics are
imported17 , despite some improvements in this regard since the mid-1990s, in terms of
investments in backward linkage industries, especially with the announcement of the Textile
Policy, 1995, and the granting of various incentives by the Government. With the phasing
out of the MFA, Bangladesh may face a supply shortage of required fabrics, some stakeholders
argue, since the current suppliers will find it more profitable to use their domestically
produced fabrics to produce their own RMG products, which they will be able to export
competitively in the quota-free world apparel market. Recent trends and relaxation of the
GSP to allow for cumulation within the SAARC region, however, suggest that the availability
of fabrics may not be such a severe constraint.
Nonetheless, Bangladesh’s excessive dependence on imported raw materials has
adversely affected its competitiveness by increasing the lead time and cost of production.
This is something which has to be overcome in what promises to be a highly competitive
post-MFA phase.
The lead-time from the order date to the shipment date in Bangladesh is between 120
and 150 days, compared to 19-45 days in India and Sri Lanka. For some countries, the lead-
17
Rahman and Rahman, op. cit.
36 GARMENT INDUSTRY IN SOUTH ASIA
time is only 12 days (Textile Asia, June 1999, p-61). Unless Bangladesh manages a substantial
reduction in its lead-time, domestic production of quality fabrics for export will be left in
a very disadvantageous position.
Establishment of backward linkages, especially the domestic production of yarn, can
reduce the cost of production. The current gap in demand and domestic production, met
through imports, is estimated to be 480 million kg for yarn, and 2,300 million meter for
fabrics.18 The country could thus save considerable foreign exchange by increasing domestic
production of yarn and fabric. Production costs would also be reduced, since the RMG
manufacturers would not have to buy fabrics at international prices that are not necessarily
competitive. Nor would they have to pay high interest rates for a certain period (almost three
months), nor large transport costs, nor the bribes, commissions, and fees for middleman
services involved in custom clearance, etc., all of which significantly increase the hidden
cost of doing business.
Large-scale investments in backward linkage industries may require considerable inflows
of FDI, however, and/or a pro-active government policy in terms of providing the finance
for such investments to domestic entrepreneurs. It would also require a careful assessment
of the different stages such as dyeing and spinning in which Bangladesh may have a
comparative advantage. So far, only a few backward linkage industries have been established,
some in the form of composite textile mills; and these are highly capital intensive. What is
needed is a policy of promoting smaller and labour-intensive units, whereby the
necessary backward linkages take place without heavy investments. Dyeing units in particular
are said to have the greatest potential in terms of international competitiveness. Recent
research19 show that spinning and weaving are also internationally competitive, using the
DRC (domestic resource cost) criteria.
18
Rahman and Rahman, op. cit.
19
Rahman and Rahman, op. cit.
BANGLADESH 37
productivity. Thus, training schemes for managers and supervisors are an important element
in increasing productivity, including the introduction of functional English courses for higher-
level employees, improving their ability to read operating manuals and so on. To these ends,
the Government should also increase its allocations to the education sector.
Bhattacharya and Rahman (1999), based on the above studies, have pointed out that,
between 1992 and 1994, the proportion of costs in the gross value of output in Bangladesh’s
RMG sector decreased from 87 percent to 76 percent leading to an increase in the profit
margin from 13 percent to 24 percent. Concurrently, the share of industrial costs (excluding
salaries and wages) fell from 73 percent to 64 percent, resulting in a growth of the share of
gross value-added from 23 percent to 31 percent. During the corresponding period, within
the gross value of output, the share of non-industrial costs rose from 3 percent to 5 percent.20
Strictly speaking, such comparisons, based as they are on two different surveys, are
difficult, since neither the number nor the entities of the RMG units are the same in both
studies. Discrepancies in figures under the respective heads, moreover, might be the outcomes
of sample selection bias and/or measurement error. The statistics do, however, give an
indication that, even though RMG manufacturing is a highly labour-intensive process, labour
costs constitute a very modest part of the entire cost structure of RMG production.
Therefore, a strategy to reduce wage levels further, thus affecting workers’ quality of
life, does not necessarily imply the decline of production costs to remain competitive in the
world apparel market. In fact, production costs may increase many times over even in the
presence of cheap labour, where there is political turmoil and strikes, extortion, and wide-
spread corruption including bribery, which allegedly lead to an enormous increase in the
hidden costs of doing business, thus often discouraging foreign buyers from coming to
Bangladesh, and escalating raw material costs.
The proposition that repressing wage levels to remain competitive in the post-MFA era
is not a viable strategy is further strengthened by analyzing the trend in wage rates for
different categories of employees in the RMG sector. As may be seen in Table 2.7, the
highest increase in the real wage rate is observed among skilled workers, which shows that,
in an ever-increasingly competitive world due to globalization and liberalization, it is not
reduction in wage levels, but rather improving labour productivity through appropriate
incentives (i.e., attractive remuneration to match higher productivity), which would be an
ideal competitive strategy.
Since female employment in the RMG industry is largely concentrated in low-skilled
and unskilled jobs, most female workers unfortunately would not benefit to the same extent
from the rising trend in wage rates. It is even possible that less skilled female employees
would be replaced by skilled male employees, thus widening the gender discrepancy in
division of labour. Women workers, therefore, need to be specifically targeted for human
skills development.
20
“The shift towards a higher share of non-industrial costs is characteristic of products of high market value, which is
corroborated by the increase in the share of value added. The decrease in wage cost’s share, however, does not signify
a decrease in the wage rate in real terms” (cf. Bhattacharya and Rahman, 1999).
40 GARMENT INDUSTRY IN SOUTH ASIA
Table 2.7: Trend in nominal and real wage in garments by skill category
Worker Growth
category 1980 1985 1988 1990 1993 1997 rate (%)
Trainee/Helper
- Nominal 130 300 400 500 500 500 -
- Real 195 300 267 337 296 242 24.10
Semi-skilled
- Nominal 300 500 600 800 1 000 1 000 -
- Real 423 500 420 540 591 484 14.42
Semi-skilled
- Nominal 500 800 1 000 1 500 1 800 2 200 -
- Real 760 800 762 1 012 1 064 1 065 40.13
Source: Bhattacharya and Rahman (1999).
5. Summary
A coordinated action plan is needed, once the quota system and preferential trading
arrangements are phased out, to address the challenges faced by the RMG industry. The
main recommendations in this regard are the following:
l diversification of markets into ASEAN and other regions outside the European
Union and North America;
l diversification of products, particularly the transition to higher value-added items;
l building of technological capacity and skills for a range of products;
l support for the establishment of backward linkage industries, but with proper
assessment of international competitiveness, with a focus on dyeing and
finishing units (which some studies have identified as potentially more competitive),
and on smaller units which are less capital intensive and less risky as
investments;
l continued emphasis on primary and secondary education in government education
policies, aiming to develop a more skilled and generally higher-quality labour
force;
l continued emphasis on education and skills development for women, specifically,
aiming to close the gender gap;
l introduction of functional English courses for managerial and supervisory staff
and greater attention to on-the-job training, with appropriate incentives such as
tax rebates;
l encouragement for relocation of factories outside main urban areas, with serviced
plots being made available and adequate supervision to ensure that factories are
functionally designed;
BANGLADESH 41
ANNEXURE 1
Table A2.1: Revealed comparative advantage (1990 and 1995)
Indices
BSIC 1986 Name of industry 1989-90 1990-91 1991-92
code
311-312 Food manufacturing 133 124 143
313 Beverage industries 77 61 99
314 Tobacco manufacturing 71 47 48
315 Animal feed manufacturing 80 78 78
321-322 Textile manufacturing 112 99 98
323 Wearing apparel (except footwear) 86 87 84
324 Leather and leather products 96 94 99
325 Leather footwear (except rubber and plastic) 44 46 39
326 Ginning, pressing and baling of fibres 104 94 91
331 Wood and wood cork products 102 89 110
332 Wooden furniture and fixture manufacturing 50 54 59
341 Paper and paper products 107 96 127
342 Printing and publishing products 124 89 118
351 Drugs and pharmaceutical products 102 117 120
352 Industrial chemicals 96 81 91
353 Other chemical products 96 53 60
354 Petroleum refining 174 168 197
355 Misc. petroleum, coal products 138 102 109
356 Rubber products 79 75 81
357 Plastic products N.E.C. 119 106 150
361 Pottery, china and earthenware 128 116 83
362 Glass and glass products 115 55 128
369 Non-metallic mineral products 111 91 118
371 Iron and steel basic industries 73 90 88
372 Non-ferrous metal basic industries 81 65 101
381-382 Fabricated metal products 83 84 88
383 Non-electrical machinery 92 101 90
384 Electrical machinery 73 66 66
385 Transport equipment 86 88 88
386 Scientific, measuring instruments and equipment 155 125 131
387 Photographic and optical goods 85 89 108
393-394 Other manufacturing industries 89 84 78
Total: All industries 112 96 96
Source: C.M.I., B.B.S.
BANGLADESH 45
References
Bakht, Z., 1997. “The experience of the industrial sector in Bangladesh in the 1990s”, in Growth or
stagnation? Bangladesh Development Review, 1996, (University Press Ltd.).
BBS. 1997. Labour Force Survey 1995-96.
———. 2001. Statistical yearbook of Bangladesh, Bangladesh Bureau of Statistics (Dhaka, Government
of Bangladesh).
Bhattacharya, D.; Rahman, M. 1999. Female employment under export propelled industrialization:
Prospects for internalizing global opportunities in Bangladesh’s apparel sector (Geneva,
UNRISD).
Islam, S. 2001. The textile and clothing industry of Bangladesh in a changing world economy
(Dhaka, University Press Ltd.).
International Finance Corporation (IFC). 1999. Bangladesh: Textile study (Washington, DC, IFC).
Khundker, N. 1977. “Gender issues in Bangladesh’s Development since the 1980s”, in Growth or
stagnation? Bangladesh Development Review, 1996. (Dhaka, University Press Ltd.).
Khan, S.I. 2001. “Gender issues and the readymade garment industry of Bangladesh: The trade union
context”, in Globalisation and gender, changing patterns of women’s employment in Bangladesh,
(Dhaka, University Press Ltd.).
Mazumdar, D. 1983. “The theory of segmented labour markets in LDCs”, American Economic
Review.
Mazumdar, P.P., Chowdhury 1991. The socio-economic condition of garment workers in Bangladesh.
Bangladesh Institute of Development Studies. Research report. (Dhaka).
Rahman, S.; Rahman A.K.M. 2001. “Development in the backward linkage industry in the textile
sector: Promises and achievements”, a paper presented at TexBangla 2001 seminar, organized
by Bangladesh Textile Mills Association in collaboration with the Centre for Policy Dialogue
(Dhaka) 26 May 2001.
Siddiqui, H.G.A. 2000. “Beyond 2004: Impact of MFA phase out on the apparel industry of
Bangladesh”, keynote paper presented at the BATEXPO-2000 organized by the BGMEA
(Dhaka), 21-25 Nov. 2000.
49
M. Vijayabaskar
1. Introduction
The world garment industry is on the threshold of far reaching institutional changes in
the near future. Hitherto, despite being one of the most globalized industries in the world,
it has also been an exemplar of how trade practices in a ‘globalizing’ world are still distorted
in favour of advanced economies. Over the past three to four decades, trade restrictions,
price and quantitative, have come to play a major role in conditioning patterns of the
sector’s development. However, over the next few years, by 2005 to be specific, the existing
institutional constraints on garment production and trade would be removed. The removal
of institutional barriers to trade would have important implications for output markets,
especially that catered to by low-income economies seeking to industrialise through promotion
of the garment sector. In turn, changes in these characteristics, given the labour-intensive
nature of garment production, would have a serious bearing upon the labour market, especially
in ‘labour-surplus’ economies like India that seek to strengthen/sustain their position in the
global output market.
The garment sector has been conventionally viewed as a major source of employment
generation. Of late, in addition to this dimension, following the success of the East Asian
economies, it is also seen as a lead sector in the industrialisation process of low-income
economies. Its low skill requirements and large labour absorption potential have made it an
important source of non-agrarian employment for the rural populace of these regions. To
add, the garment sector is also seen to offer tremendous prospects for employment of
women, unlike other traditional manufacturing sectors. Given these factors, it is of great
importance to understand the labour market implications of the changes in the international
trade regime. In this study, we address this issue in the case of the Indian garment industry.
Though the study is confined to an empirical examination of the possible changes in the
prospects for Indian garment manufacture and employment and challenges that confront
Indian policy makers in this regard, obviously its relevance would extend to other regions
with similar structural characteristics.
by others. To overcome the gaps in secondary literature, a few interviews were undertaken
with key informants like members of garment producers’ associations and trade union
members actively involved in this sector. In this report, however, a case study on Tiruppur
knitwear industry is also being discussed. Following issues are examined in this report:
a. What are the key elements that condition/influence the dynamics of global division
of labour in the garment industry?
b. What are the characteristics of the market niche that Indian garment producers
occupy in the world garment industry?
c. To what extent has this phenomenon been influenced by the quota system?
d. What are the sources of competitiveness of Indian garment production? How do
they compare with garment production in competing nations?
e. What would be the likely impact of a quota-free regime on the prospects of
garment exports, from India and consequently, on extent and nature of employment
generation in India?
f. What would be the nature of policy intervention required to sustain and/or enhance
the quality and quantity of employment in the new trade regime?
labour. The ‘commodity chains’ approach as developed by Gereffi and others are the most
appropriate for the purpose.
The commodity chains perspective, initially advanced by the world systems theorists
(Hopkins and Wallerstein 1986), and enriched by subsequent empirical analyses of Gereffi
(1995, 1996, Gereffi and Korzeniewicz, 1994) and others (Bonacich et. al 1994, Gibbon
1997, Ramamurthy 2000), facilitates understanding accumulation processes in sectors where
production and distribution functions are dispersed across the world.1 In a period when
nation states are losing their importance in economic decision-making, it is less fruitful to
analyse the capitalist system in terms of linkages of nation states. It is obvious for instance,
that integration of a national economy, especially one as large as India, with the world
market would lead to territorially and sectorally differentiated outcomes. It becomes important
therefore to analyse how specific industries are organized globally and to discern the
mechanisms of surplus extraction at various points and of co-ordination of dispersed labour
and exchange processes. A commodity chain, as defined by Hopkins and Wallerstein (1986,
159), refers to “a network of labour and production processes whose end result is a finished
commodity.” To construct a commodity chain, first, the various production processes required
for the final product need to be delineated. Each of these processes constitutes a node in the
chain. In relation to each node the following properties may be looked into:
Ø the geographic loci of the node;
Ø commodity flows to and from the node, and those operations that occur immediately
prior to and after it;
Ø relations of production within the node; and
Ø dominant organization of production, including technology and scale of the
production unit (pp 160-163).
Gereffi views the globalization process as one organized by two distinct sets of economic
actors. Manufacturing Transnational Corporations (TNCs), who source their components
and labour intensive processes of their production from less industrialised regions, constitute
one set. These sectors are mostly technology and skill intensive and offer substantial economies
of scale (automobiles, computers, aircraft, electrical machinery, etc). Profits are derived
from scale, volume and technological advances. These constitute producer driven commodity
chains (PCCs). Gereffi distinguishes such commodity chains from buyer driven commodity
chains (BCCs), which are controlled by big merchandisers, retailers, and trading companies
that co-ordinate decentralised production networks all over the world. The third world
manufacturers produce finished goods and not components. The buyers normally involve in
design and/or marketing, deriving profits from a mix of research, design, sales, marketing
and financial services. They are less likely to own production facilities.
1
In fact, this perspective has been mooted to advance the New International Division of Labour (NIDL) hypothesis’
explanatory power by moving away from nation-states as units of analysis and allowing space for peripheral regions to
serve multiple roles in the global division of labour.
52 GARMENT INDUSTRY IN SOUTH ASIA
In PCCs, the transnational corporations exercise control through command over raw
material and component suppliers, as well as forward linkages into retailing. BCCs on the
other hand, since they are design and marketing intensive, create high barriers to entry at
the brand name merchandising and retail levels where ‘firms invest considerable amount in
product development, advertising and computerised store networks to create and sell these
items’. Whereas core firms at the point of production control PCCs, control over BCCs is
exercised at the point of consumption. The latter production organization can be best described
as one of contract (or specification contracting) manufacturing where the finished consumer
goods output of local firms is distributed and marketed abroad by trading companies, branded
merchandisers, retail chains or their agents. The distinction also helps to understand the kind
of trajectories that firms need to take to move up the value chain.
Even within low-income economies, Gereffi stresses the need to differentiate the role
played by each region in the world economy. Focusing on export production, he outlines five
basic international economic roles that peripheral regions may fulfil: (a) The commodity
export role (b) the commercial subcontracting role (c) the export platform role (d) the
component supplier role and (e) the independent exporter role. There is thus a suggestion
of a possible progressive movement from extreme dependent production to one of an
independent exporter of manufactured goods. It is also clear that industrial relations and
labour market outcomes would be influenced by the kind of roles that peripheral economies/
regions play in the global division of labour. The commodity chains perspective thus, offers
the possibility of understanding the production organization patterns in specific regions in
terms of their location in the global division of labour.
Next, a framework is needed for linking the changes in output markets with the changes
in labour markets. In this regard, the works of industrial organization theorists like Sabel and
Piore, and labour market theorists like Peck would be useful. They are primarily concerned
with contemporary changes in global output markets and the possible implications for labour
markets as mediated by other institutional factors. Increasingly, it is felt that competition in
global markets relies more on innovative capability and an ability to shift from one process
or product to another without loss in efficiency. Such ‘flexibility’ in output markets may be
derived through deployment of flexible technologies and/or through use of flexible labour.
Flexibility in labour use may be obtained either through employment flexibility or through
development of functional flexibility among the workers, which may in turn depend on
many institutional factors. The implications for labour market changes are however, clear.
Garment exports as a share of manufactured exports from India rose from 0.3 percent
in 1960/61 to 17 percent in 1992/93 (Chatterji and Mohan 1993; Exim Bank of India
INDIA 53
1995, 5).2 Chatterji and Mohan distinguish two phases of this growth based on composition
of garments exported, their destination and demand vagaries. The first one, during the late
1960s and early 1970s, was led by a tremendous surge in demand for handloom garments
due to fashion requirements in the US and Europe.
The second phase, according to Chatterji and Mohan (1993), begins from 1983/84 and
has been marked by a relatively more steady growth. From around Rs. 640 crores in 1983/
84, it has increased to around Rs. 22,915 crores in 1999 (Exim Bank of India 1995, AEPC,
various years). However, this relatively stable growth has been accompanied by changes in
the relative shares of segments within the sector (Tables A1.1 and A1.2 in Annex). Of
special significance has been the rise of the knitwear segment. From 16.9 percent in 1983,
it has almost doubled to 33 percent by 1999. That the cotton knitwear segment has led this
growth is quite clear, as it alone constitutes 90 percent of this sector.
However, the share of handloom garments has fallen steadily from 6.9 percent to 0.3
percent while that of mill made garments continues to be high at around 70 percent (Chatterji
and Mohan 1993, M-104). This remains so, despite a slow but steady decline in the share
of mill made garments. The decline in both these product categories has been compensated
by a steady increase in the share of knitwear products. Between 1985 and 2000, knitwear
exports have grown at a compound growth rate of 9.63 percent while that of woven wear
has grown only at 4.93 percent (Panthaki 2001, 86).
With regard to the fabric base, cotton garments continue to dominate the export basket.
Cotton based garments accounted for nearly 71 percent of value of garment exports from
India in 1999 (AEPC 2000). Synthetic and woollen garments constituted 26.2 percent and
3.39 percent respectively in 1999 (ibid) as compared to 9.1 percent and 6.6 percent in 1983
respectively (Chatterji and Mohan 1993, M105). In fact, the share of cotton garments in
quantity terms is even higher at 81 percent, indicating a lower unit value of cotton garments
as compared to that of synthetic and woollen wear, especially synthetic garments. Comparing
the composition of Indian exports with that of South Korea and Hong Kong, Chatterji and
Mohan (1993, M105) find that there is a “predominance of woven clothing”. Further, they
also note a high concentration of items exported. The Exim Bank study (1995, 12) notes that
five products, viz., women’s blouses, dresses, skirts, men’s shirts and knitted undergarments
constitute 61 percent of total Indian garment exports in 1991. Since almost all the garments
are cotton based, they argue that Indian products compete for only 15 percent of the global
market for clothing. On the other hand, Ramaswami and Gereffi argue that a pattern of
specialisation is not confined to India and find a similar product concentration in the
composition of exports from competing economies like China and Indonesia. In fact, in all
these three economies, the top two products account for more than 50 percent of their total
garment exports. Further, across all the product categories exported, India’s market segments
2
“During the last decade, (i.e. 1983-93) garment exports have expanded at the rate of 19.1 % per annum in US $ terms,
which is more than double the rate of growth for exports as a whole (8.2%).” (Exim Bank of India, 1995, 5).
54 GARMENT INDUSTRY IN SOUTH ASIA
“mainly fall in cotton, semi-fashion, middle price segment with main product category being
T-shirts, men’s shirts, ladies’ blouses, ladies’ dresses and skirts” (Tait 2001, 44).
As can be seen in the above table, exports to non-restrained countries have grown at
a much higher rate than that for quota countries, indicating a degree of competitiveness of
Indian apparel. However, 51 percent of the garments exported continue to be governed by
quota restrictions (Handbook of Export Statistics, AEPC 1999).
INDIA 55
thereby placing limits on the sector’s ability to compete on the basis of productivity (M
116). Moreover, given the importance of market information in this industry, traders exert
a dominant influence in the export market. Out of 10,000 exporters registered with AEPC,
only 250 are manufacturer exporters (M114). As a result, incentives to improve production
techniques have not been forthcoming.
It is therefore said that Indian exports depend more on fashion changes than on any
inherent competitive strength based on quality or productivity (Chatterji and Mohan 1993).
Despite these limitations, Ramaswamy and Gereffi (1998) find that India has improved its
market share in 9 out of its 17 main product categories (129) and further that, there has been
an increase in the unit values realised. This appears to have been possible due to the
advantages derived from such a decentralised and networked production structure, which
enable firms to compete in low-volume segments with greater fashion content as compared
to say, China or Bangladesh where the minimum efficient scale of operation is much higher.6
In fact, Kathuria and Martin (2000), quoting Khanna (1990), cite that all successful exporting
firms subcontract much less than India. While Indian firms subcontract 74 percent of their
output, countries do not subcontract more than 36 percent of their output in all other cases.
Further, they also contend that investment of Indian firms in processing techniques is very
low when compared to other exporting countries (Table 3.2).
Thus, while government policies have constrained garment producers from competing
on the basis of scale economies and improved labour productivity, they have fostered a
structure, albeit accidentally, that facilitates production for a more flexible product market.
However, with the removal of reservation for the small-scale sector, possibilities of entry into
large-scale production and benefiting from the scale of economy, have been facilitated. Further,
with a good domestic production base in cotton fibre and lack of import restrictions to upgrade
process techniques, Indian garment producers may venture to compete in the mass market as
well. Nevertheless, given the strong competition in this segment and absence of a first-mover
advantage, it may still be in the ‘flexible’ market segment that Indian producers retain their
advantage in the post-MFA regime. Simultaneously, it also opens up possibilities for the latter
segment to upgrade its quality by taking advantage of availability of new processes.
Table 3.2: Machines installed by apparel export firms (nos.)
6
“While China is gearing itself to meet the needs of the ‘volume’ markets for standard items, India is concentrating on “niche”
markets for speciality products.” (Sen Gupta, http://www.carleton.ca/ctpl/library/booklibrary/01-01-023-11.htm, 250).
INDIA 57
Given the fact that considerable section of Indian garment industry is confined to the
‘unorganized’ or ‘informal’ sector, working conditions for the workers are hardly under the
legal purview. For instance, Gupta ( http://www.carleton.ca/ctpl/library/booklibrary/01-01-
023-11.htm) reports that only 25 percent of the total value of garment output is accounted
for by the firms registered under the Factories Act. Hence, secondary data at the macro-level
too are hard to come by in this regard. Time and again, as in many other countries, we
observe that labour in the garment industry is subject to harsh working conditions and low
wages (Singh 1990; Kalpagam 1981, 1993; Alam 1994). Further, given the predominance
of ‘informal’ sector activity, legislation with regard to labour markets are less likely to be
enforced as compared to other economies.
Tait (2001) provides the distribution of the workforce in the Indian garment industry as
follows (Table 3.3). Above all, the table clearly brings out the heterogeneity of the sector,
and the share of the workforce employed in the export sector is still unclear. Employment in
the ready-made garments industry is around three million, which is only eight percent of the
total workforce in this sector, seen as a segment of the apparel commodity chain. The Annual
Survey of Industries provides data on employment, output and capital used in the factory sector
of all the manufacturing industries.
Table 3.3: Employment within the textile and apparel industry in India
Though confined to only a small proportion of the garment sector, we provide the
employment figures as they are the only reliable macro-data source available for the Indian
economy (Table 3.4). The table indicates the high dominance of women workers in the woven
garment industry, while they are relatively less in the knitwear sector. However, as stated earlier,
the data are hardly representative of labour employed in the numerous subcontracting and
household enterprises that populate the ‘informal’ sector. Given the unreliability of these
figures, rather than seek to understand the conditions of labour at the macro-level, or understand
58 GARMENT INDUSTRY IN SOUTH ASIA
the labour market conditions in all centres of the Indian garment industry, the analysis is
confined to that existing in Tiruppur, one of the biggest centres of apparel exports and
representative of regions undertaking garment exports in India. Prior to that, in the next section,
with a view to capture the structural dynamic of the global apparel industry and the possible
impact of it on specific regions, some of its key characteristics are delineated.
Table 3.4: Sex-wise distribution of workforce in the organized Indian garment sector
(1997/98)
7
Though they too did source from East Asia, the early phase was mostly characterised by relocation of production to the
nearby East European economies. Frobel et. al (1980) gives a detailed account of relocation of garment factories from
Germany to the lower-waged non-EEC countries in Europe and Asia.
8
Around this period, manufacturers also contracted out orders to producers in Latin American and Carribean countries
as well (Bonacich et al. 1994, 81).
INDIA 59
was also aided by the growing foreign direct investment by Japanese firms in neighbouring
countries to take advantage of the prevailing low wage rates. The period thus witnessed a
trend towards movement of Japanese apparel capital to offshore locations like neighbouring
South Korea.
The 1980s witnessed the incorporation of other Asian countries with relatively low
wage levels like China, Thailand, Indonesia, Sri Lanka, Pakistan, India and Bangladesh into
the world garment trade.9 Between 1975 and 1990, the share of ‘Third World’ in the total
output of global textiles has increased from 18.6 percent to 26.1 percent, and that of clothing
from 11.7 percent to 20.4 percent (Kiely 1998, 153).10 During this period, the share of
apparel in the exports of the newly industrialising countries (NICs) in fact declined. On the
other hand, garment sector has become a growth pole for economies at lower levels of
development like Bangladesh, China, Sri Lanka, Indonesia, India and Thailand (Gereffi
1994, 59). Table 3.5 depicts this process better by detailing the market shares of the leading
garment exporting countries over a 15-year period, from 1980 to 1995.
Table 3.5: World’s leading exporters of apparel, 1980-95
9
“ ...while the NICs in E.Asia and other regions were shifting into more advanced export industries, textiles and clothing
became a key growth sector for countries at lower levels of development like Pakistan, Bangladesh and Indonesia. At
present, China, India, Bangladesh, Indonesia, Sri Lanka and Pakistan, with their low wage advantage have begun to
establish themselves as major players in world garment trade” (Gereffi 1994, 59).
“In the most recent years apparel export industries in Thailand and Indonesia have exploded past the 3 billion dollar
mark, and India, Sri Lanka and Malaysia have topped one billion dollars in apparel exports” (Christerson and Appelbaum
1995, 1363).
10
According to Chatterji and Mohan (1993), the share of developing countries in garment exports has more than doubled
from 21 percent in 1970 to 56 percent (M98).
60 GARMENT INDUSTRY IN SOUTH ASIA
As the table indicates, while the market shares of more industrialised economies and the
newly industrialised regions like Hong Kong and South Korea have declined in most cases,
that of peripheral economies like China, Thailand, Indonesia, Turkey and India have increased.
This process has also been aided by state promotion of this sector among the less
industrialised economies on account of its high labour absorption potential and low technology
and skill requirements. Together, they have enabled garment manufacturing to attain the
status of the most globalized industry. As the leading sector of globalization, the garment
industry continues to increase its share in world trade for manufactured commodities. World
garment trade has in fact grown faster than trade in manufactured goods as a whole
(Ramaswamy and Gereffi 1998, 124).11 Accompanying this global expansion, there have
also been changes in the organization of production with important implications for garment
production in peripheral economies.
11
Trade in apparel has grown at a rate of 10.2 percent per annum (in US dollars) while overall world trade grew only at
4.9 percent during the period 1980-92. In fact, the growth rate of world garment trade since the mid-eighties has been
much higher at 15 percent per annum during the period 1985-92 (EXIM Bank of India 1995, 16).
INDIA 61
and fashion creation. The market for apparel has therefore become highly segmented and
differentiated as a consequence, with non-price factors playing a critical role in competitiveness
in many of these segments.
Over time, the industry has come to be dominated by a few powerful retailers. At
present, in the USA, top 10 retailers account for over two-thirds of imports into the US
(http://www.sweatshopwatch.org/swatch/industry/cal/retailers.html). As a result of their
increased bargaining strength vis a vis the supplier manufacturers, it is said that they even
demand a profit margin of nearly 50 percent, further placing pressure on the former’s profit
margins and hence the workers’ wages. Over time, with the dominance of the retailers, the
distribution of costs or surplus along the garment commodity chain is heavily tilted in favour
of the retailers as the following table would reveal (Table 3.6).
The table gives the percent of final retail price as distributed among different nodes in
the value chain for a pair of jeans. As can be seen in the table, the share of wages amounts
only one percent of the sale price and the same study states that the share of wages in the
final price for clothes is normally never higher than five percent. It also indicates the
potential for a less skewed redistribution of surplus to the lower nodes in the chain, enabling
producers to pay more wages to labour in low wage regions.
Table 3.6: Cost structure of the apparel industry
The sourcing of garments from distant locations was found profitable not only because
of the low wages, but also due to improvements in transport and communication technologies.
Such technological innovations enabled capital to facilitate co-ordination of production in
distant locations to take advantage of lower factor costs that prevail in these areas without
much increase in transaction costs. Countries with better infrastructure in these areas would
therefore gain over those, which lack it. Despite the criticality of these factors, lower wage
rates continue to draw capital to that region (Table 3.7).
Table 3.7, in consonance with Table 3.5, reveals the growing share of the lower-waged
regions in world garment trade. Countries with lower wage costs like China, Indonesia,
Thailand and India have increased their share in world trade whereas, most economies with
higher average wage costs, have witnessed a decline in their shares.
62 GARMENT INDUSTRY IN SOUTH ASIA
Though the trend depicted above does lend empirical support to importance of the ‘low
wage’ pull factor, other features of this sector do not lend credence to this view. Despite the
growth of garment production and exports from many peripheral economies, there has not
been much change in composition of the top exporting nations (Table A.3 in Annex).
Table 3.7: Labour costs in apparel industry across regions (in US $/hour)
Table A.3 in Annex reveals a number of interesting features. First, and the most
obvious has been the rise of China to the status of world’s leading exporter in 1995 from
its eighth rank in 1980. Further, its share of 15.2 percent is the highest held by any country
during the entire period. A related observation is the increase in shares of peripheral economies
like India, Indonesia and Thailand. The shares of semi-peripheral economies, viz., South
Korea, Hong Kong and Taiwan (Chinese Taipei), premier exporters in the 1970s, have
declined. On the other hand, importantly, despite decreases in their shares, core economies
continue to have a significant presence in the global garment exports. In 1995, seven European
countries continue to figure among the top 15 exporters apart from the USA. USA has not
only increased its share during this period, but has also improved its rank. Moreover, many
of these economies meet a substantial portion of their internal demand for clothing through
domestic production. USA, for instance, still manufactures 50 percent of its requirements
domestically in 1990 though it had shrunk from the 70 percent share it had in the domestic
market in 1980 (Bonacich et al. 1994, 23). In fact, between 1993 and 1995, the share of less
industrialised countries in global clothing trade declined from 65 percent to 53 percent,
indicating a gain for industrialised regions (Hale and Hurley, 7). To understand this apparent
paradox, we have to comprehend other forces that impact on the geography of apparel
INDIA 63
production and hence, on the prospects of peripheral regions industrialising through exports
of garments. Towards this, in the following sections, a few other important features of the
apparel product market are highlighted.
Despite the continued presence of core economies in the top ranks of garment exporters,
their shares (other than that of USA) have declined. Further, these economies have witnessed
a certain degree of import penetration, especially from the semi-peripheral economies. To
illustrate, between 1983 and 1991, the share of domestic market catered to through imports
has risen from 30 to 45 percent (Taplin and Winterton 1998, 20). Further, the rise in cheap
imports of apparel from the lower waged peripheral economies has coincided with a phase
of growing unemployment in the advanced economies. In the UK, employment in the apparel
sector declined by over 50 percent in the period 1973 to 1993, while in Germany, employment
declined by 2,70,000 during the period 1970 to 1994. This has led to the view that imports
have resulted in loss of employment opportunities in these economies (Hoffman 1985).12
More importantly, a strong lobby of domestic manufacturers and workers has forced core
governments to insulate the domestic industry from such imports. Hence, trade restrictions
by the developed countries, both in terms of price and quantity, have come to impact the
industry over a considerable period.13
The MFA has been revamped thrice since its creation, with each renewal meant to
increase the coverage and intensity of the restrictions (Goto 1989, 204). While the MFA
sought to impose restrictions on the quantity of different apparel that can be imported from
each country, price restrictions were also imposed in the form of duties on other textile
products. Discrimination was hierarchical. ‘Sensitive’ products, i.e., items with higher import
penetration, met with higher quantitative restrictions. There is a gradation in tariffs imposed
as one moves from processed to the final finished garment (Goto 1989, pp. 206-207).
The quota system that has evolved under the MFA has exerted considerable influence
on the structure of production of apparel. While the main objective of the quota regime is
to restrict imports into the European and US markets, it has set in motion a process of quota
imposed economies seeking to avoid the restriction by shifting production to other low wage
economies that are yet to face quota restrictions. The rise of Bangladesh as a garment
exporter is a classic example of this phenomenon (Rhee 1990). Many other Asian economies
like China, Thailand and Indonesia too benefit from the relocation of manufacturing by
firms in NICs to these countries.
12
However, imports were not the primary reason for job losses in this sector in the core economies. In Germany, for every
job loss due to imports, 50 were lost due to productivity gains. Further declining demand constituted job losses 20 times
of that which can be attributed to imports from the periphery (Underhill 1998, 57)
13
The impact of trade restrictions on import penetration from the less industrialised regions has been, among others,
examined by Keesing and Wolf (1981).
64 GARMENT INDUSTRY IN SOUTH ASIA
While this process has definitely influenced the movement to relatively low wage cost
countries, it has also helped to perpetuate market hierarchies in the industry. Manufacturers
in the quota-imposed countries are forced to move into more value added products whose
competitiveness is not based on low wages but on quality and fashion. Since there are
restrictions on quantity, producers seek to increase their turnover by enhancing the value
added to each garment. Segmentation in the apparel market, therefore, influences location
of production. This is of course not to imply that the quota system is the key determinant
of market segmentation. Firms in these countries only seek to move up existing market
hierarchies created on the basis of quality, fashion and price.
where reorders14 and fashion obsolescence are common.15 Further, the quality requirements
of the fabric meant for such up-market garment production necessitates confinement of
production to countries with better processing technologies. Nevertheless, garments of certain
segments that are relatively less intensely driven by fashion and requiring lesser quality may
continue to be sourced from distant regions.
In sum, despite dispersal to low wage economies, the fragmentation of the apparel
market into fashion-determined smaller and smaller niches has enabled the core economies
to retain their competitive edge in these segments of the apparel industry. Another important
explanation for the simultaneous dispersal and concentration of apparel production takes
into consideration the social embeddedness of production processes and their part played in
reducing transaction costs of firms in this sector.
14
“…volume production in many branches of the clothing industry is observed by the repeated re-ordering of small branches
of successful styles …rather than by the continuos production of standard goods”, (Fine and Leopold 1993, 223).
15
‘Reorders require a 10-14 day turnaround which is possible if the original order was placed with a local factory, but
impossible if placed with an Asian factory, since transportation time alone for East Asia to Los Angeles ranges from
13 to 30 days. While the turnaround time for a Los Angeles firm is 4 to 5 weeks, for a firm in Asia it takes around
12 to 16 weeks...” (Christerson and Appelbaum 1995, 1368).
66 GARMENT INDUSTRY IN SOUTH ASIA
reliable but lesser number of importers rather than many importers (Egan and Moody 1992).
Further, the costs of finding and entering into a long-term relationship with new suppliers
too would deter buyers from shifting points of sourcing. Given these factors, established
suppliers may continue to manufacture for importers even if they lose the labour cost
advantage over time. This is likely to be true in the mid-price segment where production
costs are a lesser source of competitiveness.
To sum up, though there are various forces at work in influencing the location of garment
production, it is still possible to envisage a hierarchy of producers, hierarchy defined by levels
of development, wage levels and quality of garments produced. Elson (1994, 194) presents six
tiers of garment producers, with each country trying to move into the tier above them. Gereffi’s
depiction of the sourcing of different products from different regions by American retailing
firms reproduced below (Exhibit 3.1 below) is also very useful to understand this hierarchy.
Exhibit 3.1: Types of retailers and major global sourcing area
Exhibit 3.1 above clearly indicates the dominance of core and semi-peripheral economies
in the premium up-market segment (Rings one and two), leaving the rest to compete for
shares of the lower end of the market segment. Further, the table reveals differences even
among the peripheral economies in niches that they cater to, in the global garment market.
These differences, it is reasonable to argue, are conditioned by variations in technology and
skill levels, and level of control over product markets.
mixed. This comparison is confined to apparel exports to the USA, the single largest market
for Indian exports.
As can be seen in Table A3.5 in Annex, China and Hong Kong, in terms of market
shares, appear to pose the strongest competition. Together, they have a higher market share
in the US than India has in thirteen out of the seventeen product categories listed in the table.
In fact, China alone has a higher market share than India has in ten of the product categories.
Further, in quite a few categories, other countries like Indonesia, Pakistan, Sri Lanka and
Bangladesh too have higher market shares than India. However, by and large, there seems
to be a specialisation among the competing countries with each holding higher market shares
in a few specific categories. On the other hand, China has penetrated significantly in most
of the product categories. This leads us to infer that a region-wise specialisation in specific
niches may enable the countries to expand their shares without undermining that of other
countries. However, the market shares may also be influenced by the quota restrictions that
prevent countries from expanding their exports beyond a point. Hence, the unit values of
these product categories exported across these countries are examined in Table 3.8.
Table 3.8 indicates that unit values of garments exported from Hong Kong are higher
than that of most other countries indicating that they compete in a different, relatively
upmarket segment as compared to the other countries. Thus, unit values may not indicate
the level of competitiveness too accurately as even at the four digit level. Garments are a
highly differentiated category, in terms of design and quality and hence, price. However, we
do obtain a measure of competitiveness when we relate India’s unit values to that of the
average for all competing countries. It appears that India has an above average unit value
in two of the six product categories though Indonesia has a higher unit value in both these
categories and China in all of them. Thus, China appears to offer the biggest source of
competition to India in the post-MFA era.
Table 3.8 US imports from selected countries by MFA categories, 1996 (unit values)
Cotton men’s knit shirts 8.35 10.35 8.92 9.65 16.00 20.83 16.42
Cotton men’s non-knit shirts 4.13 4.35 3.05 2.73 4.75 5.67 4.69
Cotton women’s non-knit shirts 5.57 4.42 3.86 3.74 5.63 7.71 7.85
Cotton other manufacturers 0.75 0.57 0.42 0.52 0.57 1.29 1.07
Cotton men’s trousers 5.19 4.16 4.21 3.76 5.59 6.70 5.99
Cotton women’s trousers 4.82 4.76 3.81 2.76 5.77 6.40 6.13
Note: Average for all countries
Source: Ramaswami and Gereffi (1998, 127)
of the RCA, we use ‘India Trades’, an electronic database from the Centre for Monitoring
Indian Economy (CMIE), as the source. This database contains detailed information on
India’s trade as well as world trade. While information on India’s trade is sourced from the
Directorate General of Commercial Intelligence and Statistics (DGCI&S)), that on World
trade is sourced from the Statistics Department of the United Nations (UN).
Earlier studies like that by Chatterji and Mohan (1993) and Ramaswamy and Gereffi
(1998) too use the UN data. They are however, based on SITC Rev-2, wherein SITC 84
represents garments. As per an understanding with the UN, all individual countries are now
supposed to adopt a new commodity classification system called Harmonised Commodity
Description and Coding System. In fact, decision in this regard was taken long back, but
many countries are yet to adopt the new commodity classification system. Thus, the UN in
its published sources has been reporting the data on the basis of the earlier classification
system (SITC-Rev 2). However, the data in India Trades is based on the Harmonised System,
wherein 61 and 62 represent garments16 . One limitation of the world trade data in India
Trades is that it is available for only one year (1995). The CMIE does not give any explicit
reason why the data is confined to only 1995. It is possibly due to the new commodity
classification system followed. Thus, while data for the years prior to 1995 are based on the
earlier classification, that for 1995 and beyond are based on the new system.
Usually, in its published sources, the UN covers data on all major countries including
South Asian countries of Bangladesh, SriLanka, and Pakistan. In India Trades however,
these countries are not covered. Again, the CMIE has not given reasons for not covering
these countries. Yet again, the likely reason could be that these countries have not yet started
providing data on the basis of the Harmonised System. All the countries, included in the
database are probably the ones, which actually started providing data on the basis of the
Harmonised system.
To illustrate how RCA indices can be interpreted, India’s exports of clothing account
for around 13 to 14 percent of merchandise exports and the world exports of clothing is a
mere 3 percent of world merchandise exports. Then RCA is equal to 14/3 = 4.66. An RCA
of unity would imply ‘normal’ export performance. An RCA of more than unity is usually
taken as an indicator of comparative advantage and an RCA of less than unity imply
comparative disadvantage. The calculated values for India and two of its primary competitors,
China and Indonesia are given in Table A3.7 in Annex for product categories at the 4-digit
level. It may be seen from the table that the three countries indeed record comparative
advantages in most products. China has a comparative advantage in 32 out of 34 product
categories. The similar figure for India is 25 while that for Indonesia is 29. Based on the
above calculations, the products can be categorised in terms of which of the three countries
have the highest comparative advantage (Table A3.8 in Annex).
16
Also, note that the DGCI&S has been following the Harmonised System since 1987.
INDIA 71
Also, using the RCA, one can draw certain inferences on structural characteristics. For
example, if R1 denotes the vector of RCAs for country 1 and R2 is the similar vector for
country 2, then a rank correlation between the two vectors (R1 R2), indicates the similarity
or dissimilarity in the patterns of RCA between the two countries. Here, we have undertaken
such an exercise with regard to India, Indonesia and China (Table 3.9).
Table 3.9: Rank correlation coefficients of the RCA indices for pairs of
countries (garments)
The small values of coefficients indicate that there are no similarities in the pattern of
revealed comparative advantage between the pairs of countries. It may, however, be noted
that the similarity in patterns of comparative advantage is relatively higher for China vs.
Indonesia as compared to other pairs of countries. This exercise once again indicates that
the line of specialisation among the three countries may enable them to compete in the
global market without eating into the market shares of other countries.
Another indicator of competitiveness is that of labour productivity. The Global
Competitiveness Report 1999 gives a number of competitiveness indicators of countries in
terms of labour. One such indicator is the wage adjusted for productivity differences. It is
found that wage adjusted for productivity is one of the highest in India. While the rank of
India is extremely low at 51 out of 59 countries, that of China and Indonesia is 5 and 45
respectively. In fact, wages are found to be very low for the country’s level of productivity
in China. Further, China too ranks pretty favourably as compared to India in terms of
flexible hiring and firing practices despite better educational levels. Though these indicators
are only representative of the entire workforce and may not hold true for the garment sector,
it is quite likely that some of the differences would favour China even within the garment
sector. In fact, though the data on wage rates would indicate that Indian wage rates are not
too different from other peripheral economies, it is found that the cost per standard minute
in India is higher than that of Indonesia, Thailand and China (Majumdar 1996).
Its performance when placed against that of other peripheral economies is poor. Even
in the leading categories, other peripheral economies have a bigger market share than India.
Various reasons have been cited for the relatively poor performance of the Indian garment
sector in the world market. One, garment exports from India is largely confined to cotton
garments and hence confined to only one segment of the world apparel market. Two, and
more importantly, it is said that government policies have created distortions in the industrial
72 GARMENT INDUSTRY IN SOUTH ASIA
structure that prevent Indian producers from competing on equal terms with other low-
income regions. In the next, section, the role of government policy in influencing the prospects
for Indian garment exports is analyzed through a case study of Tiruppur Knitwear Industry.
and not consistent with the data for the remaining years. Another glaring underestimate is
the figures on child labour (‘boys’ and ‘girls’ category). It is clear from visits to the numerous
units that helpers in all stitching units are child workers, except in a few direct exporting
firms, which account for 15 to 20 percent of the total workforce. These limitations
notwithstanding, the data is definitely useful to indicate broad trends in composition, duration
of employment and the growth of the industry.
Year Tot. no Sub. Total Men Women Male Female Boys Girls Share of FL
returns
The important observation is the phenomenal growth in the use of female labour. From
a low of around 21 percent in 1985, the proportion of female labour in the total workforce
has increased to 33.8 percent. In absolute terms, the number is very high when we consider
the fact that the total workforce has increased from an average of 2000 workers to nearly
30,000 workers in 1998. Interestingly, among child labour, girls account for over 90 percent
of the workforce. Nevertheless, they seem to be present in a lesser proportion among the
older workforce. This is due to the segmentation of the workforce along gender and
age lines.
Though children have been employed in this industry before, with the movement to the
export market, the quantum of use has increased manifold. Though it is difficult to come up
with estimates of the absolute magnitude, informal sources place the workforce in this sector
to number around 200,000. Of these, nearly 20 percent are children and women workers
would account for another 30 to 40 percent of the total workforce. The labour market is
highly segmented with women and children confined to a specific set of jobs, which as we
shall see in Table 3.11, are relatively less paying as compared to jobs in which men
predominate.
There is no discrimination in wage rates against women within a job type. However,
as can be seen, women are employed predominantly in the lesser paying jobs. The wage
rates given in Table 3.11 provide only the average rates, and actual rates are found to be
74 GARMENT INDUSTRY IN SOUTH ASIA
much lower in firms located on the urban fringes. More women are employed in such firms
as they need to be closer home to attend to household work as well. Further, women workers
do not undertake jobs in ancillary firms like fabrication units as it would involve working
night shifts, which once again undermines their access to relatively better paying jobs. Thus,
the structural location of women in a patriarchal household too reinforces the segmentation
process. In fact, it may be even argued that jobs that exclusively employ women or children
are lesser paying precisely because women and children are employed, since their wages are
seen to only supplement the family income.
Table 3.11: Worker characteristics in finishing units, Tiruppur
the workers are forced to send more than one member of the household to work in the
industry so as to reduce the risk of inadequate income due to uncertain employment.
This casualisation of the labour force also precludes them from bargaining for social
security provisions that had been fought for and obtained through trade union struggles in
the early 1980s. At present, of the 5000 odd firms in Tiruppur, there are only roughly 20
to 25 firms that provide social security benefits to employees, like Employees State Insurance,
Provident Fund, etc.
to the domestic market. However, over time, especially from 1990, with the region’s movement
to the semi-fashion segment with its attendant quality requirements, wage rates have slowly
reverted back to the time rate system in a number of firms. It was felt that under the piece
rate system, workers were not paying sufficient attention to the quality of stitching and that
the piece rate system was detrimental for production in the new segment. This warranted a
reversion back to the time-rate system among tailors. However, through casual employment
and recruitment through the labour contractors, entrepreneurs ensured that the work was
completed within the prescribed time limits. A few other jobs like cutting, cone winding, etc.
nevertheless continue to pay on a piece-rate basis. The combination of indirect recruitment,
casual employment and use of time-rate system to ensure quality despite use of variable
labour indicates greater control of capital over labour.
Labour costs are factored into ‘finishing’ costs, where labour would account for more
than 90 percent of the total. Exporters enjoy a margin of 12 to 15 percent while margins are
much less at around 8 percent for the sub contractors. The data on production costs indicate
17
Nominal wage rates are already given in Table 3.11.
INDIA 77
that cost reducing strategies can be extended to other components as well, especially that of
‘raw materials’ through productivity improvements in yarn and fabric processing. However,
the fact that exporters basically house finishing units where labour costs constitute the bulk
of total production cost may direct cost reduction to labour costs.
logic of global capital’s need to keep costs down under flexible market conditions has
definitely influenced this process. The introduction of process improvements and product
innovations has taken place during a period when labour’s bargaining strength has been
waning. This appears to indicate that the imperatives of competition at the global level has
a definite bearing on labour relations in the region. It can be said that the former has
undermined to an extent local labour organization, thereby facilitating the formation of a
labour market conducive to flexible accumulation.
These changes are very much in congruence with recent trends in characteristics of the
global market. In an international survey of the textile and clothing industry carried out by
Underhill (1998), the most important contributor to failure was found to be inappropriate
products for rapidly changing markets. This has serious implications for workers. The number
of buying seasons has doubled in the last few years to between six and eight as retailers are
only willing to carry limited amounts of stock in order to respond more quickly to changing
trends. Such demands for flexibility are clearly linked to labour conditions since they translate
into forced overtime and extended periods of unemployment” (Hale and Hurley, 9). Given
such tendency towards greater flexibility in product markets and the onset of more competition
among low-income economies, flexibility of labour markets seem to be a necessary condition
to compete. However, ‘active’ or ‘functional’ flexibility that enables workers to develop
multiple skills, contribute to innovation and enjoy higher wages would be possible only
when producers are involved in industrial upgrading and competing through innovation.
Despite the availability of such a flexible workforce, exporters continue to stress on the
need to implement fresh labour laws so as to enable them to exercise greater control over
labour.18 Such measures are especially seen to be important in the context of a quota-free
regime and the need to compete with countries like China where labour is reported to work
for longer hours, capable of undertaking multiple tasks, etc. Further, India’s workforce
appear to be less ‘flexible’ and enjoy a greater ‘bargaining strength’ as compared to some
of its competing countries like China and Indonesia. Though, in the case of Tiruppur,
these strengths or labour market rigidity are hardly visible, such macro-indicators along
with lower labour productivity levels may be used to highlight the need for labour market
reforms. In fact, even in Tiruppur, producers insist on the need to restructure labour
markets.19 Formulation of a helpful exit policy is seen as critical to sustain or improve
18
“It is, however, the labour laws which the companies seem most opposed to, the policy appearing to be ‘can hire but
cannot fire’ …” (Tait 2001, 47).
19
The Tiruppur Exporters Association President has this to say, “ It is essential that the knitwear industry consolidates
its strength and remains competitive in the face of aggressive competition from China, Indonesia and Thailand where
reportedly labour works faster and do many different jobs at the same time.” (Apparel Fortnightly May 16-31, 2001,
Vol. VIII. No.4, pg. 35).
INDIA 79
competitiveness in the world market. To be sure, changes in other realms of policy making
have also been demanded like the need to open up the sector to large-scale production,
which has been recognized as a means to improve productivity through scale economies and
technology upgradation.20 The need for a more flexible workforce however, portends a
serious threat to working conditions of the garment workers.
Given these macro-trends, the discussion on labour in the Tiruppur knitwear industry
would definitely hold good for garment production elsewhere in India, albeit with marginal
differences. In fact, trade unions hardly have a presence in most other centres and given the
fact that many of them are located in EPZs, labour laws are lax. Child labour is not present
to this extent though the share of female labour is higher. Wage rates may be marginally
higher or lower, as also wage shares. Nevertheless, pressures of export production is bound
to impact upon all firms similarly as long as the output markets they compete in are similar.
20
Except for the knitwear sector, which continues to be restricted to the small-scale sector.
80 GARMENT INDUSTRY IN SOUTH ASIA
benefit producers to compete in this segment. However, for labour, this movement is fraught
with danger, as it would involve increases in competitiveness through productivity increase
that may not always be through introduction of new or improved technologies. Rather, it
may be due to greater extraction of labour power and a possible downward pressure on wage
rates, rather than on extraction of relative surplus. Resistance on the part of labour to this
trend may be met with relocation to other, less unionised regions within or outside the
country. As borne out by the shifting geography of world apparel production, such a strategy
is soon bound to flounder against the rise of new locations that can compete on the basis
of still lower wages. Hence, competition based on lowering of wage costs would be detrimental
to labour and to the industry as a whole in the long run.
To counter the strategy of footloose capital seeking out lower wage locations, it may
be required to impose codes of sourcing or producing among manufacturers and importers
globally. Such enforcement mechanisms, as has always been the case, would still be difficult
to implement and ensure compliance. The continued use of child labour in Tiruppur is a case
in point. Alternately, competing countries can come together and decide to co-operatively
compete rather than eat into the market shares of each country. Importantly, it is imperative
that they agree to the provision of a ‘living wage’ to its workers. Here, trade unions have
an important role in ensuring that competition is based on ‘active’ rather than ‘passive’
flexibility. Labour institutions, by resisting downward pressures on wage rates, may force
regions to compete through ‘high road’ strategies. We observed earlier that India has a
greater comparative advantage vis-à-vis some of its main competing economies in
specific product categories. Targeting these specific niches and seeking to build
competitiveness in these segments and to move up the value chain may therefore be a better
competitive strategy.
There may be less likelihood of a downward pressure on wage rates and work conditions,
when competition is based on fashion and design rather than on costs. Such competition
warrants firms to move into upper segments of the hierarchy of the apparel market or create
new niches. The strategy involves higher marketing and selling efforts apart from
considerations of quality and timeliness of delivery. This would involve creation of new
institutions by the state that would enable producers to compete ‘actively’ as opposed to
‘passive’ competition based on lowering of wage costs. Improvements in process and
manufacturing techniques require installation of new machinery that warrants access to
institutional credit, which is at present difficult to access for most firms in the apparel sector
given their confinement to the ‘unorganized’ sector.
In the global commodity chain, given the lack of access to high-fashion markets,
producers may continue to face disadvantages. However, as borne out by the experiences of
East Asian economies like Hong Kong, Korea and Taiwan, movement along the value chain
and backward integration is feasible to an extent. A closer understanding of the experiences
of these economies may offer valuable lessons for South Asian garment exporters.
Diversification of output markets into new geographical regions would be another key
INDIA 81
ANNEXURE 2
Table A3.1: Segmentwise composition of Indian garment exports, 1983-91
(in percent value)
Year Handloom garments share Knitted garments share Millmade garments
share
Table A3.2: Segmentwise and fibrewise composition of garment exports, 1991/92 – 1999
(in percent value)
Year Knitted garments Handloom garments Mill made garments
Table A3.5: Market share in 16 categories of MFA imports of the US, 1996
Category description US imports India Bangla- Pakistan Sri Indo- China Hong
$US million desh Lanka nesia Kong
all countries
Cotton women’s non knit shirt 891.6 24.9 6.5 1.5 5.9 5.6 7.2 24.8
Cotton men’s knit shirt 2919.1 6.4 1.7 10.2 3.0 2.9 5.1 4.1
Cotton men’s non knit shirt 2137.3 7.7 7.6 1.3 3.2 5.9 2.9 13.7
Cotton other manufacturers 812.5 21.7 3.2 15.4 1.2 0.5 23.9 0.9
Manmade fibre dresses 904.6 8.7 0.9 0.1 4.9 6.6 18.5 5.7
Cotton other apparel 1157.7 4.7 10.5 2.1 5.3 4.6 15.3 10.3
Cotton women’s knit shirt 1937.2 2.6 0.7 2.4 1.5 1.7 2.5 10.5
MMF women’s non-knit shirt 555.1 9.0 2.8 0.1 4.2 15.7 20.7 8.6
MMF skirts 419.7 10.9 0.6 0.1 4.5 5.3 8.3 6.6
Cotton dresses 403.4 8.4 3.9 4.1 3.2 3.5 5.4 6.4
Cotton/terry towels 264.2 11.5 3.4 17.9 1.0 0.0 14.8 0.4
MMF women’s coats 1066.9 2.6 3.1 0.7 3.3 2.9 15.9 9.6
Cotton skirts 345.0 7.9 4.1 1.9 7.7 4.0 5.6 14.5
Cotton women’s coat 354.4 6.3 4.5 0.8 7.6 2.6 21.0 14.3
Cotton sweaters 336.5 5.6 0.7 0.1 1.2 9.6 8.1 23.0
Cotton men’s trousers 2942.2 0.7 3.5 0.8 1.9 3.8 3.8 8.1
Cotton women’s trousers 2288.7 0.9 1.4 0.6 2.1 2.4 4.8 17.4
Source: Ramaswami and Gereffi (1998, 127)
INDIA 85
Table A3.6: Revealed comparative advantage indices for China, India and Indonesia
(Garment exports in 1995)
China India Indonesia
Note: The products that the SITC codes represent are given in Appendix 1.
Source: Calculated from ‘India Trades’, CMIE.
86 GARMENT INDUSTRY IN SOUTH ASIA
Table A3.7: Products with highest comparative advantages among the three countries
INDIA
Women’s or girls’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets, wind-cheaters, 6102
wind-jackets) and similar articles, knitted or crocheted, other than those of heading 6101
Men’s or boys’ shirts, knitted or crocheted. 6105
Women’s or girls, blouses, shirts and shirt-blouses, knitted or crocheted. 6106
Women’s or girls’ suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib 6204
and brace overalls, breeches and shorts (other than swimwear).
Men’s or boys’ shirts 6205
Women’s or girls’ blouses, shirts and shirt-blouses. 6206
Shawls, scarves, mufflers, mantillas, veils and the like. 6214
INDONESIA
Men’s or boys’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets), wind-cheaters, 6101
wind-jackets and similar articles, knitted or crocheted, other than those of heading No. 61.03.
Garments, made up of knitted or crocheted fabrics of heading No. 59.03, 59.06 or 59.07. 6113
Men’s or boys’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets), wind-cheaters,
wind-jackets and similar articles, other than those of heading No. 62.03. 6201
CHINA
Men’s or boys’ suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches
and shorts (other than swimwear), knitted or crocheted. 6103
Women’s or girls’ suits, ensembles, jackets, blazers, dresses, skirts, dividend skirts, trousers,
bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted. 6104
Men’s or boys’ underpants, briefs, night-shirts, pyjamas, bathrobes, dressing gowns and
similar articles, knitted or crocheted. 6107
Women’s or girls’ slips, petticoats, briefs panties, night-dresses, pyjamas, negligees,
bathrobes, dressing gowns and similar articles, knitted or crocheted. 6108
T-shirts, singlets and other vests, knitted or crocheted. 6109
Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted. 6110
Babies’ garments and clothing accessories, knitted or crocheted. 6111
Track suits, ski suits and swimwear, knitted or crocheted. 6112
Other garments, knitted or crocheted 6114
Panty hose, tights, stockings, socks and other hosiery, including stockings for varicose veins
and footwear without applied soles, knitted or crocheted. 6115
Gloves, mittens and mitts, knitted or crocheted 6116
Other made up clothing accessories, knitted or crocheted; knitted or crocheted parts of
garments or of clothing accessories. 6117
Women’s or girls’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets),
wind-cheaters, wind-jackets and similar articles, other than those of heading No. 62.04. 6202
Men’s or boys’ suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches
and shorts (other than swimwear). 6203
Men’s or boys’ singlets and other vests, underpants, briefs, night-shirts, pyjamas, bathrobes,
dressing gowns and similar articles. 6207
Women’s or girls’ singlets and other vests, slips, petticoats, briefs, panties, night-dresses, pyjamas,
negligees, bathrobes, dressing gowns and similar articles. 6208
contd.
INDIA 87
Table A3.7: Products with highest comparative advantages among the three countries (contd.)
Babies’ garments and clothing accessories 6209
Garments, made up of fabrics of heading No. 56.02, 56.03, 59.03, 59.06 or 59.07. 6210
Track suits, ski suits and swimwear; other garments. 6211
Brassieres, girdles, corsets, braces, suspenders, garters and similar articles and parts thereof,
whether or not knitted or crocheted. 6212
Handkerchiefs 6213
Ties, bow ties and cravats 6215
Gloves, mittens and mitts. 6216
Other made up clothing accessories; parts of garments or of clothing accessories, other than
those of heading No. 62.12. 6217
Source: Calculated from ‘India Trades’, CMIE.
Table A3.8: SITC codes for garment product categories under the harmonised system
contd.
88 GARMENT INDUSTRY IN SOUTH ASIA
Table A3.8: SITC codes for garment product categories under the harmonised system (contd.)
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92 GARMENT INDUSTRY IN SOUTH ASIA
93
Dinesh Pant
Devendra Pradhan
1. Introduction
1.1 Historical background
Ready-made garment industry is relatively a new industry for Nepal. However, the
textile industry as part of cottage industry has its own traditional roots in the country.
Garment industry started growing sharply only after 1983 (MOF, 1999). This growth has
been largely attributed to the export business spilled over from India and other neighbouring
countries. When the government of the United States imposed quota on import of ready-
made garments from third world countries, Nepal became a place of easy access for the
Indian exporters to meet their quota deficiencies and manufacture garments for the US
market (BM, 1999). Before this, Nepalese industrialists had not realized the potential of
garment industry for export.
In the beginning, all required materials including workers were supplied to Nepalese
garment industries by their Indian partners and then garments produced were shipped to the
United States with a “Made in Nepal” label. This was a privilege for the Indian entrepreneurs
as they could use both quotas and non-quota facilities provided by the US to Nepal. Gradually,
many other Nepalese entrepreneurs were attracted to this industry because of export potential
and started to run industries on their own. However, some of them simply registered the
industries in their names to enjoy quota premiums by offering partnership with real exporters,
both Indian and Nepalese.
and 88 percent of total export volume in FY 2000/01 have been attributed to the US market.
However, export earnings and export volume for the US market were 77 percent and 72
percent respectively in FY 1998/99 (Annex 4.2). The export earning from the US market
increased from Rs. 2898 million in FY 1991/92 to Rs. 6425.6 million in FY 1998/99 and
Rs 9595.4 million in FY 2000/01. Likewise, the volume of export to the US market also
increased from 23.4 million in FY 1991/92 pieces to 27.2 million pieces in FY 1998/99 and
35.8 million pieces in FY 2000/01.
Figure 4.1: Ready-made garment exports
14000
Export value (Rs. in millions)
12000
w w
10000
8000 w
w
6000 w w w w
4000
w
2000
w w w
0 w w
1999-2000
1982-83
1984-85
1985-86
1987-88
1990-91
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
However, as shown in Figure 4.2, the share of US market in total export from Nepal
has slightly decreased on a percentage basis, if compared with the similar share in the early
years of the garment industry. An estimate shows that the share of US market in total export
earnings has decreased from 93 percent in 1991/92 to 77 percent in 1998/99 whereas the
share of other countries has increased from 7 percent to 23 percent during the same period.
Likewise, its share in total export volume has decreased from 92 percent in FY 1991/92 to
72 percent in FY 1998/99 whereas the share of other countries has increased from 8 to 28
during the same period. Nevertheless, the share of US market in total export earnings has
increased in recent years; it reached 87 percent whereas the share of other countries has
decreased to 13 percent in FY 2000/01. Likewise, the share of US market in export volume
increased to 88 percent in FY 2000/01 whereas the share of other countries has decreased
to 12 percent during the same period
Since 1992, the following categories of garment products have constantly constituted the
niche US market for Nepal.
Export of cotton shirts (quota category 340) to the US market was the highest with 31,
23 and 24 percents in 1996, 1997 and 1998, respectively. However, it was reduced to the
third highest export category in 2000, recording 11 percent of total US export value. Likewise,
out of total export, the combined share of quota category 347/348, was 32, 37 and 44
percents in these three years respectively. The category recorded highest level of export
(27%) in 2000. The combined share of quota category 336/636 was 19, 20 and 12 percents
during the same period. It reduced further to 8 percent in 2000. Nevertheless, the other
significant export items in recent years also included terry towels and shop towels (quota
category 363-s and 363, respectively). Likewise, the quota category 338 emerged as the
second largest export item in 2000.
Figure 4.2: Changes in garment export to U.S market
100
90
80
70
60
Percent
50
40
30
20
10
0
1991/92
1998/99
2000/01
This was reflected even in the trend of utilization of quota allocated to Nepal from the
US government. Naturally, the quota category 340 was fully utilized (i.e., 100 percent) in
both 1996 and 1999, though its utilization slightly reduced to 93 percent in 2000. Likewise,
the utilization of quota category 347/348 was 76 percent, 82 percent and 95 percent in 1996,
1999 and 2000, respectively. In the case of quota category 336/636, the utilization rate
recorded 51 percent, 58 percent and 82 percent during the same period. On the other hand,
utilization of some garment quota categories (i.e., 641 and 341) ranged from as low as 5 to
47 percent in 2000 while it ranged even from 3 to 22 percents in 1996.
The concentration of garment industry in some specific categories of products has been
justified by sample studies too. For most of sample industries, following products constituted
the hot categories for exports to the United States (Annex 4.3):
NEPAL 97
Female Foreign
15% 40%
Local
60%
Male
85%
Some indicative information has been generated through sample studies of nine garment
industries presently operating in Nepal. The percentage of females in total employment ranges
from 85 percent to less than 1 percent (Annex 4.4). Likewise, the ratio of local and foreign
employees/workers ranges from 99:1 to 50:50. The ratio of skilled workers with non-skilled
ones ranges from 60:40 to 95:5. In last two years period, while the ratio of females has
decreased in some industries (GramMom and GramEna), it has increased in other industries.
Likewise, while the ratio of local labour with foreign one increased in some industries (e.g.,
GramSin), it has decreased in other industries (e.g., GramEna) during the same period.
Although the total number of employment in the garment sector has come down with
a sharp decline in the number of industries, the employment size has dramatically grown in
the sample industries which have been able to survive and grow. Based on sample studies,
the growth in employment in individual industry, by comparing the employment in its first
year of establishment with the present employment size, has ranged from 80 percent in
(GramSin) to 620 percent in (GramMal). It is also noticeable that larger enterprises in the
sample have larger percentages of skilled workers.
98 GARMENT INDUSTRY IN SOUTH ASIA
Data on cost composition of garment products in India and Bangladesh could not be
available. However, all the industrialists and experts interviewed during the present study
shared the view that the cost factors particularly those relating to fabrics, transportation and
labour are relatively low in those countries.
1.2.8 Share in national export
In the fiscal year 1998/99, garment industry recorded its export performance as the
largest export-oriented industry in terms of foreign exchange earnings. Before this, it continued
to be second largest export-oriented industry after carpet industry in the country. As shown
in Figure 4.4, the garment export has correspondingly increased with increase in total national
exports to overseas countries (MOF, 2001). The share of garment export in total national
exports in FY 2000/01 is 43.9 percent, while it increased from 21.7 percent in FY 1992/93
to 48 percent in FY 1999/2000 (details in Annex 4.7). During the last nine fiscal years, the
average share of garment industry is around 36.8 percent. Such a growth is partly due to
increase in export earnings of garment industry itself in terms of local currency and partly
due to decline in the export of carpets from Nepal.
Figure 4.4: Garment export in national total exports
3500
30000
w
Export value (Rs. in million)
25000
w
20000 w
w
w w w
15000 w w n
10000
n n
n
5000 n n n
n
n
0
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
Fiscal Year
tailor master, cutter, designer, etc). Naturally, the value addition in this industry is not as
high as in other labour-intensive industries. According to a study undertaken in 1996 (NPEDC,
1996), the average net value addition of garment industries in Nepal is 35.4 percent. This
situation has hardly changed now. The main contributors to such value addition are salary
and wages, house rents, utilities such as electricity and water and duties and fees paid to
local agencies. Obviously the garment industry has high potential to improve its value
addition to the scale of 90 percent if it is able to use local fabrics and accessories and replace
foreign workers by local ones.
The present status of the garment industry as presented above becomes a basis on
which to review its competitiveness and the impact of globalization process. Moreover, it
also provides a context to review the employment situation and job quality critically in the
succeeding chapters.
There are some special provisions for landlocked and economically weak country like Nepal
which can guarantee freedom of transit, access to permanent international market and attract
foreign investment in the country, thereby helping to boost its production. On the other
hand, Nepal will also have to allow products of other countries on the basis of Most
Favoured Nation treatment which means Nepalese industries will have to directly compete
with industries from the neighbouring countries including India and China along with the
industries of the world. Nepal, with a very weak industrial base, will have hard time competing
with superior products of the neighbouring countries and the world at lower prices.
2.1.2 Uruguay agreement on textile and clothing and its implications for Nepal
The Textile and Clothing Agreement (TCA) is a vital component of the Uruguay round
of negotiations which concluded in 1993 and came into affect with the emergence of WTO
from 1st of January 1995. Developing countries were long trying to remove Multi-Fiber
Agreement (MFA), which was in force from 1974 allowing developed countries to impose
quota on exports of garments from third world countries and integrate textile and clothing
sector in the mainstream WTO rule. The present TCA has aimed to phase-out bilateral
quotas under the MFA within 10 years from 1995 to 2004 on a product-by-product basis.
This will be achieved in three phases by progressively integrating currently restricted products
with the WTO regime and at the same time simultaneously accelerating growth of quotas
of remaining restricted products to eventually allow full market access by the year 2005. The
three stages in which the quota will be phased out are:
First Stage: 36 months (1Jan 1995 to 31 Dec 1997)
Second Stage: 48 months (1Jan 1998 to 31 Dec 2001)
Third Stage: 36 months (1Jan 2002 to 31 Dec 2004)
In the beginning of the first phase, 16 percent of the total import (in 1990) were to be
phased out. While 17 percent were to be phased out in the beginning of second stage, 18
percent has to be phased out in the beginning of the third stage. The remaining 49 percent
will be removed after the completion of phase out period on 1 January 2005, from which
the textile and garment sector will be completely governed by the WTO rules. A mechanism
called Textile Monitoring Body has been set up to oversee implementation of the TCA. It
has a provision for special treatment to certain countries, e.g. new entrants, non-members
of MFA, small suppliers and least-developed countries. In 2000 November, the United
States has passed the African Growth and Opportunity Act (AGOA) which allows quota free
and duty free access to garment exports from around 33 Sub-Saharan African countries to
the US markets (TKP, 2001). Similar provisions are in consideration for the Caribbean
countries. Moreover, Bangladesh is also requesting the US government for special facility
to promote its garment export to US markets. It has made such a demand on behalf of least
developed countries too.
102 GARMENT INDUSTRY IN SOUTH ASIA
Although all the fabrics and accessories used to be imported from India in the early
years of industrialization in the garment sector, almost 50 percent of raw materials were
imported from third countries in recent years (Table 4.2). This is a clear evidence of
diversification and up-scaling of sourcing of input materials. Such a recent trend in imports
indicates that the Nepalese garment industries, especially the big and medium industries, are
increasingly becoming quality conscious. Some industrialists have already started preparations
to appoint their representatives abroad to ensure outsourcing of materials and export markets.
This is one of the effects of globalization and this kind of outsourcing of materials is likely
to be intensified in the future to meet the challenges of WTO from the year 2005.
Table 4.2: Import of raw materials and accessories for garment industries
(I) From India (Rs. in million)
Year 1993/94 1994/95 1995/96 1996/97 1997/98
The major trends as presented above indicate that the first two phase-out of export
quota had hardly any adverse effect on the structure and export performance of the
garment industry sector in Nepal. One possible reason is that 35 percent of the products in
the U.S. market and 37 percent of products in European markets were not protected from
the beginning.
The real challenge of globalization is feared to be strongly felt by the end of 2001
when 51 percent of the existing quota will be dismantled while the remaining quota will also
be increased by 27 percent. This means Nepalese garment industry, especially that part
104 GARMENT INDUSTRY IN SOUTH ASIA
which largely depends on the spill-over effect from India and other neighbouring countries,
will start feeling the pressure of globalization as early as two years from now.
Nepal 2.00
India 0.25
Sri Lanka 2.60
Bangladesh 1.40
Pakistan 0.20
Source: BM (1999)
As shown in Table 4.4, the share of Nepal in the US garment market is the lowest
among other SAARC countries. While Nepal’s share is 0.4 percent, India’s share is the
highest with 4.6 percent followed by Bangladesh, Sri Lanka and Pakistan with 2.6 percent,
2.1 percent and 1.8 percent, respectively.
Table 4.4: Share of South Asian countries in total garment import of U.S.A
The situation has worsened further in recent years. In 1999, the share of SAARC region
in total import of garments by US, valued US $ 10174 billion, was merely 1.45 and the share
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of Nepal’s export was 0.0174. Likewise, Nepal’s share in total US import of garments from
SAARC region was merely 2.04 percent while it was 33.76 percent for Bangladesh (Table
4.5). In fact, its share in total US import from SAARC region is in itself least, being the
sixth after Maldives.
With the complete phasing out of the quota system for garment exports to the USA
from the year 2005, Nepal will have to compete with many countries, particularly its
neighbouring countries such as India, Bangladesh, Pakistan and Sri Lanka. Nepal tends to
be little behind its neighbouring countries in terms of its competitiveness for garment export
business. This is obvious from many points of view presented earlier in this report. Many
of the neighbouring countries are in a hurry to speed up the process of ending the MFA to
integrate it with the WTO rules. Nepal on the other hand is not in too much of a hurry to
see the quota system dismantled. This is because most of the neighbouring countries having
favourable conditions are in a position to gain from this process while Nepal on the other
hand will have to struggle to survive.
The competitive strength of Nepal compared to its most immediate neighbours can be
assessed in terms of cost structures of garment products. As illustrated by an experienced
Nepalese garment entrepreneur some time ago, also shown in Table 4.6, Nepal’s cost structure
is relatively higher than its immediate competing neighbouring countries. For example,
when export value of a garment product such as men’s shirt is US$ 3.40, cost structure and
profit margin have shown relative competitiveness of three South Asian countries. This is
a conservative estimation considering cost of fabric in cost structure to be constant for all
competing countries which may not reflect reality of Nepal, except in the case of import
from India by paying US dollar. This situation either leaves very small profit margin for
Nepalese entrepreneurs or puts pressures on them to charge price that is higher than other
exporting countries.
106 GARMENT INDUSTRY IN SOUTH ASIA
Table 4.6: Comparative cost structure and profit margin (in US dollar)
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
idea of dry port, though being materialized through necessary construction work, is yet to
come in operation.
Industrialists and experts tend to believe that the only advantage Nepal has currently
over other neighbouring countries is labour cost. The average labour cost component, which
is currently about 20 percent to 30 percent of the total cost of a product, often varies
depending on the cost of fabric and other accessory materials. High quality, skilled manpower
is still not adequately available. This is compensated by the employment of foreign workers
whose salary or wage rate is much higher than those compared to similar high quality
worker in India or Bangladesh.
However, with improvements in technology and modernization of industry, some
Nepalese products have built an image in the international markets. In terms of quality, the
Nepalese products can well compete with those of Bangladesh and those of northern parts
of India. Some Nepalese entrepreneurs have already established direct linkages with the
reputed buyers without relying on the middlemen. For the past five or six years, there is
some positive indication that Nepal has been able to develop its own unique market.
If Nepal has been performing well in garment industry sector in spite of many obstacles,
it is mainly due to resourcefulness, business manoeuvring and managerial capabilities of a
few Nepalese garment entrepreneurs. Nevertheless, government too has been making some
liberal policy changes in favour of garment industrialists for the past five or six years and
it is still in the process of making efforts to extend incentives for the promotion of garment
industry and its export business. Most importantly, the policy makers are beginning to feel
the challenges of globalization process and understand that the garment industries will have
difficulty surviving in Nepal without substantial supports from the government. Some of the
initiations taken by the government in this regard are the construction of Inland Container
Depots (ICD) at Biratnagar, Bhairahawa and Birgunj, which are the major sites for
transportation and transaction of goods. There are some positive indications that the ICD at
Birgunj has been completed recently and this alone, if used, is expected to decrease
transportation cost by 20 percent to 30 percent. The government is also planning to establish
Export Processing Zones near these depot areas. Nepal is making progress in the area of
telecommunication with the introduction of Internet and cellular phones. All these actions
in process are expected to help the garment entrepreneurs to be competitive in the future.
garment industries have exported products that are made from Nepalese fabrics with
unique Nepalese designs. In most cases, buyers have determined the types of fabric to be
used in the products, including specific designs and colors. Nepal still has not been able to
export non-quota items significantly enough to carve a unique place for itself in the
international market.
The impact of globalization on the present niche product market of Nepal, as hinted
in earlier chapter, is unpredictable as it will continue to largely depend on the consumers’
demands and dynamics of market forces. However, the globalization process will affect not
only the niche products but will extend to the whole garment market. Nepal has only about
three years to strengthen its capabilities, and there is now tremendous pressure on both the
government and private sector to take concrete measures for developing skilled manpower
and a sound R&D base to create a real niche market that can withstand the pressures of
globalization. The situation for Nepal will deteriorate fast with the offering of special facility
to other countries such as Sub-Saharan African countries and Caribbean countries. Garment
exporters in Nepal can not ignore Bangladesh’s attempt in particular to enjoy such a special
facility either.
for the workers. Globalization in this sense is likely to give birth to problems of
unemployment and labour unrest.
n Many entrepreneurs tend to be confused about what to do, nor have they been
able to understand the concept of WTO clearly. The present pace of government
to devise strategies and policies to face the challenges of the globalization process
under the WTO regime is very slow while the time is running out. Considering
what has been done in the past, one can not expect miracle to happen in the next
three years to prepare Nepal for facing the challenges of globalization. It will be
very difficult for Nepal to improve its competitiveness in the garment industry
with the existing level of efforts and work culture.
n Decline in garment industry, which is currently the leading foreign-exchange
earning industry of Nepal with export business of over US $140 million and
capacity of employing some 50 thousand people, will have profound negative
impact on the entire economy. To prevent this, government needs to take a lead
role to bring all the key players to devise long–term strategies for countering the
likely adverse situation from the year 2005.
n There is a possibility of deeper penetration of the Nepalese market by the Indian
capital and labour with very little gains for the mass of population and disruption
in their traditional livelihood patterns (Acharya, 1999). Nepalese economy, being
a satellite of Indian economy for more than four decades of planned development,
is still isolated from global economic revolutions that created many bubble
economies in the SAARC and the ASEAN countries (Dahal, 1999). It is unlikely
that Nepal will get rid of the continued Indianization process that is deeply rooted
in behaviours of many Nepalese people (e.g., Acharya 1999, Shrestha, 1999). The
process will continue to affect Nepal’s garment industry considering in particular
the fact that Indian manufacturers and workers originally induce the industry.
n If the skilled Indian workers go back home because of demands in their own
country for producing garments for unrestricted, open world market, it is also
likely to create a problem of deficiency in skilled manpower required for the
garment industry of Nepal.
n Being a land-locked country, Nepal cannot significantly reduce its present transport
cost. The problem is further compounded by such factor as low productivity of
labour, ineffective labour laws with little concern for efficiency and absence of
backward and forward linkages in the garment industry. If the present unfavourable
situation continues to prevail, it will be very difficult for Nepal to keep up its
present performance after the year 2005.
n The present interest rate (around 15 percent) on bank loan in Nepal is considered
to be high in the South Asian region. Some industries have already started feeling
the pressure of repayment of bank loans. Furthermore, because of the uncertain
110 GARMENT INDUSTRY IN SOUTH ASIA
future of the industry itself with the phasing out of the quota system, some
industrialists are starting to hold “wait and see” attitude refraining from investing
further in their industries.
n As illustrated earlier, the cost of production in Nepal is much higher than in
Bangladesh and India. There will be pressure now to improve this situation for
the Nepalese garment industry because of the intense competition among all
countries after the year 2005.
n Some industries have procured expensive machines in their drive towards
modernization and for being more productive to face the challenges of globalization.
But many of these machines have not been used because of lack of technicians
to operate and make repairs when needed. Lack of skilled technical manpower is
a serious problem that needs to be solved if Nepal is to be more productive and
compete with other countries.
n Present pace of infrastructure development, including policy designs and
commitments of the government, is very poor. If this status quo situation exists
without significant improvement after the year 2004, then it will be difficult for
garment industry to survive. In fact, Nepal does not need to wait for next three
years to see declining situation of its garment industry if other countries start
enjoying special facility for easy access to US markets from now.
n Nepal does not need to wait for next three years to see declining situation of its
garment industry if other countries start enjoying special facility for easy access
to US markets from now.
n Nonetheless, things are not so gloomy. There are some indications that globalization
process can be a blessing in disguise for the development of ready-made garment
sector in Nepal, provided that some well thought out strategies are devised in
advance and some of the present positive trends are maintained. Hence, some of
the challenges are related to the following situations which, if capitalized carefully,
will turn globalization process into opportunities for Nepal.
n Despite the possibility that many small and medium scale garment industries will
close down, some garment industries will not only survive but also excel in their
performance after the year 2005. With an eye on competition, some industries
have already started not only exploring new avenues of market, but also making
necessary arrangements for outsourcing of raw materials considering the likely
demands of the markets.
n The locally available labour, if trained, can be a strength for the industry. Some
industries have prioritized employing local labourers and providing them on-the
job training to cope with the likely shortage of manpower at local level and
reduce dependency on foreign workers. With the use of local manpower, the cost
NEPAL 111
of labour is expected to come down while both the supply and quality of manpower
will also improve.
n With the removal of quota barriers, Nepal will be able to compete freely with
other developing and less developed countries for having a reasonable share in
the world market. Likewise, with reduction in tariff and non-tariff barriers, the
size of the world market will increase by creating new market opportunities. It is
also likely that cheap products coming from the developing countries could displace
certain market share of the developed countries. This will lead to immense export
market possibilities for the garment sector of Nepal. Least developed country like
Nepal can also resort to export subsidy for their export products as well as zero
duty access to other market. There will be immense possibilities of increasing
export from Nepal, provided that Nepal can negotiate for enjoying privileges of
a least developed country.
n Since only a few best and sophisticated industries can survive after 2005, their job
quality and working conditions for workers can be expected to be better than
those in many industries operating with low quality outputs targeted for ordinary
buyers. These few best industries are producing quality products for the reputed
standard buyers such as J.C. Penny, Walmart, Target and GAP which require that
the industries maintain certain standards of working environment for their workers
which will lead to improvement of working condition and better facilities for the
workers.
n Large industries have increasingly realized that they can survive only by reducing
their cost of production and improving product quality. Such a realization is
likely to result in proactive initiatives of private sector, with support of the
government, in areas such as R&D and skilled manpower development.
n Market positions have been much better than in the past and the government also
has started offering some important facilities in recent years. Likewise, there have
been some gradual changes in technology by replacing the traditional inferior
Indian machines by the modern, superior Japanese and German machines. This
has facilitated the process of transformation in production system from piece-rate
system to assembly line system. Quality of the Nepalese products is generally
considered to have improved significantly. Such a transformation in production
system along with improvement in quality of products and export performance is
an indication of improvement in productivity and willingness of the industrialists
to face the challenges of competitive globalized market.
n About 20 percent of present export are estimated to be on non-quota items.
Likewise, the concentration of export business in the US market is also slowly
decreasing with expansion of European and other Asian markets. These are positive
indications that give hope for withstanding the pressures of globalization.
112 GARMENT INDUSTRY IN SOUTH ASIA
n More recently Nepal has started importing raw materials from third countries in
an equal footing with that of India. This will enable the Nepalese entrepreneurs
to enjoy both cheap and quality products after the full-fledged implementation of
WTO concepts.
n Although total number of people employed in the garment industry has decreased
in recent years because of gradual decline in small and medium garment industries,
there are some positive indications with regard to employment situation and job
quality, particularly in the case of a few large industries (to be elaborated in
Chapter III).
n Considering the nature of the national economy, even a dozen of big garment
industries of Nepal with Momento’s (presently the largest garment industry) size,
can easily face the challenges of globalization beginning from the year 2005.
Large-scale industries can have various advantages in globalisation age.
Performance and the size of some of the medium and large garment industries are
getting better compared to six or seven years ago. If this trend continues till the
year 2005, then it will be possible to maintain as well as increase the pace of
industrial growth even after the quota is phased out.
n Because of similar development thrusts in South Asia and similar experiences in
the field of garment export business, the Nepalese entrepreneurs can explore
some areas of collaboration with garment exporters of other neighboring countries
and make some joint efforts for capturing a sizeable share of the world market.
Such a collaboration is likely to be meaningfully utilized in minimizing cost of
production and transportation and promoting export market.
Productivity, as a means to generate competitive advantage, is a fundamental tool for
enhancing competitiveness in the era of globalization (Bajracharya, 1999a). On the other
hand, while competitive capacity is partly determined by external factors; such as, international
environment, character of international competition and competitive policy of the chief
rivals, and the competitiveness of the country (Bossak and Nagashima, 1997). Nepal, at
present, is directly competing with its neighbouring countries in terms of both price and
quality of products. Therefore, the most important challenge facing garment industry sector
in Nepal in the wake of globalization is to improve its productivity to be competitive in the
open world market.
is estimated to be some 50 thousand people while it provided direct and indirect employment
to more than one hundred thousand people a few years back. However, this sector has now
shown some improvements in other areas. While this industry started with 100 percent
involvement of Indian entrepreneurs, more than 90 percent of garment industries are currently
owned and operated by Nepalese entrepreneurs. Likewise, the share of employment of
Nepalese labour has increased from being negligible to some 60 percent today (BM, 1999).
The total number of people employed in garment industry sector has decreased in
recent years because of decline of many small and medium garment industries. Although
215 industries are currently in existence, only a few large and medium industries are actually
performing with tangible results. The reduction in employment size was partly due to
increasing shift in technology and manufacturing systems from piece rate system to assembling
line system by using imported sophisticated machines. Moreover, smaller industries have
been dying out because of strong competition from both inside and outside the country.
Even though garment industry is basically women-oriented industry, majority of garment
workers in Nepal are men. In the garment industry sector as a whole, the ratio of male
workers dominates female workers in Nepal by 85 percent to 15 percent. Nevertheless, the
largest garment exporting industry in Nepal, with annual export to the tune of $ 13 million,
has employed females constituting about 85 percent of the 2500-3000 workforce. This
indicates that with more sophistication and development in the garment industry structure
the male dominance in the overall workforce can gradually decrease in Nepal in the future,
like in other neighbouring countries.
In the beginning, the industries were dominated by Indian workers and technicians.
Such a situation has not completely changed now as many industries still employ foreign
workers due to unavailability of skilled manpower in the local market. However, as indicated
earlier, the percentage of local workers in total employment in the garment industry sector
as a whole has increased from a negligible percent in early 1980s to 60 percent in 1999.
It should be noted here that employment size of the sector has in overall declined but
has grown for those few industries that have been able to survive and improve export
performance. The industrialists claim that they have not only increased employment
opportunities but also improved quality of jobs. Employment size in each of nine selected
industries has increased significantly compared with employment figure in its early years
(Annex 4.4). It has grown by 60 percent in minimum and 620 percent in maximum. The
assumption that while dying industries reduce number of employees, those who survive can
ultimately provide larger number of employment opportunities and better job quality is true,
as this is exactly what is happening right now in Nepal.
Robbins, 1997; MOLJ, 1992). The main criteria for the review were working-hours, salary
and allowances, skill development opportunities, promotion opportunities, safety at work place,
job security, retirement benefits, gender distribution in employment, use of local labour and
indirect employment through labour contractors. In this section, job quality in garment industry
sector is reviewed by analyzing data drawn from nine sample garment industries.
3.2.1 Working-hours
All industries have eight-hours’ work day, with one day off every week as per the
labour law. While a few industries have designed workdays on a shift basis employing
people through mutual understanding, other industries have normal work hours from 9.0
clock in the morning to 5.0 clock in the afternoon. The work beyond these hours is considered
as overtime work that offers allowances.
employees. Likewise, some industries were found paying incentive allowance depending
on the efficiency level of the workers. For instance, GramMom, the largest industry, offers
different incentive allowances for those who meet from 80 to 200 percent of work
targets. Some 30 percent of workers of this industry are reported to have enjoyed such
incentive allowance.
reported provisions of gloves for cutters and adequate lighting system. Some industries such
as GramIna, GramPun and GramCot have developed and maintained safety system that
include safe drinking water, fire exits (double exits) and fire-alarms according to the
standards set by their American buyers, e.g., WalMart, J.C. Penny, etc. They were required
to do so to satisfy the requirements occasionally specified by their buyers. In overall, the
safety system in most industries was observed to be sufficient while one industry had
minimum safety (Annex 4.11). Industries having their own factory buildings have some
reasonable safety measures, while those operating in rented houses had only minimum
safety arrangements.
Job security has often been a matter of grievance expressed by the labour unions. In
an estimation, about 70 percent of workers were employed on contract or piece-rate basis,
while 14 and 16 percent workers were employed on permanent and temporary service basis
respectively (IGWU 1996).
In most garment industries covered by the present study, only a few staff and workers
were employed on a permanent service basis. Majority staff and workers are working on
either contract or daily-wage basis. Appointment letters were issued only to the permanent
ones (also temporary ones in a few industries). Moreover, some industries have used
contractors (suppliers) for employing workers in some cases, i.e., employers are not directly
responsible for these workers.
The percentage of permanent staff in industries has ranged from almost 0 to 50
percent (Annex 4.12). The employers are evidently hesitant to issue appointment letters to
temporary workers as these workers become entitled to permanent service after
completing 240 days according to the existing labour laws and are hence entitled to
enjoy job security and benefits as provisioned in the laws. For this, they often
prefer to employ workers on a temporary basis even for years without issuing
appointment letters.
Employers have been criticized for using labour contractors to exploit the workers
indirectly (IGWU, 1996). They have allegedly used contractors for employing workers in
their industries simply to avoid dealing directly with workers with regard to working hours,
salary and benefits. In this case, the relationship between employers, who are running
registered industry, becomes indirect and the workers are prone to exploitation by the
contractors who do not have as legitimate existence as industry itself. There are already
some incidents of fleeing of contractors without making payments due to the workers. While
such practice has been widely criticized by workers, labour unions and government officials
responsible for labour administration, employers assert that it is their business compulsion
in order to avoid labour problems. Nevertheless, the situation has been gradually changing
with decreasing trend of employment of contractors in industries.
NEPAL 117
among available workers, industrialists prefer foreign workers because foreign workers are
more efficient and less problematic compared to local ones. Nepalese workers generally
demand for better benefits and working conditions and are often prone to quick politicization
resulting in unproductive work culture. For industrialists, there are some genuine reasons for
preferring foreign workers to local ones.
However, employment of foreign workers has often been a subject of criticism labeled
by local workers, labour unions and government officials. The industrialists have allegedly
employed foreign people even by paying salary and wage that are several times more than
the salary and wage paid to the local ones. Industrialists dismiss such allegations by saying
that they are eager to pay more even to local people if they can work parallel to their foreign
counterparts and also that they are not prohibited by law to employ foreign labour.
Five out of nine sample industries reported the existence of labour unions within their
respective industry (Annex 4.13). One of them has recently turned the existing labour union
into a joint committee represented by both labourers and management. Most of these industries
had no history of strikes. Even the incidents of strikes in some industries were reported to
be less serious. The general scenario as seen by the industrialists is peaceful, despite the
report that the scenario is likely to deteriorate in one sample industry.
However, industrialists, union leaders and workers reveal some mixed and problematic
situations. There seem to be misunderstanding between employers and workers about their
respective roles as they often complain about each other. Industrialists tend to criticize the
workers and union leaders for their inefficiency level, low productivity, uncooperative attitudes
and politicized work behaviours. On the other hand, workers and union leaders express their
dissatisfaction over general disregard on the part of the employers towards the local workers’
feelings, favouritism to Indian workers, use of contractors, non-issuance of appointment
letters, low pay and non-conformance to provisions made in the existing labour laws.
Labour-management relations continue to be a critical factor for development of garment
industry in Nepal. The present findings are similar to those reported in an intensive study
conducted by NPEDC in 1997 for the Ministry of Commerce (NPEDC, 1997).
The existing job quality in garment industry sector in Nepal has been perceived differently
by different groups directly or indirectly concerned with development of the industry.
The industrialists hold the view that the existing job quality as stated above is more
than reasonable compared to job quality in other sectors of the Nepalese economy. People
employed in the industry have been able to earn more than the minimum wage rate determined
by the government and those who are competent can earn substantial amount of money that
is more than what is offered in other employment sectors. With regards to safety and other
working conditions, workers are less likely to find other places that are better than in the
garment industries as these work places have been built and maintained according to standards
set by foreign buyers by going beyond the Nepalese standards.
The employers are eager to increase the size of financial package for skilled and
efficient people and to further modernize the work place according to their business level
and profitability. They also express their readiness to pay more to workers and improve level
of job security if the workers maintain their discipline in work places and help in developing
productive work culture. Female workers have been provided with relatively comfortable
and safe work place in terms of nature and volume of work and working hours. The present
industrial environment is perceived to be relatively peaceful by all the industrialists.
120 GARMENT INDUSTRY IN SOUTH ASIA
However, industrialists strongly feel that the existing labour law has not been favourable
for improving productivity as they can not hire and fire workers at discretion to maintain
discipline among the workers and provide different incentives depending on their efficiency
level. They have to think twice to employ local workers instead of foreign workers. There
is always a fear of being caught in the trap of existing labour law and threats of strikes by
unions, making it difficult to take actions even against those local workers who are
unproductive and undisciplined.
There is a feeling among employers in general that the present labour laws are not
formulated in a balanced way. As it has been argued, labour law should specify not only the
right but also duties of the workers, unions, management and owners/ shareholders. Necessary
hiring and firing, disciplinary actions and layoffs have to be made easy since the employers
can not afford to keep unproductive or undisciplined workers and lose profits on investment
(Jyoti, 1992).
in the areas of financial package, job security and use of contractors and foreign workers.
Even other government officials concerned with foreign trade and industrial promotion share
the views similar to those of labour administration officials.
3.3.4 Experts’ perceptions
The industrial relations system in Nepal has been viewed as a blurred one. It has been
a mix of informal custom and practice and a set of formal structures and rules as provided
by labour legislation as there are still some aspects of labour relations that are governed by
traditional values and mutual understanding between employers and employees (Pant 1991).
There are two extreme views expressed by the experts in matters relating to employment and
job quality.
One view is that the present rate of salary and wage in garment industry sector is high
considering the high cost of production and low labour productivity. The industry can not
improve competitiveness in the international markets, when compared against Bangladesh,
without reducing the cost of production including cost of labour. Workers should be paid to
match their productivity level. The job security is considered to be a non-issue for improving
productivity and competitiveness. On the other hand, it has been viewed that the existing job
quality is not adequate to cope with the demands for improving productivity and
competitiveness. The existing job quality including wage level should be improved by
exploring other areas of cost reduction.
It is also relevant here to review how some experts have assessed job quality situation
in the context of industry sector as a whole. At present, improvement in the Quality of
Working Life (QWL) can be a new but significant dimension in harmonization of work in
Nepalese shop-floor, though it is not clear how far the industrial sector has succeeded
towards this direction during the last 50 years of industrial history in Nepal (Adhikari,
1993). Certain ILO standards are being considered by the Government of Nepal in taking
administrative and legislative measures to update the country’s labour laws. Since these
standard setting activities are generally believed to have been largely influenced by the
experiences of the developed societies, it has been felt in Nepal that the ILO standards
should be flexible and realistic to the prevailing peculiarities of the national socio-economics
of the participating countries (ILO, 1998).
For the past six or seven years, government has gradually come to regard garment
industry as one of the country’s important industries providing not only huge foreign exchange
but also significant employment opportunities. The industry has started attracting educated
professional entrepreneurs who understand that treating workers fairly and providing them
with reasonable facilities will enhance their productivity. Moreover, some reputed buyers
(e.g., Walmart, J.C. Penny, GAP, Target, etc) seem to be contributing a great deal in
improving job quality of workers by putting pressures to maintain their standards in the
factory. By showing humanitarian concerns and accepting to buy only from those industries
which meet their standards and specifications, they have in fact been more effective in
bringing about improvements in job quality of garment workers than any other parties
concerned. Nevertheless, job quality in many industries is yet to be satisfactory as it is far
below the world standard.
Both industrialists and experts in general feel that the hire-and-fire rule should be
introduced in favour of industrialists particularly in sensitive export-oriented industries like
garment industry. This is because industrialists are now unable to discipline workers to raise
their relatively low productivity.
Present job quality in garment industries is apparently offering different pictures to
different groups. However, it is important to review the existing level of job quality to assess
the likely impact of globalization, especially after the present quota system is fully phased
out by forcing the garment industries to operate in a fully globalized, competitive market.
The following section attempts to assess the possible impacts of globalization on the job
quality in garment industry sector in Nepal.
globalization process in Nepal might turn into a process of deeper penetration of the Nepalese
market by the Indian capital and labour with very little gains for the mass of population.
However, some different perspective also can be presented as far as the present garment
industry sector is concerned. It is also likely that the employment size may even increase
if the garment industry sector grows with large industrial establishments that have competitive
strengths. Naturally, small industries with traditional technology and limited market are less
likely to be competitive enough to survive in the free, competitive world market. A growth
of large-scale garment industries, each employing 4000 to 5000 people, even in small
number will contribute to promotion of employment opportunities in the country. But all
these situations are dependent upon how the present garment industry sector moves to
improve its productivity and competitiveness.
3.4.2 Job quality
It is expected that despite the possibility of decline in the number of industries and
their total employment size, the quality of jobs in the industries will improve. The logic is
that only those industries that are competitive can exist in the age of globalized competitive
market and the competitiveness often requires improvement in productivity at firm levels
that in turn demands improvements in job quality. The entrepreneurs will be required to
modernize their industries through new investments in modern technology, development of
human resources and improvements in job quality that may include various schemes to
retain and attract competent manpower. In such a situation, those who get employment in
the garment industry will be able to enjoy improved job quality.
The apprehension that employers will reduce cost of production including cost of
labour is less likely to be proved completely true. The cost reduction drive may limit to
downsizing of manpower, but it may not result into deterioration in job quality. Almost all
interviewees, including industrialists, government officials, workers and experts also tend to
hold similar view. The entrepreneurs, even if they may like to do it, are unable to reduce
the wages to workers, or degrade the work place simply to minimize the cost of production
because these cost reduction measures will have negative impact on their productivity
improvement drive for enhancing their competitiveness. They will be forced to explore new
areas for reducing the cost of production and increasing profit margin. Moreover, big buyers
such as Walmart and J. C. Penny will continue to show their concerns for the humanitarian
aspects of garment workers and this will help improve job quality even though there will
be pressure for industrialists to decrease their cost of production.
However, as some union leaders and workers argue, the concept of discretionary hire-
and-fire by the employers, if applied in garment industry, may have negative impact on the
job quality of workers since it will reduce the bargaining power of workers. It is likely that
supply of foreign workers will diminish from the year 2005, because they will then prefer
to work in their own country. Industrialists will then have to hire Nepalese workers and even
think about training Nepalese workers seriously. But there is some apprehension that employers
124 GARMENT INDUSTRY IN SOUTH ASIA
will further exploit the local workers because of their abundant supply from within
the country.
On the other hand, not all union leaders and workers are worried about the possible
deterioration in job quality, instead they are concerned with the existence of industry and
job after 2005. They also seem to believe that only competitive industries can survive in the
globalized competitive markets and for this these industries will be forced to further improve
their job quality. During studies of sample industries which happen to fall under category
of modernized industries, workers were found to be optimistic about improvement in job
quality in the future.
3.5 Inter-linkages of job quality with productivity improvement drive for competitiveness
As the concepts of productivity and competitiveness are closely inter-linked, the quality
of job is also directly linked with the productivity improvement drive at enterprise level. In
fact, the linkages among job quality, productivity and competitiveness are circular as shown
in Figure 4.5. Accordingly, in garment sector of Nepal, improvement in productivity is not
possible without improvement in job quality while job quality can not be improved
without improvements in competitiveness. Moreover, productivity and job quality interact
bilaterally too.
Figure 4.5: Interactive relationships between job quality, productivity and competitiveness
realized it and started improving productivity and job quality to enhance their competitiveness
to face challenges of the globalized, free market.
with existing strengths of neighbouring competitors. The fact that the Nepalese products
have gradually built their image through quality in the international market also supports
such a proposition.
As shown in a study, South Asian countries are still exporting products that can be
categorized as low-wage and labour-intensive and exports from these countries have not yet
shifted to high value added products as has been the case with some of the East and South
East Asian countries (Joshi, 1999). In this perspective, Nepal can improve its competitiveness
by focusing on export of high value products.
and improve competitiveness. Initiatives from both the government and garment industries
are required to attract both local and foreign investments in such industries.
4.2.7 Utilization of provisions for least developed countries under WTO regime
Under the WTO regime, least developed countries are expected to be entitled to some
privileges for next five years after taking memberships. These include enjoyment of zero-
tariff and provision of bilateral trading arrangements with developed nations. Although
Nepal has not yet joined WTO, it is making preparations to obtain its membership. Being
a LDC, it should make some deliberate attempts to utilize the provisions made by the WTO
for LDCs. In South Asia, Nepal is one of the three LDCs, the other two being Bangladesh
and Bhutan. It can improve its competitiveness by enjoying LDCs’ privileges compared to
India, Pakistan and Sri Lanka for promoting its garment industries.
Garment entrepreneurs can develop infrastructures for R&D centers and training institutes
especially designed for garment industry sector. They could set up market promotion and
liaison offices in foreign countries to capture export market for them through establishment
of direct contacts with the buyers and exhibition of exportable products. Furthermore, they
can develop communication network among garment industrialists and buyers through internet.
It is also necessary that they go for group advertisements by creating web page in the
internet and by placing advertisements in leading international magazines.
Nevertheless, government has many important roles to play. Globalization does not
limit the role of government in the name of economic liberalization. It should make
investments for development of infrastructure and creation of congenial business and industrial
environment because such investments would promote national competitiveness. As noted
by Lohani (1999), public investment should ultimately enable the private sector in broad-
based efforts to improve productivity.
However, the situation is less likely to improve simply by improving the price
competitiveness. Because of its geographical location, Nepal is likely to continue facing the
problem of competitiveness in lead time required for delivery (i.e., receiving order, procuring
raw materials, manufacturing and dispatching). Hence, this issue also needs to be well
addressed in improving the national competitiveness.
¢ Competitiveness ¡
It is in this context that garment industries should direct their efforts towards improving
productivity in order to enhance their competitiveness and strengthen position in the
international market. The garment industries can develop various strategies for improving
productivity, which are suggested in subsequent sections.
compared to local ones. Moreover, they are provided accommodations within or outside
factories. The garment industries can save money spent on wage and salary and reduce cost
of production by replacing foreign technicians and workers by Nepalese ones.
Every garment industry should have a series of skill upgrading training programs on
a formal and regular basis for their staff and workers, besides making provisions for planned
job rotation and on-the-job training. Senior and experienced workers can be sent to certain
training institutes or well organized garment industry to develop them as trainers and utilizing
them later for training large number of workers in work places. Local workers and staff
should be given preference in offering training opportunities to make best use of them.
Effective human resource management for productivity improvement should also involve
the following:
l proper placement of workers on the job;
l competitive rate of salary and allowance;
l providing a sense of job security;
l designing and implementing reward and punishment systems;
l securing commitments and winning trust of the workers through transparent
and humane treatment;
l involving staff and workers in productivity improvement activities by forming
and activating quality circles and making them implement productivity
improvement techniques such as 5s;
l introducing productivity-based incentive system; and
l adopting a system of gain-sharing scheme.
Various options are available to introduce productivity gain sharing and incentive
schemes. Some of these are suggested later in relevant sections.
technology of present and potential competitors. Emphasis should also be placed on full
utilization of the installed capacity. Moreover, there should be an in-built periodic maintenance
system to minimize repair and maintenance cost and avoid breakdowns affecting capability
of industries to meet the orders in time.
l Collaborating with other local garment industries for making investment in setting
some supporting industries related to textiles and accessories.
l Developing a sound inventory system to ensure that right volume of materials is
ordered and stored for maintaining smooth production process.
l Integrating procurement system with the production planning system and
scheduling.
Materials management can no longer be ignored for improving productivity at enterprise
level. This has to be prioritized particularly because the present situation in which the buyers
themselves supply raw materials, directly or indirectly through middlemen, along with their
purchase order, is less likely to continue in the age of free competitive globalized market.
The garment industrialists will have to choose materials by themselves predicting the demands
even before the order is received with a view to promoting markets through advertisements.
Besides these conventional methods, various new approaches need to be pursued for
improving productivity. Such approaches include total quality management, business process
reengineering, benchmarking, strategic cost management and activity-based costing and
value chain. Productivity improvement should be concerned with design and delivery of
products to satisfy customer needs and desires at the cost they can afford since the productivity
concept, which focuses only on reducing input consumption, serves no purpose in the present
globalized environment in which materials, people, ideas and capital move much more
freely between countries (Monga, 1999b). Moreover, since economic co-operation and global
integration based on free markets and free flow of goods and services are the concepts of
the future, co-operation between countries in harmonizing their approaches with transformation
programs is an essential factor to productivity growth (Prokopenko, 1995)
However, it is also equally important to emphasize the fact that productivity improvement
drive can not be effective without improving the quality of job at enterprise level.
suggestion that garment producers should have a separate training institute to train their staff and
workers through benchmarking of garment industries in Nepal and abroad is worth considering.
Workers should also have opportunities to make a fuller use of their skills and
competency. It is necessary that all of them are first employed as apprentices within certain
time limit of adhering the minimum wage concept. The skilled workers should be entitled
to extra financial incentives for working as trainers. Moreover all managerial decisions
relating to appointment, placement, job security, salary increment and promotion of the
workers should also be tied with their training performance.
employment related transactions should be made transparent to win the confidence of workers
and trade unions. Those, who have worked for more than six months either as temporary or
seasonal workers, should be entitled to benefits designed specifically for such work in
advance. Other practices of recruitment in consideration of the seasonal nature of business
need to be closely examined.
is also a need for change in the managerial orientation with regard to industrial relations.
Management and labour should seek for more bipartite solutions than tripartite solutions
(Manandhar, 1999). Likewise, both management and labour should adopt such a code of
conduct which provides agreed rules for their relationship (Pant, 1991). Many of the
misunderstandings that prevail between employers and workers in present day garment
industry sector can be resolved through social dialogue. It can compensate the need for
having a separate labour law for the garment sector.
A feeling should be cultivated among the workers that if their industry can perform
better, they too can increase their earnings. As a matter of priority, the concept of benefit
sharing should be incorporated in the framework of labour-management relations as it has
direct bearing upon improving not only job quality but also productivity and competitiveness.
How well Nepal can withstand the challenges of globalization by being productive and
competitive depends on how well both the government and the private sector can tackle the
emerging situations, particularly in next three years, through their joint efforts to shape
Nepal’s own unique position in the world market. All these efforts will also determine level
of improvement or deterioration in employment situation and job quality in garment industry
of Nepal.
136 GARMENT INDUSTRY IN SOUTH ASIA
Appendix 4.1
Methodology
Data collection
The study utilized both primary and secondary sources of information. Various
documents (published and unpublished) relevant to the theme of the study were collected
from various sources and reviewed during the study. Required instruments such as checklists
and interview schedules were developed to collect data and information. The instruments
included:
l Interview schedule for officials of Garment Association of Nepal (GAN)
l Checklist to collect basic data/information from GAN
l Interview schedule for officials / experts of government and non-government
organizations
l Checklists to collect data from government and non-government organizations
(e.g., Ministry of Commerce, Trade Promotion Centre, etc.)
l Interview schedule for garment industrialists
l Checklist to collect basic data/information from garment industries
l Interview schedule for workers and trade union leaders
These schedules and checklists were used simply as guidelines as there was flexibility
in using the sequence of questions and skipping certain questions as per the needs.
The following were selectively interviewed to assess the present and likely situations
in the garment industry sector in Nepal.
l garment industrialists
l officials of garment association
l government officials dealing with the issues of foreign trade, industry and labour
l union leaders and workers
l experts in the fields of labour management, industrial development and international
trade
Sample industries
Altogether nine garment industries located in three districts Kathmandu, Bhaktapur and
Lalitpur were visited to gain first-hand knowledge of industries. Such a selection of industries
was based on the assumption that most garment industries operating in Nepal were located
in Kathmandu valley. Attempts were made to take an analytical approach in both identifying
and addressing the issues concerning productivity, competitiveness and job quality in the
garment industry sector in Nepal.
NEPAL 137
Timing
The study was undertaken first between November-December of 1999. It was revised
later on keeping in view the changes that have taken place between then and now. In this
connection, four of nine sample industries were studied twice in July 2001 to update data
and information about them.
Industries visited:
1. Elina Garments
2. Prasuna Garments
3. Sirin Garments
4. Logo Garments
5. Prabha-belt (Tribeni) Garments
6. Radiant Fun Wear Fashion (Krishna) Garments
7. Cotton Comfort Garments
8. Mahalaxmi Garments
Note: For the purpose of this report, these sample industries are coded on an arbitrary basis.
138 GARMENT INDUSTRY IN SOUTH ASIA
GramIna* 40**
GramSin* 18
GramPun* Not to be revealed
GramRaf 30-35**
GramCot 20-25
GramMom* 25
GramPra 20
GramMal 20
Note: Basic data for sample industries were collected towards the end of 1999. However, data
about those with star mark (*) were also updated in July 2001.
** Percentage of total cost of production excluding the cost of fabrics.
Fiscal year Export of garments Total national exports Share in national exports
(Rupees in million) (Rupees in million) (in percentage)
1992/93 3390.3 15644.8 21.7
1993/94 5943.2 16884.5 35.2
1994/95 5139.3 14514.9 35.4
1995/96 5374.8 16198.5 33.2
1996/97 5955.0 17410.3 34.2
1997/98 7015.4 18719.1 37.5
1998/99 9701.9 23145.6 41.9
1999/00 13924.9 29004.3 48.0
2000/01* 9304.6 21207.7 43.9
Source: Economic Survey, Ministry of Finance (1999), Kathmandu.
*Provisional estimate for the first eight months
NEPAL 141
Description 1984/ 1987/ 1990/ 1992/ 1993/ 1994/ 1995/ 1996/ 1997/ 1998/ 1999/
85 88 91 93 94 95 96 97 98 99 2000
Agriculture, Fisheries 100 110 128 127 137 138 144 151 153 158 167
& Forestry
Mining & Quarrying 100 92 82 76 74 70 73 71 66 62 60
Manufacturing 100 79 60 62 60 53 50 46 40 37 35
Electricity Gas 100 102 111 82 76 74 77 69 59 54 54
& Water
Construction 100 52 26 17 13 11 8 7 5 4 3
Trade, Restaurant 100 93 83 79 78 76 73 69 67 63 61
& Hotel
Transport, 100 65 46 37 33 30 26 23 20 18 16
Communication
& Storage
Finance & Real Estate 100 90 90 87 86 83 83 80 79 77 75
Community & 100 95 86 84 83 80 77 73 71 70 68
Social Services
Source: NPEDC (2000)
142 GARMENT INDUSTRY IN SOUTH ASIA
GramEna* Safe water, gloves, fire exists, etc WalMart/ J.C. Penny
GramSin* Sufficient (+ recent improvements) Not specified
GramPun* Sufficient (US standards) WalMart/ J.C. Penny
GramLog Sufficient Periodic visits by buyers
GramRaf Minimum Not specified
GramCot Sufficient GAP/WalMart
GramMom* Sufficient Not specified
GramPra Sufficient WalMart
GramMal Moderate Not specified
Note: Basic data for sample industries were collected towards the end of 1999. However, data about those with star mark
(*) were also updated in July 2001.
Note: Basic data for sample industries were collected towards the end of 1999. However, data about those with star mark
(*) were also updated in July 2001.
NEPAL 143
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146 GARMENT INDUSTRY IN SOUTH ASIA
147
Asir Manjur
1. Introduction
The textile apparel sector lies at the apex of the textile value chain starting from cotton
and synthetic fibres. Over the past decade there has been a consistent increase in the value
of global market share of high value textile apparel in comparison to the products lying at
the lower end of the value chain. This phenomenon is driven by factors like frequent
movements in the global fashion scene, niche marketing resulting in higher unit price
realizations and enhanced usage of diverse fabrics and materials particularly in the women’s
apparel segment.
The South Asian economies have established themselves as important global players
in the apparel trade. Predominantly the reasons lie in the very nature of the industry that is
labour intensive. Increasing wage rates in the developed countries resulted in the relocation
of the industry to developing countries. Global exports markets, the USA and EU, in order
to protect their domestic industry regulate the imports from developing countries by imposing
quantitative import restrictions, these are managed under a formal agreement known as the
Multi Fibre Arrangement (MFA). The Uruguay round, a major milestone in liberalization of
international trade paved the way for extinction of non-tariff restrictions on trade including
textiles. The new arrangement, Agreement on Textiles and Clothing (ATC) governs the
global textile trade regime, which aims at removal of quantitative barriers by 2005.
MFA phase-out is likely to open new vistas of opportunities for developing countries
that have developed a strong and a diversified product base, particularly in the product
segments at the top of the textile value chain. At the same time it would adversely affect
the growth of exports from developing countries dependent on a limited product range and
competing in the global markets on price rather than quality.
The eradication of trade barriers will start an era of increased competition and countries
having the advantage of low labour costs will only be able to survive through development
of strategies aimed at enhancing the productivity of the work force, broadening of
the product as well as market base and process improvements leading to high
cost efficiencies.
* Presented by Mr. Nabeel Goheer on behalf of Mr. Asir Manjur, Small and Medium Enterprise Development Authority
(SMEDA), Lahore, Pakistan.
148 GARMENT INDUSTRY IN SOUTH ASIA
2. Global market
The textile and apparel sector is an important part of the global trade. It has a significantly
high share of 6 percent within the global trade in goods and merchandise that is estimated to be
around US $ 5 trillion. A further break-up of the textile trade depicts that over the last decade
or so the clothing trade has surpassed the trade in textile products such as yarns and fabrics.
Currently the split of textile and clothing trade is 47 percent and 53 percent respectively. The
estimated import market of the apparel products is approximately US $ 160 billion (Figure 5.1).
The import market for the selected product categories (table given in Annexure I) has increased
at an annual growth rate of 4 percent. Imports have increased from US $ 133 billion to US $ 160
billion over a period of five years (1995-99). Annexures at the end of this chapter provide the
breakdown of imports by the US and EU countries.
Figure 5.1: Volume of world apparel imports
in billion dollars
180.0
147.0 156.1 159.6 160.2
160.0
138.4
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
1995 1996 1997 1998 1999
Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva
Sports Sports
Wear Wear
3% 4%
Woven Women
Baby Wear Knit Women Knit Men Baby Wear
24% Woven Women
3% 7% 6% 2% Knit Women Knit Men
27%
6% 5%
The world imports of large categories like woven and knit garments have grown at an
average annual growth rate of 1 percent and 6 percent respectively from 1995-1999. Imports
of woven garments in men’s category increased from US $ 34.99 billion to US $ 36.18
billion in 1995-99 representing an average annual growth rate of 0.8 percent (Figure 5.3).
Whereas imports of the woven garment in women category increased at an average annual
growth rate of 1.9 percent, the imports increased from US $ 36.42 billion in 1995 to US $
39.23 billion in 1999. In the knit garments category imports for men’s wear increased from
US $ 7.18 billion to US $ 9.12 billion during the same period, showing an average annual
growth rate of 6.1 percent. The imports of knitted garments for women had an average
annual growth rate of 5.5 percent, resulting in an increase of volume from US $ 8.96 billion
in 1995 to US $ 11.11 billion in 1999. The figures depict the growth and performance of
various categories comprising the global imports.
16.0 40.0
l l
l 35.0 n n
wl
n
14.0
l
l
30.0 w
n
n
wl wl w
12.0 l
l
10.0 25.0
8.0 20.0
6.0 n n n
15.0
n n
4.0
w w w w 10.0
n n n n
2.0
w 5.0
n
~ ~ ~ ~ ~
0.0 0.0
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
w Baby Wear n Sports Wear l Hosiery w Woven Men n Woven Women ~ Knit Men
n Knit Women l T-Shirts
25 n
n n
20 n n
15
w
10
~ ~ w
~ ~
w
~
w w w w
w w w
5 ~ ~ ~ ~ ~
n n n n n
l l
l l l
0
1995 1996 1997 1998 1999
China holds the lion’s share in the overall exports of the apparel from Asia; its exports
constitute almost 40 percent of the total exports of Asian region. Other important contributors
include Hong Kong with a share of 14 percent, Turkey with a share of 10 percent, Thailand
with a share of 5 percent, and Indonesia and Korea with shares of 6 and 4 percent respectively.
percent in exports. The growth in apparel exports from Pakistan during a similar period has
been stagnant.
Figure 5.5: Apparel exports from South Asia
in billion dollars
5.0
4.5
wn
n
4.0
n n w
3.5 n
3.0
2.5
w
w
2.0 w
1.5 l
l l l
1.0 l
0.5
-
1995 1996 1997 1998 1999
3. Apparel exports
The Apparel exports of Pakistan were US $ 1,321 million in 1999 (Figure 5.6), which
means that the share of Pakistan’s apparel exports in the global market is only 0.82 percent.
The apparel products exports have increased at an average annual growth rate of 4.92
percent from US $ 1,090 million to US $ 1,321 million during 1994-99. Although the growth
in the exports of Pakistan matches with the growth in the global import markets but in case
of Pakistan it is being driven by a limited product categories. The details of Pakistan’s
exports are provided in Annexure VI
Figure 5.6: Pakistan’s exports to world
in million dollars
1,000
600
400
200
-
1995 1996 1997 1998 1999
The main focus of the Pakistan’s exports have been on two major markets USA and
EU. In 1999 the exports of apparel product to USA were US $ 751 million and exports to
EU were US $ 463 million (Figure 5.7). This reflects that around 92 percent of the Pakistan’s
exports are directed towards EU and USA, which are major quota markets. The rest of the
exports are made to other countries including Canada, Middle East, Australia and other
Asian countries. Over the past five years the apparel exporters seem to have adopted an exit
strategy in the non-quota countries as more and more exports are now towards quota markets.
During 1995, the total exports to non-quota market had a share of 14 percent, whereas the
exports to the USA and EU constituted 49 percent and 37 percent. A greater tendency of
exports to quota markets is obvious from the figure. This situation makes Pakistan highly
dependent on the quota-restricted markets.
Other countries
8%
EU
USA
35%
57%
Pakistan operates in the global apparel markets with a few product categories having
a strong bias in favour of men’s wear which constitutes 69 percent of the total exports,
whereas globally the market share of the women’s wear is higher than the men’s wear.
Traditionally Pakistan has tried to focus and increase its penetration in a smaller global
market i.e. men’s wear by ignoring a larger market. For this reason only 15 percent of
Pakistan exports comprise women’s garments.
When the existing product mix of apparel exports from Pakistan is analysed, both the
woven and knit garments seem to have an equal split. In actuality the knit garments dominate
the export product mix because of the fact that almost 100 percent exports in T-shirts
category are also that of knitted garments (Figure 5.8). Even the hosiery segment in Pakistan
is also dominated by knitted garments. On the contrary, the hosiery segment in the world
PAKISTAN 153
imports is predominantly that of woven garments. Even in the knit garments segments,
Paksitan’s presence in the men’s garment category is extremely high, which is unlike the
world import markets in which the share of women knit garments is higher as compared to
men’s garments. The main reason behind the exporters pursuing production in men’s wear
is that over the years they have been able to accumulate the quotas in this category.
Diversification to other product categories is not possible without incurring additional costs,
which restricts diversification of the apparel sector.
100%
60%
40%
333 365 366 489 537
20%
0
1995 1996 1997 1998 1999
Knit Woven
The major category of woven garments for men and women has increased at an average
annual growth rate of 4.34 percent during 1994-99. In this category, exports increased from
US $ 486 million to US $ 576 million. The exports of the women garments in this category
were US $ 116 million, and men’s garments were US $ 460 million in 1999. The exports of
the men’s garments increased at an annual growth rate of 7.49 percent, whereas the women’s
garments shrunk at an average annual rate of 4.78 percent. Even though the share of the woven
garments is higher in Pakistan’s exports, the comparison with the exports split of 1995 shows
that the share of the woven garments has slightly declined from 45 percent to 43 percent
(Figure 5.9). But the split of the men and women’s woven wear has completely changed.
The share of women’s wear has fallen to only 9 percent which was earlier 13 percent.
The next big category is of knit garments taking a share of 41 percent, and the exports
of this category increased from US $ 333 million to US $ 537 million, representing an
average annual growth rate of 12.71 percent. The women’s garments exports were US $ 80
million and that of men’s garments were 457 million. In this category, the exports of men’s
garments increased at an average annual growth rate of 13.63 percent. When the exports of
1999 are compared with 1995, it is evident that the share of knit garments in the Pakistan’s
154 GARMENT INDUSTRY IN SOUTH ASIA
exports have increased from 30 percent to 41 percent over 1995-99. The reason for the
exports being biased towards men’s wear is that the exporters have the benefit of mass
production and the stable profits in this category. While in the global trade the market for
the knit garments has not increased, Pakistan’s price realization in the knit garments category
indicates upward trend.
Knit
Men
Woven
Knit Men Woven 25% Woven Men
35% Women Women 32%
9% 13%
In smaller categories, the exports of the baby wear increased at an average annual
growth rate of 13.81 percent from US $ 16 million to US $ 27 million. The exports of other
categories like sports wear, hosiery and T-shirts have shrunk at an average an annual rate
of 11.55 percent, 8.47 percent and 7.19 percent respectively. The main reason being that the
exports are becoming more in favour of men’s wear. Whereas globally the export market
for women’s wear is much larger than men’s wear and the imports of T-shirts is increasing
but in case of Pakistan the exports of T-shirts has shrunk. The Pakistani exporters are not
exporting the smaller categories such as baby wear and others because market size is not
large due to which the size of the orders in quantity terms is very small. Exporters do not
like to pursue these niche markets as these are considered as specialised garments.
3.2 Exports to EU
The European market is the major target for Pakistan’s exports of apparel products even
though the quotas are placed in the EU market. The exports of apparel product to EU were
US $ 462.6 million in 1999 (Figure 5.10). This represents that the share of Pakistan’s apparel
exports in the European market is 0.71 percent, and this share has increased from 0.67 percent.
This mainly reflects that more and more of Pakistan’s exporters are venturing into the European
market. The apparel product exports to EU have increased at an average annual growth rate
of 3.27 percent from US $ 462.6 million to US $ 406.7 million during 1994-99. An analysis
of the garments imports by the EU countries is provided in Annexure II.
PAKISTAN 155
400.0
300.0
200.0
100.0
-
1995 1996 1997 1998 1999
The comparison of Pakistan’s exports to EU during 1995-99 shows that the product
mix of Pakistani exports is mostly in favour of woven garments and knit garments in the
EU market. The same trend is seen in the overall exports of Pakistan in the apparel sector.
The woven garments exports to EU had a share of 50 percent in 1995, and it increased to
54 percent in 1999. Similarly, the share of the knit garments have increased from 17 percent
to 22 percent. The share of the T-shirts, which is globally increasing has decreased in
Pakistan’s case.
3.3 Exports to US
American market, being the largest in the world for the apparel products, is the dominant
importing country. Pakistan exported upto 57 percent of its apparel to the USA market in
1999 totaling to US $ 750.9 million. Pakistan’s apparel products take up a share of 0.92
percent of the USA market. This shows that the Pakistan’s exports are highly dependent on
the USA market trends and demands. The exports of Pakistan have increased from US $ 529
million to US $ 751 million reflecting that the average annual growth rate is 9.16 percent
during 1995-99 (Figure 5.12). An analysis of the garments imports by the US is provided
in Annexure I.
million with an annual average growth rate of 14.59 percent. The men’s garments and
women’s garment exports were US $ 347.9 million and US $ 52.8 million respectively in
1999. The average annual growth rates for men’s garments and women’s garments were
15.04 percent and 11.82 percent respectively, thus reflecting that the consumers prefer the
knit garments for their softer and durable qualities.
500
400
300
200
100
0
1995 1996 1997 1998 1999
The Woven garments category has a share of 37 percent and the exports of this
category increased from US $ 198.8 million to US $ 275.4 million. Representing an average
annual growth rate of 8.49 percent. The women’s garments exports were US $ 53 million
and that of men’s garments were US $ 222 million. In this category the exports of men’s
garments increased at an average annual growth rate of 12.32 percent.
Knit
Women
6.4% Woven Woven Women
Knit Men Women Knit Men
37.6% 7%
11.2% 46%
The share of knit and woven garments together is 90 percent in the exports of Pakistan
to USA and the rest of 10 percent are shared amongst the baby wear, sports wear, T-shirts
and hosiery categories. The baby wear category increased at an average annual growth rate
of 52.85 percent and its exports were US $ 6.2 million in 1999. Besides baby wear category,
sports wear, hosiery and T-shirts category declined at an average annual rates of 8.56
percent, 8.10 percent and 8.19 percent. this clearly shows that the Pakistan’s exports are
concentrating on two major garments exports namely men’s wear and women’s wear and all
other categories are being ignored and not significantly developed.
The comparison of the share of the exports to USA during 1995-999 shows that the
share of the woven garments exports have shrunk and it has shifted towards the exports of
knit garments. This shows that the exports of Pakistan are becoming more and more vulnerable
by focusing on only smaller market rather than focusing on the market which is very big.
In both of these categories, the share of the men’s garment exports of Pakistan are very high;
and the share of women’s wear is very small. This also shows that the Pakistan’s exporters
are overlooking the fact that the market for the women’s wear is larger than market of men’s
wear. The reasons for focusing on men’s wear are that the quotas for women’s garments are
expensive to buy and the conversion costs are slightly higher due to complexity in women’s
garment manufacturing. Other reasons include limited domestic availability of wide range
of fine and blended fabrics that often need to be imported. Due to these reasons, the industry
continues to maintain a strong bias in favour of the men’s garments production.
The trend may be seen that Sri Lanka is able to get higher prices in the trousers
category be it a woven garment or a knit garment. On the other hand, Thailand has specialised
in producing cotton shirts be it a woven or knit garment. Pakistan seems to be competing
in the international market on the basis of providing the international buyers with garments
in large volumes and at cheaper prices. Thus, Pakistan is exporting products of lower
quality. Another contributing factor here is that Pakistan over the years has established itself
as a mass producer of garments and internationally competes on prices only, while the factor
of quality is completely absent which is also reflected in low unit price realizations in the
USA market. As far as brand development is concerned, currently no domestic apparel
exporter has his presence with an exclusive brand name in the international market. The
160 GARMENT INDUSTRY IN SOUTH ASIA
industry relies heavily on the buying houses that are the major providers to mass markets
and discount stores. A very limited number of buyers are able to deal with high-end labels
such as Levi’s, Ralph Lauren and Nike, etc.
The market perception of Pakistan even in this category is that of a low quality, high
volume supplier. The price level in the skirt category is US $ 4.04 per piece, which is better
than Bangladesh’s price of US $ 3.47 (Table 5.3). As far as trousers and blouses are
concerned Pakistan’s prices are the lowest among the Asian countries at US 3.67 and US
$ 3.14 per piece. China has a very high unit price realization in skirts followed by Thailand.
The basic reason is the indigenous availability of numerous fabric blends. China and its
neighbouring countries are the largest producers of man-made fibres and filaments which
give them competitive edge over other countries particularly in the global women’s
garments market.
Table 5.3: Comparative unit price realization of women’s wovenwear exports
$/Piece
SITC code Product description Pakistan Bangladesh India Sri Lanka China Thailand
8425 Skirts & divided skirts 4.04 3.47 4.77 5.39 7.53 6.05
8426 Trousers, breeches etc. 3.67 4.55 4.22 5.87 5.85 7.13
8427 Blouses, shirt-blouse, etc 3.14 3.28 3.94 5.69 6.77 7.04
Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva
In the knit wear category for women, Pakistan has been able to fetch the highest price
for the skirts category among the Asian countries and in the trousers category the price
realised was US $ 2.90 per piece (Table 5.4). China, Sri Lanka and Thailand are price
leaders in the knit trousers category. Although the unit price realization of Pakistan is very
high in the knitted skirts segment but the volumes of export in this category are very low;
and it is unable to make a significant impact on the overall export performance of Pakistan.
Table 5.4: Comparative unit price realization of women’s knitwear exports
$/Piece
SITC code Product description Pakistan Bangladesh India Sri Lanka China Thailand
8425 Skirts & divided skirts 5.68 0.00 2.92 4.85 3.13 4.41
8426 Trousers, breeches etc. 2.90 2.59 3.74 4.82 6.78 4.54
Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva
PAKISTAN 161
Table 5.5: Comparative unit price realization of exports of T-shirts & pullovers
$/Piece
SITC Product Pakistan Bangladesh India Sri Lanka China Thailand
code description
8453 Jerseys, pullovers, etc. knit 3.45 3.06 5.36 6.19 4.57 7.06
8454 T-shirts, other vests knit 2.83 1.69 4.26 4.21 2.93 3.68
Other factors contributing towards low unit price realization of Pakistan, as mentioned
above, include limited availability and production of blended garments as well as finishing
techniques that are used to add value in garments.
informal sector is around four thousand (3,839 precisely). The total number of persons
engaged is highly underestimated at seven thousand.
Apparel,
14%
Cotton Yarn,
9%
Cotton Fabric,
Others, 68% 9%
In the woven garments segments although the number of manufacturing units is much
high but these are dedicated stitching units which only convert fabric into garments. The
segment is dominated by SMEs which operate with small number of stitching machines
ranging from 30 to 40 machines per unit. A large number of the woven garments stitching
units also cater to the demands of the domestic apparel market.
An important factor that undermines the productivity of the apparel sector in Pakistan
is the high production losses (Table 5.7). These losses are to the extent of 30 to 40 percent
in the knitwear sector. An important element is the lack of specialization and presence of
integrated units within the knitwear sector. These losses are significantly reduced in the
woven garments segment due to specialization in production processes.
Table 5.7: Extent of losses in the knitwear industry
There are a very limited number of training institutes that provide stitching training in
the country. The output of these institutes is not sufficient to meet the requirements of the
apparel sector. The apparel industry develops its human resource through ‘Ustaad-Shagird’
system. The stitching masters induct young apprentices and impart stitching training. Due
to this particular aspect, the modern production techniques and process improvements rarely
happen within the system.
This aspect also limits the capability of the apparel sector to bring about improvements
in the existing product lines and develop new products. The industry in Pakistan is highly
production oriented and lacks innovation in both the processes and product.
Even with increasing labour costs and the costs of other inputs, Pakistan is still highly
competitive in apparel manufacturing. The total cost of garments is below the average unit
price realization of different competitors.
Table 5.8 represents the cost structures of the apparel sector in the three
selected product categories. The highest cost content, almost 80 percent, in any garment
is that of the inputs including fabric, trimming and accessories. The labour cost per
garment is within the range of 7 percent to 11 percent, depending upon the type of garment
produced.
PAKISTAN 165
The labour force in the apparel industry in Pakistan can be classified into three categories,
the first category is that of supervisors supervising a particular department such as stitching
and cutting, the second category is that of skilled workers performing a specific function in
apparel manufacturing such as stitching and finally there are a number of helpers and
workers performing basic recurring functions in each department constituting the semi-
skilled and unskilled workers.
Interestingly majority of the female workforce is only employed to perform semi-
skilled operations. It is for this reason that there is high presence of women in the clipping,
and packaging sections meaning thereby that the female workers are the lowest paid in the
apparel sector (Table 5.9).
Table 5.8: Competitiveness of apparel manufacturing in Pakistan
Along with the presence of integrated units, which perform knitting, dyeing and finishing
operations in-house, there exist a breed of stitching units which only perform commercial
operations on a ‘Cut, Manufacture and Trim (CMT)’ basis. These units work for direct
exporters, and salaries in these units are paid on a ‘Piece Rate’ basis. As far as the efficiency
and productivity of the workers are concerned, piece rate workers are more productive as
compared to the workers employed on fixed wages.
166 GARMENT INDUSTRY IN SOUTH ASIA
Table 5.9: Average monthly salaries based on skill levels in the apparel industry
in Pakistan Rs/month
Structure of labour force Wages Pak US $/ month
Rupees/month ($ to PKR @ 63)
Countries US $ / hour
USA 8.00
Dominican Republic 1.15
Malaysia 1.15
Mexico 0.85
Thailand 0.65
Indonesia 0.15
India 0.20
Bangladesh 0.18
Pakistan 0.22
Source: Kart Salmon Associates
their rights. However at the same time, labour welfare schemes providing social cover and
other benefits are only implemented in the formal sector.
The fabric and other accessories constitute almost 80 percent to 85 percent of the total
garment cost. The knitting industry due to its structure is capable of meeting its fabric
168 GARMENT INDUSTRY IN SOUTH ASIA
requirements indigenously. The woven garments segment due to its dependency on domestic
weaving industry has a limited capability to produce a wider product range. The production
of weaving industry in Pakistan is concentrated in coarse fabric (low density cotton fabrics)
which makes it feasible for the apparel sector to produce cotton based trousers and bottoms.
Due to this the availability of fine fabrics used for producing tops (woven shirts) is very
limited. This forces the domestic garments segment to increase its existing share in men’s
wear thus neglecting a large global product segment of women wear.
The Government, in order to facilitate the apparel manufacturing, has created a system
for temporary imports of inputs. These include the ‘No Duty No Drawback schemes (NDND),’
but due to procedural requirements the small sized apparel manufacturers are unable to
import fabric through these schemes. However, the large ones import fabric from numerous
sources to meet the requirements of buyers of woven garments.
of quality of products and flexibility to produce diverse range of products comes at the end
of the pecking order. On the contrary the high-end market gives high consideration to
quality of a product and diversity in product line.
Haute Couture ▲
Designer Shops
Department Stores
Mass Market
Discount Low-end
Chain Stores
Price Quality
Delivery Flexibility
Quality Delivery
Flexibility Price
Majority of the Pakistani apparel exporters are geared towards catering to the market
needs of the last three market segments, i.e department stores, mass market and discount
stores. The size of this market in terms of volumes is very high but there is ceiling in price
realizations. The other high-end market currently seems to be out of the reach of the apparel
sector due to narrow product base and comparatively low product quality as these factors
constitute important elements of buyers’ preference in this segment.
completion of the final round of WTO in 1994, the quota restrictions on textiles were found
to be in conflict with the basic principles of WTO which stressed upon removal of any non-
tariff barriers. As a consequence a new regime called the Agreement on Textiles and Clothing
(ATC) replaced MFA. The key objective of the ATC is to phase out the quota restrictions
over a period of ten years. The MFA will cease to exist after December 31, 2004. The
process in which the developed countries are phasing out quotas according to their
commitments with WTO is very interesting to evaluate, as the current level of liberalization
is not in accordance with the committed volumes as well as categories of products which
need to be integrated in the non-quota trade regime. This raises serious concerns about the
future of ATC. An issue that still needs to be dealt with is the complete implementation of
ATC in 2005.
Another important linkage within the whole textile value chain is the processing and finishing
industry for the woven fabric. This is a highly capital intensive sector which is at the initial
stages of development and does not facilitate the downstream industry with the availability
of different fabric textures and finishes, which are critical to the development of a solid
woven apparel segment.
Table 5.11: Pakistan’s quota utilizations in the USA
(in percent)
HTS codes* Product 1997 1998 1999
USA apparel import composition and Pakistan (value) Composition of Pakistan’s apparel exports to the USA
Untapped
Exports in
categories by
unrestricted
Pakistan, 14%
categories, 1%
Imports in
unrestricted
categories, 3%
Exports under
Imports under quota, 99%
quota, 83%
apparel segment out of which the exports of Pakistan to the US are restricted in 30 categories.
The value of exports in this segment was US$ 714 million out of which US$ 708 million
came from the quota-restricted categories and only US$ 6 million came from the unrestricted
categories. The division of the apparel market of US according to the previously mentioned
three-segment criterion is shown in Figure 5.16.
Due to the concentration and dependence of Pakistan’s apparel sector on quota products,
99 percent of Pakistan’s exports to the USA comprise quota products. This particular
phenomenon leaves a high proportion of American market untapped by the Pakistani apparel
manufacturers and exporter. The categories in which Pakistan has been completely unable
to penetrate comprise almost 15 percent of the total USA apparel market (in US $ terms it
is around 7 billion).
An important reason which restricts diversification of apparel exporters is the quota
policy of Pakistan that favours concentration in few categories thus limiting the entrepreneur’s
capability to have a broader product line, the issues of quota policy in Pakistan will be
discussed later.
The EU constitutes an important market for Pakistan’s textile products, the total textile
exports of Pakistan including yarn, fabric and textile made-ups and apparel are to the tune
of US $ 1.5 billion (Table 5.12). Imports in textile apparel are also restricted by quantitative
restrictions by the EU countries. The mechanism of limiting imports by quota is that EU
announces specific quota limits for the coming calendar year. This quantitative limit is
adjusted in each year in accordance with the flexibility provisions contained in the ATC. The
EU has an integrated system of licenses (SIGL), which is linked with computerised network
connecting the European Commission with the departments in various countries that issue
import licenses. When the licenses issued reach the designated quota, European Commission
orders the issuing departments to cease the issue of licenses.
Table 5.12: Quota utilization in EU
(in percent)
SIGL Description Pakistan
1997 1998 1999
In Pakistan textile quota management was handed over to the private sector in 1997.
For this purpose a Quota Supervisory Council (QSC) and product group committees were
set up. All the quota management matters are defined by the Quota Policy, announced by
the Government of Pakistan. The Government has announced different quota policies over
the last many years in order to make quota utilization and management more effective.
6.2.1 Salient features of existing quota policy
l The basic criteria for allocation of quotas is on the basis of performance i.e. the
performance holders receive allocation of quotas equal to the actual quantity
exported by them under each category during the preceding year to a specific
quota country. It makes the quota allocation 100 percent on the past performance.
l Unit price realization is not accorded any consideration in quota allocations.
l The growth quotas and the residual quotas available to the Government under
bilateral arrangements with the quota countries are auctioned in the market to
earn revenue for the Government.
l Quotas can also be transferred from one firm to another by selling them.
l There are no provisions for allocation in the existing quota policy for the potential
investors and new entrants in the apparel business.
PAKISTAN 175
transferable non-transferable non-transferable non-transferable
-New passbook
holders have to ship
90% of quota allocated.
Source: Quota Supervisory Council of Pakistan
176 GARMENT INDUSTRY IN SOUTH ASIA
allocation in the coming years. In case of a sudden switch in quota policy from past
performance to value additions, exporters having invested heavily in quota suffer humongous
monetary losses. The inconsistency in policy ultimately results in erratic export performance
of the apparel sector, leading to negative effect on the overall exports of the country.
skill development within the apparel sector in general. Workers at all levels are equipped
with certain set of skills that make them experts in handling a few products efficiently,
whereas a switch to other product categories directly reduces productivity.
This phenomenon is particularly true for the women’s garments segment in which
Pakistan’s quota utilizations are extremely low. A large majority of garments in this segment
are produced through diverse fabrics, including blends and other synthetic materials. In order
to handle the production of synthetic and blended fabrics, a greater degree of skill and precision
is needed. The skills to handle women’s garment line can be acquired, but given the existing
situation where the industry as a whole is dedicated to the production of men’s garments
and at the same time dependent upon on-the-job skill development, it would become very
difficult to reposition itself as a quality supplier of women’s garments by simultaneously
developing human resource capable of handling this diverse and dynamic product range.
The limited product portfolio that appears to be the result of quota policy of the
Government can have a two pronged effect on the apparel sector in Pakistan. Firstly, the
entrepreneurs will have to respond quickly by diversification to sustain the existing level of
exports in the international markets; and secondly, they will be confronted with the problem
of finding human resource with the right set of skills to meet their needs. This can also have
negative bearing on the cost structures of the apparel sector.
The foremost problem confronted by the apparel sector of Pakistan is the limited
market exposure of the products. The exports are only targeted towards two major markets
i.e the USA and EU. Both of these markets comprise quota countries where imports are
restricted by quantity. In non-quota markets Pakistan is merely present, these include large
markets like Japan, middle-eastern countries and Australia. The market mix of Pakistan’s
apparel products gives the impression that mostly the manufacturing base has been established
due to quota restriction where a fixed basket of goods to be imported by the developed
countries were allocated to Pakistan. High dependence on quota countries can offer stiffer
competition to Pakistan’s apparel sector after 2004. The solution lies in market diversification,
a broader market exposure can only ensure sustainable development even beyond 2004.
Besides the disadvantage of having a limited market mix the apparel industry of Pakistan
also faces another problem of a limited product base. Unfortunately due to quota policy, the
industry has positioned itself as a mass producer of garments in a few product categories.
178 GARMENT INDUSTRY IN SOUTH ASIA
Predominantly, the industry has developed itself into a hub of men’s wear, whereas the
market for women’s wear offer greater opportunities due to the size of the global market.
An important reason cited by the industry in this regard was that the range of men’s
garments offers high degree of flexibility in mass production and leads to greater commercial
viability. Although this limited product base of the apparel sector negatively affects the
growth in the post MFA scenario where the international buyers would have a greater choice
in sourcing, an exporter with a diversified and balanced product portfolio will be in a better
position to catering to a wider apparel market.
120
w
w w w w
w w
100
~ ~ ~
w ~
w ~ w
w ~ ~ ~ ~ ~
~ ~ ~
80
~ ~
w w w n n
60
w w
~ n n
n n
n n
n n n n
40 n n n n
20
0
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
400 w
300 w
w
200
w
100
w
0
1995 1996 1997 1998 1999
US $ million 75 153 239 296 400
These emerging exporters, besides having the geographical advantage, also have the
competitive advantage of low labour wages. The South Asian coutries are not the only ones
having this cost advantage in this labour intensive sector. Such economies have all the
ingredients to provide tough competition to countries like Pakistan. Pakistan on the other
hand does not enjoy the advantage of being a member of any trade bloc. The South Asian
Association for Regional Cooperation (SAARC), of which Pakistan is a member, has no
comparison with big economic blocs as mentioned above. The intra regional trade between
SAARC countries is only 3% of the total trade.
(GSP). Under GSP Bangladeshi products enjoy an average 12 percent duty exemption in EU
countries. This particular incentive has turned Bangladesh into a massive converter of fabrics
into garments. All of this has happened without any investments in the up-stream industries
like spinning, weaving and knitting. The exporters are free to import fabrics from any part
of the world and then export after adding value.
In Pakistan, the import of woven fabrics is firstly not permitted and is also protected
by tariff. For exports purposes, there exist a number of temporary import schemes which
allow duty free imports of fabrics and other inputs. All this is complicated through a wide
array of compliance requirements. Due to limited access to inputs, the industry relies on
domestically produced fabrics and is unable to diversify.
relationship with the buyers will ensure their success even after the year 2004. This situation
is alarming for the apparel industry of Pakistan, as lifting of quota barriers will make it
convenient for the buyers to source from any part of the world that offers a better bargain.
the problems faced by the woven garment exporters. Most of the standards require that the
garment should be produced through a homogenous and standardised process, meaning
thereby that the entrepreneur has to ensure the implementation of SOEs at all the stages of
production, even if the production of a particular process is sub-contracted. Ensuring
implementation of SOEs and other standards at the stage of process vendors and sub-
contractors seems to be a far-fetched idea at this stage.
This factor of ensuring compliance through all the production stages will also negatively
affect the overall growth in the apparel industry. The phasing out of MFA will start another
era of non-tariff barriers for the developing countries leading to high compliance costs thus
undermining the competitive advantage of the industry. Currently the Government of Pakistan
through the Ministry of Science and Technology (MOST) provides a fixed subsidy to firms
which acquire ISO 9000 certification. In order to even maintain the existing level of exports
the Government would have to broaden the sphere of this particular incentive by bringing
in other quality systems.
ANNEXURE I
60 49 51
43
50
35 37
40
30
20
10
0
1995 1996 1997 1998 1999
Sports
Baby
Wear
Wear
3%
3%
Knit Woven Baby Woven
Women Knit Men Women Wear Knit Women
7% 7% 26% 3% Women Knit Men 24%
6% 6%
The knit garments segment including T-shirts and men and women’s knitwear in absolute
terms contribute almost US $ 20 billion. The high growth segment in the knit garments is
the T-shirts category which has increased at an annual average growth rate of 17 percent
from 1995 through 1999. Currently, it holds 27 percent share in the total imports with total
imports of US$ 13 billion. The other product segments including baby-wear and sports-wear
show a consistent growth trend by maintaining their overall shares. In value terms, these
markets constitute US$ 3 billion in the total apparel imports.
of the woven garments increased from US $ 9.6 billion to US $ 11 billion through 1995-
99. In this category, the share of the women’s wear is almost 60 percent. Although the
difference between the volume of imports in the woven women’s wear and men’s wear is
not very high, but the high share of women’s wear in overall imports is the result of high
unit value of the women’s garment in the American market. This phenomenon is not only
limited to American market alone but generally the average unit price realization of women’s
wear is significantly high as compared to the men’s wear.
As is the case with world apparel markets, China has the largest share of 25 percent
of the overall Asian countries’ exports to the USA, which gives them a share of almost 10
percent in the American market. Among the selected Asian countries, Hong Kong is the
second largest exporter to the USA with a total exports of over US$ 4 billion. Pakistan
enjoys a 4 percent share in the Asian exports to the USA, but the size of exports is half the
size of Bangladesh’s exports. Bangladesh has consistently strengthened its position in the
American market by developing a strong woven garments manufacturing base. The importance
of South Asian countries in the American market is quite obvious as they constitute almost
10 percent of the total apparel exports in the USA.
Hosiery
T-Shirts Woven Men
7% Bangladesh
25% 20% Others
7%
19%
Turkey
4% China
25%
Sports Thailand
Wear 7%
3%
Woven
Baby Knit Women Sri Lanka Hong Kong
Wear Women Knit Men Pakistan
32% 6% India 20%
3% 5% 5% 4%
8%
ANNEXURE II
70.0 67.1
66.1
65.6
64.1
50
60.7
40
60.0
20
10
50.0
1995 1996 1997 1998 1999
Source: PC-Trade Analysis System database of International Trade Centre
(ITC)-Geneva
annual growth rate of 6 percent. The T-shirts category, which can be considered as a sub-
category of knit garments, showed the highest level of growth in the EU market. The level
of imports of other knit garment segment representing both the men and women’s garments
is to the tune of US $ 7 billion with a share of 11 percent in the EU apparel imports.
The smaller categories include baby wear, sports wear and hosiery. Among these three
categories, hosiery has the highest share of 10 percent; and in value terms the imports of hosiery
increased from US $ 6 billion to US $ 7 billion registering an average annual growth rate of
1.1 percent. The baby wear category showed an average annual growth rate of 5 percent, and it
increased from US $ 1.4 billion to US $ 1.8 billion. The imports in the sports wear category
have declined at an annual average rate of 1 percent from US $ 2.6 billion to US $ 2.5 billion.
Figure A5.5: Types of EU imports, 1999
Hosiery Hosiery
T-Shirts 10% 10%
T-Shirts Woven Men
21% Woven Men
25% 23%
27%
Sports
Wear
4%
Sports
Baby Wear
Wear 4%
2% Knit Baby
Knit Men Woven Knit Men Woven
Women Wear Knit Women
4% Women 5% Women
6% 3% 6%
26% 24%
Asian countries are exporting apparel products worth US $ 22 billion to the EU market,
and this represents 34 percent of EU’s apparel imports (Figure A 5.6). The Asian countries’
exports to the EU market have increased at an average annual growth rate of 4.3 percent
Hosiery Bangladesh
Others
11% 8%
T-Shirts Woven Men 17%
26% 20%
Turkey China
21% 21%
Woven
Women
Sports Thailand
22%
Wear 4% Hong Kong
5% Knit Men Sri Lanka 17%
3% Pakistan India
Baby Wear Knit Women 5%
2% 7%
4% 7%
MEN’S WEAR
Woven 34,992.2 36,347.2 36,706.5 37,091.2 36,183.6 0.84%
84111 Overcoats etc. wool, hair 375.2 374.4 418.9 443.9 423.7 3.08%
84112 Overcoats etc. oth. textls 1,203.8 1,235.8 1,230.2 1,115.5 1,057.8 -3.18%
84119 Oth. mens outerwear etc. 4,631.1 5,049.6 5,230.8 4,863.4 4,357.3 -1.51%
84122 Suits, textile materials 532.5 584.2 454.3 625.5 563.5 1.43%
84123 Ensembles 337.1 302.1 229.3 298.9 251.6 -7.05%
8413 Jackets and blazers 3,132.0 3,190.7 3,178.9 3,018.0 2,747.7 -3.22%
8414 Trousers, breeches, etc. 13,209.2 14,633.5 15,339.3 16,013.3 16,505.3 5.73%
84151 Cotton shirts 7,280.8 7,049.6 6,788.1 7,070.5 6,557.5 -2.58%
84159 Shirts, oth. textile matrl 2,412.7 2,044.7 1,912.5 2,036.7 2,176.9 -2.54%
84587 Men’s, boy’s apparel nes 1,877.9 1,882.7 1,924.3 1605.3 1,542.3 -4.80%
Knit 7,182.2 8,251.2 9,713.2 9,585.2 9,115.2 6.14%
84121 Suits of wool, fine hair 1,485.3 1,730.4 1,857.5 1,963.8 1,989.7 7.58%
8431 Overcoats, outerwear etc. 361.6 370.7 530.1 497.6 617.7 14.33%
84321 Suits, mens boys, knit 55.9 61.8 104.3 69.0 58.0 0.93%
84322 Ensembles, mens boys knit 151.5 168.0 238.9 160.4 174.0 3.52%
84323 Jackets, blazers, m&b knit 132.5 155.2 241.4 173.1 176.9 7.49%
84324 Trousers, breeches etc. 958.3 1,167.3 1,539.1 1,403.4 1,496.4 11.79%
84371 Cotton shirts, mens boys 3,114.2 3,556.5 3,949.9 4,060.0 3,488.0 2.87%
84379 Shirt, oth. textile matrl 868.7 969.2 1,150.7 1,162.6 1,017.5 4.03%
84389 Other mens underwear knit 54.3 72.1 101.3 95.2 97.6 15.81%
WOMEN’S WEAR
Woven 36,419.6 38,389.0 38,589.0 39,549.6 39,230.8 1.88%
84211 Overcoats, cloaks etc. 2,561.9 2,818.5 2,831.6 2,511.8 2,512.1 -0.49%
84221 Suits 1,536.2 1,578.9 1,385.4 1,419.0 1,239.6 -5.22%
84222 Ensembles 1,017.3 925.1 720.8 817.7 731.9 -7.90%
8423 Jackets 4,225.5 4,563.4 4,595.9 4,641.9 3,921.3 -1.85%
8424 Dresses 4,232.4 4,473.4 4,017.6 4,121.1 3,935.9 -1.80%
8425 Skirts & divided skirts 3,741.2 3,639.5 3,227.9 3475.4 3,587.1 -1.05%
8426 Trousers, breeches etc. 8,621.4 10,180.4 11,669.4 12,940.0 13,957.5 12.80%
8427 Blouses, shirt-blouse, etc 7,790.8 7,449.6 7,444.3 7,349.0 7,002.2 -2.63%
84589 Women, girls apparel nes 2,692.9 2,760.2 2,696.2 2,273.7 2,343.1 -3.42%
Knit 8,964.1 9,497.7 11,310.1 11,267.8 11,114.4 5.52%
8441 Overcoats, oth. coats etc. 362.3 417.5 667.9 677.5 756.1 20.19%
84421 Suits, womens girls. knit 115.7 122.1 183.8 100.9 84.6 -7.53%
84422 Ensembls, women girls, knt 427.8 405.6 344.2 351.7 335.8 -5.88%
84423 Jackets, women girls, knit 372.5 421.5 497.6 445.7 444.3 4.51%
84424 Dresses, women girls, knit 1,214.8 1,170.0 1,282.0 1,288.6 1,319.6 2.09%
84425 Skirts, divided skirts 650.2 598.0 595.4 624.8 747.0 3.53%
844265 Trousers, women girl, knit 2,775.8 2,935.9 3,412.3 3,387.8 3,171.8 3.39%
8447 Blouses, shirt-blouse, etc 2,557.7 2,913.4 3,664.3 3,836.1 3,704.2 9.70%
84489 Other underwear etc. knit 487.3 513.7 662.6 554.8 551.0 3.12%
BABIES WEAR
Woven
84511 Babies’ cloths not knitted 1,117.1 1,150.0 1,133.3 1,252.7 1,174.8 1.27%
Knit
84512 Babies’ clothes knitted 2,071.1 2,296.0 2,554.3 2,911.1 3,057.2 10.23%
SPORTS WEAR
Woven 3,401.5 3,464.7 3,654.3 3,349.8 3,116.4 -2.16%
84219 Other womens outerwear 2,630.3 2,757.4 2,895.4 2,727.9 2,515.9 -1.11%
84561 Male swimwear not knitted 277.3 256.7 312.3 265.9 266.8 -0.97%
84563 Fem. swimwear not knitted 83.8 87.5 85.3 95.1 109.1 6.82%
84581 Ski suits, not knitted 410.0 363.2 361.2 261.0 224.6 -13.96%
Knit 1,861.2 2,128.4 2,250.4 2,211.8 2,098.3 3.04%
84562 Male swimwear knitted 123.1 134.3 122.8 134.1 146.5 4.46%
84564 Fem. swimwear knitted 770.7 919.7 908.4 1,037.8 1,126.1 9.94%
84591 Track suits, knitted 954.4 1,056.9 1,201.1 1,017.3 811.1 -3.99%
84592 Ski suits, knitted 13.0 17.4 18.1 22.7 14.5 2.78%
Hosiery
84161 Underpants and briefs 306.4 325.1 361.1 385.0 464.5 10.96%
84162 Nightshirts and pyjamas 316.3 331.9 361.8 373.0 329.9 1.06%
84169 Other male underwear etc. 328.2 301.7 327.7 285.3 258.1 -5.82%
84281 Slips and petticoats 102.9 94.4 101.2 108.4 96.1 -1.69%
84282 Nightdresses, pyjamas 809.0 819.8 843.3 891.3 849.2 1.22%
84289 Other underwear etc. 993.4 933.0 1,180.8 1,050.3 875.0 -3.12%
84381 Underpants, briefs, mens 1,003.4 1,066.6 1,564.9 1,393.6 1,285.2 6.38%
84481 Slips and petticoats 126.1 98.1 267.5 94.3 140.7 2.77%
84483 Nightdresses & pyjamas 1,171.6 1,323.6 1,618.3 1,458.9 1,276.9 2.17%
84551 Brassieres 2,606.2 2,731.6 3,083.3 3,229.0 3,359.8 6.56%
84552 Girdle, corset, braces, etc. 559.3 533.0 553.3 574.9 546.8 -0.56%
84621 Panty hose, tights, knittd 1,401.9 1,716.9 1,861.1 1,767.7 1,615.8 3.61%
84622 Women’s hosiery, knitted 316.4 239.5 251.7 258.3 262.5 -4.57%
84629 Other hosiery, knitted 2,079.5 2,235.9 2,303.3 2,291.9 2,365.5 3.27%
MEN’S WEAR
Woven 8998.3 8,997.0 10,357.4 11,255.4 11,476.0 6.27%
84111 Overcoats etc. wool, hair 53.6 55.8 72.0 72.9 60.9 3.25%
84112 Overcoats etc. oth. textls 99.5 83.6 100.6 90.4 73.9 -7.14%
84119 Oth. mens outerwear etc. 1,403.1 1,493.1 1,863.0 1,748.5 1,359.1 -0.79%
84122 Suits, textile materials 58.5 70.0 68.7 68.8 80.5 8.30%
84123 Ensembles 11.0 9.8 7.3 6.6 8.0 -7.78%
8413 Jackets and blazers 392.4 411.2 489.7 513.3 501.7 6.34%
8414 Trousers, breeches, etc. 3,589.8 3,840.5 4,656.9 5,398.8 6,004.1 13.72%
84151 Cotton shirts 2,480.0 2,241.6 2,349.6 2,599.6 2,482.1 0.02%
84159 Shirts, oth. textile matrl 662.4 550.0 523.8 564.5 705.9 1.60%
84587 Men’s, boy’s apparel nes 247.9 241.2 226.0 192.0 199.7 -5.26%
Knit 2,327.0 2,643.4 3,071.2 3,424.1 3,288.8 9.03%
84121 Suits of wool, fine hair 419.3 460.5 511.8 589.4 589.5 8.89%
8431 Overcoats, outerwear etc. 68.3 79.1 107.6 120.8 149.3 21.57%
84321 Suits, mens boys, knit 1.8 1.9 3.1 3.5 2.7 9.68%
84322 Ensembles, mens boys knit 0.7 0.9 0.6 0.4 0.1 -38.41%
84323 Jackets, blazers, m&b knit 3.0 3.9 4.5 7.1 8.8 30.75%
84324 Trousers, breeches etc. 238.4 301.6 353.0 405.1 536.9 22.51%
84371 Cotton shirts, mens boys 1,362.9 1,542.1 1,789.6 1,933.8 1,650.7 4.91%
84379 Shirt, oth. textile matrl 222.4 238.0 273.7 323.7 314.1 9.02%
84389 Other mens underwear knit 10.2 15.5 27.2 40.3 36.8 37.78%
WOMEN’S WEAR
Woven 9,511.4 10,114.5 11,314.6 12,235.8 12,513.5 7.10%
84211 Overcoats, cloaks etc. 225.7 237.2 307.7 296.1 262.2 3.81%
84221 Suits 330.0 356.8 343.4 376.6 322.3 -0.59%
84222 Ensembles 33.6 34.2 26.0 40.7 41.9 5.67%
8423 Jackets 943.8 1,078.9 1,136.7 1,128.8 778.8 -4.69%
8424 Dresses 1,250.8 1,328.4 1,352.6 1,368.9 1,441.7 3.61%
8425 Skirts & divided skirts 886.6 964.2 870.6 979.4 1,047.7 4.26%
8426 Trousers, breeches etc. 2,873.7 3,209.5 4,247.8 4,989.7 5,451.1 17.36%
8427 Blouses, shirt-blouse, etc 2,078.6 2,008.3 2,219.7 2,331.5 2,405.1 3.71%
84589 Women, girls apparel nes 888.6 897.1 810.1 724.0 762.9 -3.74%
Knit 2,356.6 2,384.3 2,826.5 3,135.6 3,228.1 8.18%
8441 Overcoats, oth. coats etc. 90.7 110.3 154.8 179.8 208.3 23.09%
84421 Suits, womens girls. knit 5.7 4.6 4.3 4.4 7.4 6.49%
84422 Ensembls, women girls, knt 5.6 2.2 3.3 5.0 5.1 -2.37%
84423 Jackets, women girls, knit 27.7 36.9 46.4 39.3 45.2 13.03%
84424 Dresses, women girls, knit 280.7 329.2 366.4 398.7 451.9 12.64%
84425 Skirts, divided skirts 114.4 91.2 102.7 137.2 216.2 17.26%
844265 Trousers, women girl, knit 909.3 853.1 987.4 1,052.0 998.3 2.36%
8447 Blouses, shirt-blouse, etc 810.3 827.7 992.4 1,095.5 1,062.3 7.00%
84489 Other underwear etc. knit 112.3 129.1 168.9 223.7 233.6 20.10%
BABIES WEAR
Woven
84511 Babies’ cloths not knitted 309.8 297.6 329.3 387.5 372.9 4.74%
Knit
84512 Babies’ clothes knitted 689.4 742.9 903.7 1,108.7 1,110.7 12.66%
SPORTS WEAR
Woven 1,053.8 1,029.8 1,207.3 1,118.8 976.4 -1.89%
84219 Other womens outerwear 859.8 854.3 1,030.9 946.4 794.9 -1.94%
84561 Male swimwear not knitted 162.5 147.0 147.8 146.5 150.9 -1.84%
84563 Fem. swimwear not knitted 4.2 4.7 6.3 6.1 12.9 32.26%
84581 Ski suits, not knitted 27.2 23.8 22.4 19.9 17.7 -10.23%
Knit 200.1 223.5 278.5 329.1 369.0 16.53%
84562 Male swimwear knitted 3.1 2.2 3.7 4.8 4.9 12.03%
84564 Fem. swimwear knitted 157.7 184.2 231.5 269.7 328.5 20.13%
84591 Track suits, knitted 39.0 36.9 42.9 54.2 35.2 -2.54%
84592 Ski suits, knitted 0.3 0.2 0.5 0.4 0.4 10.50%
Hosiery
84161 Underpants and briefs 149.1 174.7 191.6 213.7 282.1 17.29%
84162 Nightshirts and pyjamas 82.6 70.4 74.0 87.6 87.5 1.44%
84169 Other male underwear etc. 80.4 82.5 95.8 115.8 123.7 11.37%
84281 Slips and petticoats 24.1 24.4 25.4 19.4 31.8 7.11%
84282 Nightdresses, pyjamas 359.1 378.2 370.7 409.2 400.2 2.75%
84289 Other underwear etc. 298.4 302.9 332.6 318.0 321.6 1.89%
84381 Underpants, briefs, mens 263.8 339.7 449.6 501.8 605.8 23.10%
84481 Slips and petticoats 16.3 16.3 24.6 30.0 31.3 17.79%
84483 Nightdresses & pyjamas 347.4 372.4 414.7 481.9 537.0 11.51%
84551 Brassieres 874.1 804.3 896.4 1,041.6 1,295.3 10.33%
84552 Girdle, corset, braces, etc. 78.4 82.1 96.7 101.1 112.9 9.55%
84621 Panty hose, tights, knittd 213.8 230.0 292.9 318.0 349.2 13.04%
84622 Women’s hosiery, knitted 11.8 11.1 14.7 12.0 23.4 18.63%
84629 Other hosiery, knitted 148.4 175.5 272.2 375.6 501.1 35.56%
MEN’S WEAR
Woven 15,675.0 16,076.5 15,655.3 15,935.9 15,311.4 -0.59%
84111 Overcoats etc. wool, hair 148.3 158.0 171.6 184.3 196.6 7.29%
84112 Overcoats etc. oth. textls 662.1 669.0 735.3 690.6 652.8 -0.35%
84119 Oth. mens outerwear etc. 1,877.7 1,880.1 1,987.5 2,008.8 1,842.0 -0.48%
84122 Suits, textile materials 221.7 252.4 244.4 317.0 361.1 12.96%
84123 Ensembles 155.4 129.9 130.5 128.8 138.6 -2.82%
8413 Jackets and blazers 1,679.9 1,625.0 1,574.0 1,612.6 1,442.4 -3.74%
8414 Trousers, breeches, etc. 6,025.1 6,709.5 6,430.0 6,673.4 6,608.2 2.34%
84151 Cotton shirts 3,113.7 3,034.4 2,728.5 2,750.8 2,482.4 -5.51%
84159 Shirts, oth. textile matrl 925.9 766.0 702.7 775.8 800.5 -3.57%
84587 Men’s, boy’s apparel nes 865.1 852.3 950.8 794.0 786.9 -2.34%
Knit 2,487.2 2,831.4 3,601.9 3,298.5 3,089.2 5.57%
84121 Suits of wool, fine hair 619.5 718.5 687.4 744.8 763.8 5.38%
8431 Overcoats, outerwear etc. 105.9 114.4 241.2 186.9 208.0 18.39%
84321 Suits, mens boys, knit 22.6 25.7 76.3 26.0 28.3 5.81%
84322 Ensembles, mens boys knit 74.1 75.0 163.1 77.3 90.3 5.05%
84323 Jackets, blazers, m&b knit 54.2 60.4 154.3 73.4 73.9 8.08%
84324 Trousers, breeches etc. 372.7 448.7 658.3 469.3 463.8 5.62%
84371 Cotton shirts, mens boys 891.1 996.7 1,070.7 1,230.0 1,071.6 4.72%
84379 Shirt, oth. textile matrl 313.3 350.4 491.8 452.6 343.0 2.29%
84389 Other mens underwear knit 33.8 41.6 58.8 38.1 46.4 8.24%
WOMEN’S WEAR
Woven 15,648.6 16,077.8 15,744.7 16,431.7 15,934.8 0.45%
84211 Overcoats, cloaks etc. 1,243.0 1,289.3 1,381.7 1,357.9 1,345.1 1.99%
84221 Suits 544.2 597.1 511.5 560.8 493.2 -2.43%
84222 Ensembles 548.0 479.6 427.1 443.5 426.1 -6.10%
8423 Jackets 1,971.7 2,002.5 2,058.9 2,303.1 2,067.5 1.19%
8424 Dresses 1,771.1 1,869.7 1,517.1 1,612.7 1,481.7 -4.36%
8425 Skirts & divided skirts 1,811.4 1,634.5 1,417.4 1,559.1 1,513.2 -4.40%
8426 Trousers, breeches etc. 3,293.2 3,965.4 4,205.8 4,672.9 5,138.6 11.77%
8427 Blouses, shirt-blouse, etc 3,503.1 3,254.8 3,140.4 3,083.8 2,718.1 -6.15%
84589 Women, girls apparel nes 962.9 985.0 1,084.7 837.9 751.4 -6.01%
Knit 3,713.3 3,923.7 4,995.9 4,478.8 4,187.3 3.05%
8441 Overcoats, oth. coats etc. 117.3 132.7 322.1 258.2 304.5 26.93%
84421 Suits, womens girls. knit 53.9 57.8 134.2 50.7 41.1 -6.53%
84422 Ensembls, women girls, knt 252.0 238.6 208.7 210.0 194.3 -6.29%
84423 Jackets, women girls, knit 189.8 214.8 272.8 223.5 220.0 3.76%
84424 Dresses, women girls, knit 580.0 481.5 520.1 496.5 507.9 -3.26%
84425 Skirts, divided skirts 348.1 323.8 315.5 299.6 299.3 -3.70%
844265 Trousers, women girl, knit 1,208.5 1,377.5 1,701.1 1,658.7 1,504.3 5.63%
8447 Blouses, shirt-blouse, etc 705.6 840.1 1,146.7 1,068.1 920.2 6.86%
84489 Other underwear etc. knit 258.2 256.9 374.6 213.6 195.6 -6.70%
BABIES WEAR
Woven
84511 Babies’ cloths not knitted 523.6 558.1 536.7 542.1 540.9 0.81%
Knit
84512 Babies’ clothes knitted 915.7 1,018.6 1,056.0 1,143.2 1,220.1 7.44%
SPORTS WEAR
Woven 1,496.4 1,527.1 1,706.9 1,,582.8 1,385.2 -1.91%
84219 Other womens outerwear 1,214.7 1,247.4 1,346.1 1,315.7 1,141.3 -1.55%
84561 Male swimwear not knitted 43.8 46.6 88.6 51.4 53.7 5.22%
84563 Fem. swimwear not knitted 51.1 51.0 47.8 54.2 62.9 5.33%
84581 Ski suits, not knitted 186.8 182.0 224.0 161.5 127.3 -9.13%
Knit 1,092.8 1,280.9 1,345.1 1,251.8 1,111.3 0.42%
84562 Male swimwear knitted 79.4 87.9 77.8 87.0 95.3 4.66%
84564 Fem. swimwear knitted 410.5 484.0 397.7 462.3 469.4 3.41%
84591 Track suits, knitted 594.7 696.3 856.6 683.6 536.4 -2.55%
84592 Ski suits, knitted 8.2 12.8 13.0 18.7 10.3 5.67%
Hosiery
84161 Underpants and briefs 94.4 94.2 86.0 102.4 97.7 0.88%
84162 Nightshirts and pyjamas 119.8 132.4 123.9 123.7 120.3 0.11%
84169 Other male underwear etc. 93.4 94.6 109.2 102.4 88.8 -1.26%
84281 Slips and petticoats 30.2 30.6 27.4 36.0 32.8 2.11%
84282 Nightdresses, pyjamas 318.6 334.9 327.8 315.8 328.9 0.80%
84289 Other underwear etc. 340.6 320.7 304.0 326.4 323.4 -1.29%
84381 Underpants, briefs, mens 669.1 676.8 739.7 753.8 748.6 2.85%
84481 Slips and petticoats 89.6 72.3 125.0 37.2 33.3 -21.94%
84483 Nightdresses & pyjamas 685.3 709.3 743.1 684.6 699.7 0.52%
84551 Brassieres 1,265.7 1,385.4 1,368.2 1,640.0 1,599.6 6.03%
84552 Girdle, corset, braces, etc. 285.1 298.6 327.0 280.5 279.7 -0.48%
84621 Panty hose, tights, knittd 889.4 938.8 858.3 790.7 718.1 -5.21%
84622 Women’s hosiery, knitted 117.9 125.4 135.8 156.0 154.4 6.96%
84629 Other hosiery, knitted 1,345.2 1,395.9 1,359.9 1,357.0 1,391.3 0.85%
MEN’S WEAR
Woven 344.31 444.69 519.17 467.39 459.64 7.49%
84112 Overcoats etc. oth. textls 0.01 0.09 - 0.07 0.39 183.94%
84119 Oth. mens outerwear etc. 0.97 1.24 1.00 0.93 3.45 37.34%
84122 Suits, textile materials 27.54 29.92 2.25 22.10 49.54 15.81%
84123 Ensembles 33.18 41.73 38.83 21.84 2.41 -48.08%
8413 Jackets and blazers 23.27 31.56 37.35 25.84 26.45 3.26%
8414 Trousers, breeches, etc. 123.36 159.20 199.31 216.32 232.39 17.16%
84151 Cotton shirts 116.42 158.51 179.73 130.08 104.02 -2.78%
84159 Shirts, oth. textile matrl 5.39 6.51 6.75 6.16 3.43 -10.70%
84587 Men’s, boy’s apparel nes 14.19 15.95 53.95 44.06 37.57 27.56%
Knit 274.05 303.63 314.00 420.54 456.88 13.63%
84121 Suits of wool, fine hair 0.01 - 0.03 0.01 0.14 92.39%
8431 Overcoats, outerwear etc. 0.09 0.39 0.89 0.44 0.21 22.58%
84321 Suits, mens boys, knit 10.35 10.85 12.04 29.27 19.68 17.44%
84322 Ensembles, mens boys knit 0.02 0.08 0.01 0.08 0.17 63.14%
84323 Jackets, blazers, m&b knit 2.77 2.57 4.44 3.78 6.92 25.68%
84324 Trousers, breeches etc. 6.65 10.62 9.95 12.15 16.66 25.82%
84371 Cotton shirts, mens boys 248.32 271.97 277.18 367.56 405.45 13.04%
84379 Shirt, oth. textile matrl 5.55 6.89 9.32 7.03 6.95 5.78%
84389 Other mens underwear knit 0.29 0.27 0.12 0.23 0.71 25.33%
WOMEN’S WEAR
Woven 141.70 200.38 135.86 138.03 116.47 -4.78%
84211 Overcoats, cloaks etc. 2.63 2.41 1.02 3.32 1.20 -17.87%
84221 Suits 27.46 58.32 15.44 28.82 29.79 2.05%
84222 Ensembles 0.20 0.02 0.00 0.15 0.51 26.40%
8423 Jackets 2.29 4.50 3.52 2.88 3.17 8.42%
8424 Dresses 36.80 32.14 37.66 16.18 7.48 -32.85%
8425 Skirts & divided skirts 4.54 6.25 2.83 3.31 6.47 9.27%
8426 Trousers, breeches etc. 15.66 22.26 29.65 38.78 32.19 19.74%
8427 Blouses, shirt-blouse, etc 21.20 26.96 18.95 22.33 18.20 -3.75%
84589 Women, girls apparel nes 30.92 47.53 26.77 22.27 17.47 -13.30%
Knit 58.78 61.38 51.62 68.22 80.18 8.07%
8441 Overcoats, oth. coats etc. 0.14 0.11 0.85 0.34 0.12 -4.29%
84421 Suits, womens girls. knit 14.95 16.79 13.41 20.86 18.64 5.66%
84422 Ensembls, women girls, knt 0.37 0.14 0.06 0.22 0.39 1.65%
84423 Jackets, women girls, knit 0.69 0.57 1.03 1.39 2.37 36.15%
84424 Dresses, women girls, knit 3.64 5.17 3.58 4.76 7.72 20.64%
84425 Skirts, divided skirts 0.34 0.27 0.08 0.37 0.79 23.02%
844265 Trousers, women girl, knit 2.50 5.25 3.94 4.50 4.84 17.88%
8447 Blouses, shirt-blouse, etc 35.25 31.90 28.18 35.36 44.11 5.76%
84489 Other underwear etc. knit 0.88 1.19 0.50 0.42 1.22 8.37%
BABIES WEAR
Woven
84511 Babies’ cloths not knitted 13.72 15.58 16.36 21.52 17.38 6.09%
Knit
84512 Babies’ clothes knitted 2.67 2.96 3.23 3.90 10.11 39.40%
SPORTS WEAR
Woven 0.05 0.03 0.41 0.37 0.25 50.61%
84219 Other womens outerwear 0.05 0.02 0.22 0.06 0.02 -16.80%
84561 Male swimwear not knitted 0.00 0.01 0.18 0.14 0.02 32.00%
84563 Fem. swimwear not knitted 0.00 0.00 0.00 0.17 0.20 21.08%
Knit 24.63 26.07 22.13 24.93 14.86 -11.87%
84562 Male swimwear knitted 0.13 0.00 0.00 0.01 0.04 -27.69%
84591 Track suits, knitted 23.92 26.03 22.02 24.73 14.77 -11.36%
84592 Ski suits, knitted 0.58 0.04 0.11 0.19 0.06 -43.38%
Hosiery
84161 Underpants and briefs 0.27 0.11 0.43 0.50 0.41 11.05%
84162 Nightshirts and pyjamas 0.13 0.42 0.61 0.72 0.76 54.37%
84169 Other male underwear etc. 44.58 38.04 42.57 36.30 45.86 0.71%
84281 Slips and petticoats 0.24 0.07 0.16 0.03 0.11 -18.65%
84282 Nightdresses, pyjamas 0.48 0.26 0.67 2.53 2.66 53.18%
84289 Other underwear etc. 1.39 0.90 0.63 2.99 4.36 33.20%
84381 Underpants, briefs, mens 1.19 0.22 0.23 0.94 1.28 2.01%
84481 Slips and petticoats 0.00 0.02 0.03 0.17 0.18 126.80%
84483 Nightdresses & pyjamas 12.26 12.52 10.63 11.71 9.34 -6.58%
84551 Brassieres 1.33 1.11 0.73 1.17 0.34 -29.04%
84621 Panty hose, tights, knittd 0.23 0.06 0.11 0.00 0.06 -28.39%
84622 Women’s hosiery, knitted 15.84 19.19 20.93 23.23 24.46 11.47%
84629 Other hosiery, knitted 66.34 58.05 41.83 23.23 11.48 -35.51%
1. Introduction
1.1 The state of the Sri Lankan garment industry
The Sri Lankan Garment industry experienced phenomenal growth after the late 1970s
and continues to be the strongest manufacturing sub-sector in terms of its contribution to the
GDP, exports, foreign exchange earnings, and employment generation. The contribution of
the garment sector to GDP has risen from 3.88 percent in 1985 to 6.64 percent in 1997. In
1998, for instance, the garment industry accounted for 52 percent of total exports and 44
percent of industrial output (Annex A6.1 and 6.2). In 1978, the industrial sector accounted
only for 15 percent of export earnings; and by 1998, it had increased to 75 percent. The
garment sector alone recorded more than 50 percent of the total export earnings in 1998 (for
more details, see Annex A6.3 to 6.5).
Figure 6.1. Quantity of garment exports
(Mn Pcs)
500
450
400
350
300
250
200
150
100
50
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Garment exports have demonstrated a significant increasing trend over the last 18 years
(Figures 6.1 and 6.2). While export quantities have declined on average between 1996 and
1999 by almost 26 percent, the value of production (in US $) has increased during the same
period by almost 33 percent. This indicates a shift in the production and export of standard
garments to higher value garments. In the first quarter of 1999, however, Sri Lanka’s
garment industry recorded a drop in its foreign exchange earnings due to the adverse impact
of the East Asian financial crisis (see Figure 6.1).
Sri Lanka can be considered to have a comparative advantage in the manufacture of
garments. While this comparative advantage is significantly higher than in other industries,
it is comparable to the rubber and tea/coffee/spice export oriented industries, as indicated by
the Revealed Comparative Advantage (RCA) figures in Annex A6.6.1
3000
2500
2000
1500
1000
500
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
This impressive growth record and the evolution of the comparative advantage in the
manufacture of garments (Athukorala and Rajapatirana, 2000) over the past twenty years
were supported by a number of factors. The first of these were the market-oriented economic
policies introduced in 1977. These reforms placed greater emphasis on export-driven industries;
and the government extended numerous measures of support to the sector, in the form of
subsidies and duty rebate schemes, duty-free imports of machinery and raw materials and
lower corporate taxes, including tax holidays, etc. In addition, the quantitative restrictions
imposed under the MFA provided a certain degree of protection for the industry, in the form
of increasing export volumes to assured markets. The quota system also induced a significant
inflow of foreign direct investment (FDI) into the industry in the earlier years, particularly
1
These RCA figures compare the ratio of Sri Lanka’s exports in each of the products to its total exports, with the ratio
of the world as a whole. RCAs with a value greater than one, indicate that a country’s exports in a particular commodity
are a larger proportion of its total exports than the world average, and more specifically, that it has a comparative
advantage in that commodity.
SRI LANKA 199
In 1992, the 200 Garment Factory Programme (GFP) was initiated with the dual
objective of fuelling growth in the industry and solving the problem of rural unemployment.
Under this programme, investors were offered quotas liberally (more quotas were offered if
the factory was located in a so-called remote area) as well as a number of concessions
including tax holidays, duty-free importation, and access to off-shore finances (BOI status).
One condition of the 200 GFP was the employment of at least 500 workers in each factory.
By the end of 1996, 154 garment factories had begun commercial operations in rural areas
providing 76,821 employment opportunities.
In an increasingly competitive environment, the size of the enterprise is becoming far
less important; and garment operations are more recently being considered in terms of those
that are “strong” and “weak”. The relative strength of an enterprise can be gauged by its
capacity to remain competitive.3
2
The main garment producing countries tend to exhaust their quota allocations early, and international buyers then place
their orders with other garment producing countries.
3
“Strong” manufacturers are those who can absorb the external shocks and become competitive suppliers of garments to
the world market. Those manufacturers who cannot do so are considered “weak’, and the categorization does not depend
on the size of enterprise.
200 GARMENT INDUSTRY IN SOUTH ASIA
By the end of 1998, 14.3 percent of the 6 million people in the country’s total working
labour-force were employed in the manufacturing sector. Out of the total manufacturing
sector labour-force, approximately 32 percent were engaged in the garment industry. Table
6.3 shows the gender composition in labour force by occupational categories in the garment
industry. Female dominance – about 87 percent — is one of the most conspicuous
characteristics of the garment industry. Females hold 53 percent of the management categories
and 72 percent of front line management occupations such as supervisors, while males are
dominant in the upper management occupations. The share of females in occupations of
machine operators and others is over 90 percent. There is equal participation of both sexes
in pattern making, quality controlling, merchandising, designing and quality assurance.
Table 6.3: Garment industry gender composition in labour force by occupational categories, 1998
United Kingdom
55%
Two new market opportunities have emerged during the last two years. First, the Indo-
Sri Lanka Bilateral Free Trade Agreement (that came into operation in March 2000) permits
8 million pieces of garments at 50 percent duty concession to the Indian market. It is however
characterized by a plethora of problems, and thus Sri Lanka has not been able to reap the
benefits of the offer (Kelegama, 2001). Second, the Trade and Development Act (TDA) of
2000 provides duty free entry to USA for garment exports from Caribbean and sub-Saharan
African countries (SLAEA, 2000b). The rules of origin are quite liberal during the first four
years for most Sub-Saharan African countries. This has provided an opportunity for Sri
Lankan garment industrialists to relocate in Sub-Saharan Africa and target the US market.
202 GARMENT INDUSTRY IN SOUTH ASIA
Sri Lanka’s dependence on quotas has been increasing; and, in 1997, 62 percent of total
exports were still quota-based (Table 6.5). This is partly due to the operational mode of the
phasing out of the MFA (Weerakoon and Wijayasiri, 2000). However, non-quota garment
4
As a percentage of MFA.
SRI LANKA 203
exports to the USA have doubled during the last five years. The Textile Quota Board (TQB)
is a statutory body under the Ministry of Industrial Development, responsible for the
disbursement of export quotas. Generally, quotas are distributed to manufacturers depending
on their size, capacity and past performances.5
Table 6.5: Percentage share of quota and non quota garment exports
(million pieces)
Year National garment exports
Quota Non quota
1994 49.6 50.4
1995 46.8 53.2
1996 62.0 38.0
1997 61.7 38.3
Source: SLAEA, various issues.
Sri Lanka and other South Asian garment producing countries export mainly a few
categories of items to the main markets, the USA and the EU. The composition of Sri
Lanka’s category-wise garment exports is shown in Annex A6.7. Women’s outerwear and
men’s outerwear exports accounted for approximately 45 percent and 15 percent, respectively,
of the total garment exports. Some of these garments have low market value and demand
and are categorized as standard garments.
An item-wise composition of garment exports of South Asian economies, including Sri
Lanka, also indicates a high concentration of a few items across all countries (Annex A6.8).
South Asian countries largely compete with one another in the garment sector, particularly
because they supply similar products to the same markets in the USA and the EU. More than
90 percent of total garment exports of South Asian economies find their way to these two
major markets.
5
There have been various modalities of quota distribution over the years, but the general distributional pattern has been
governed by the criteria as described.
204 GARMENT INDUSTRY IN SOUTH ASIA
The MFA is responsible for severely restricting potential trade in the garment sector
and, in particular, reducing the volume of exports of some developing countries. New and
more competitive producers may also have been discouraged as traditional suppliers were
protected to a certain extent under the quota system and assured markets, even in the event
of a loss of competitiveness. The most efficient producers have been adversely affected due
to export tightening. However, some developing countries like Sri Lanka and Bangladesh
benefited from the MFA by having assured markets in a competitive environment during the
early years of production in the 1980s (Athukorala, 1995). The quota system has helped to
attract foreign investors to set up manufacturing operations in these countries. In addition,
buyers whose quota allocations were exhausted in other countries turned to manufacturers
in these countries to supply the remainder of their markets.
The new Agreement on Textiles and Clothing (ATC) has been integrated into the
normal GATT rules, and quantitative restrictions are to be phased out within a ten-year
period, from January 1995 to January 2005. Any quotas that were in place in December
1994 under the old MFA were carried over into the new agreement. Importing nations
agreed to liberalize 16 percent of their textile imports on 1st January 1995; 17 percent in
1998; 18 percent in 2002; and the remaining 49 percent at the end of the transition period,
on 1st January 2005. The annual quotas are not to be lower than trade in a specified twelve-
month period, and they must be enlarged by not less than 6 percent every year.
While the agreement focuses largely on the phasing-out of MFA restrictions, the ACT
recognizes that some members would maintain non-MFA restrictions not justified under a
GATT provision. These would be brought in line with GATT within one of the agreements
or phased-out progressively by 2005. The agreement also contains a specific transitional
safeguard mechanism, which could be applied to products not yet integrated into GATT.
Action under the safeguard mechanism could be taken against individual exporting countries
if it can be demonstrated by the importing country that overall imports of a product were
entering the country in such quantities from a particular country that they threaten the
domestic industry. Action under the safeguard mechanism could be taken either by mutual
agreement, following consultations, or unilaterally. A safeguard restraint could remain in
place for up to three years without extension or until the product is integrated into
the GATT.
The agreement specifies that all members abide by GATT rules and regulations so as
to improve market access, ensure the application of policies relating to fair and equitable
trading practices, and avoid discrimination against imports in the area of textiles and
clothing. The agreement also has provisions for special treatment for countries, which have
been subject to MFAs, for new entrants, small suppliers and least developed countries. As
discussed in Section 5, due to various loopholes of the agreement, the operation modality
has been twisted by developed countries in their favour (Weerakoon and Wijayasiri, 2000
and ESCAP, 2000).
SRI LANKA 205
The presence of the quota system has virtually guaranteed markets for many Sri Lankan
manufacturers, especially those manufacturing standard garments and competing on price.
This guaranteed period would be over in 2005 with the dismantling of the quota regime,
which will compel the industry to compete for its market share in an intensely competitive
global market. There are a large number of garment manufacturers who depend predominantly
on quota-based business. With the phasing out of the MFA, these manufacturers will have
to thoroughly assess the structure and functioning of their operations, in order to remain
competitive in a quota free world.
2.2 Globalization
The term ‘globalization’ can be broadly defined as the integration of markets and is
visible in the garment industry where production is spread over national boundaries. As a
result of globalization, pressures and changes amongst buyers and in consumer countries can
have fast and significant bearings on manufacturers in producer nations (Ramaswamy and
Gereffi, 1998). This is visible already in the Sri Lankan garment industry where the internet
has transformed the garment business to a ‘buyers’ market’ and where buyers have stressed
on the need to adhere to international standards for labour and factory conditions, to upgrade
technology, and for faster response times and improved service.
There is a strong consensus on new emerging issues in the international trading
environment that can impinge on the marketability of most products. Environmental and
labour issues are likely to affect the industry in the future with producers and consumers
becoming more aware of the conditions prevailing internationally and locally. International
buyers are now placing on their suppliers increasing importance on the worker welfare to
the extent that they send their inspection groups to investigate and report on the working
conditions of the factory workers prior to placing orders. In the context of the changing
global environment, garment producers, therefore, have to be informed of changing consumer
preferences in order to meet necessary environmental, labour, health and safety standards.
There are other concerns that are influencing the pattern of trade in the global economy.
The global trading environment has shown the emergence of strong trade blocs during the
recent past. The most noteworthy for the Sri Lankan garment industry has been the emergence
of the North American Free Trade Agreement (NAFTA) involving the USA, Canada and
Mexico. As a result of NAFTA, Mexico has become the dominant supplier of apparel to the
US market at the expense of supplier countries although there has not been a direct adverse
impact on Sri Lankan garment exports to USA (Kelegama, 1997). As stated, the Trade and
Development Act of the 2000 has granted the Caribbean Basin and the Sub-Saharan African
countries zero duty preferential treatment; and consequently, they will emerge as key suppliers
of apparel to the US by cutting into Asia’s market shares in the USA. In addition, tax relief
has been granted in the Caribbean and El Salvador. Increased access for East European
countries into the EU and the long-term impact of Turkey’s entry into the Customs
206 GARMENT INDUSTRY IN SOUTH ASIA
Union with the EU are also potential threats in terms of restricting access for Sri Lankan
garment exporters.
3. How competitive is the Sri Lankan garment industry?
In the recent past, the global garment industry has been subject to significant changes
in terms of changes in consumer demands, changes in technology, and fierce competition.
These changes have also filtered down to the Sri Lankan garment industry, and there is now
considerable pressure on the industry to reach higher standards of production and service.
As the garment industry is a relatively low skilled and labour-intensive operation, over
time there has been a shifting of production from countries such as Hong Kong, South
Korea, and Taiwan to low-wage countries; such as Bangladesh, India and Sri Lanka. As this
process of shifting (or shifting comparative advantage) has continued, Sri Lanka has gradually
lost its low labour cost comparative advantage.
As the majority of Sri Lankan manufacturers currently produce standard garments
where competition is primarily based on price, Sri Lanka faces stiff competition from other
developing countries of South and South East Asia where production cost is low (India,
Bangladesh, Pakistan, Indonesia, Cambodia, Laos and Vietnam). China has also emerged as
a dominant force in the global apparel industry with its massive supply capability and low
costs of production. These countries have a lower ranking in terms of cost of production in
comparison to Sri Lanka. Given this situation, there is a need for Sri Lanka to move to the
top end of the market as a reputable and dependable supplier of quality apparel in Asia. In
the higher value-clothing segment, countries such as Malaysia, Korea, Singapore, Hong
Kong, and Japan are serious competitors.
In Bangladesh, the share of total export earnings from garments increased from 12
percent in 1985 to over 73 percent in 1998. India is less dependent on garments for her
export earnings. The Indian garment industry is based on a system of decentralized production;
and relative to Sri Lanka, exports have been niche-based, focusing on low volume and high
variety of outputs, within the broad area of fashion clothing and especially ladies outwear
(Kathuria, et al., 1998 and 1999). Garment exports constitute only 12 percent of India’s
merchandise exports. India’s share of world exports of garments increased from 1.5 percent
in 1980 to 2.6 percent by 1994. The share of garment export earnings accounted for 60
percent of Pakistan’s economy.
While Sri Lanka’s global market share, has been recorded at 1.5 percent, more recent
estimates indicate that there has been a marginal increase and stands at 2 percent of the
global garment market. During the period 1995 to 2000, Sri Lanka maintained a 19 percent
export earning growth in the garment industry (Table 6.6). If there is a lifting of the US tariff
barriers for Sri Lanka’s apparels then there would be an increase of exports by around 50
percent.6 As mentioned earlier, although over 90 percent of Sri Lanka’s garment exports are
6
This is the view of the Chairman of the National Apparel Exporters Association of Sri Lanka.
SRI LANKA 207
destined for the USA and the EU, Sri Lanka does not rank amongst the top exporting nations
to the EU (Annex 6.9). Sri Lanka ranked 20th and 15th place among suppliers of apparel
products to the EU and the USA market, respectively, in 1998. The positive feature is that
the Sri Lankan garment manufacturers, in general, have built up a good rapport and
sound reputation the world over. It is a great advantage when compared to her competing
neighbours.
Table 6.6: Growth in garment industry
(export earnings as percentage)
Country 1980-1985 1985-1990 1990-1995
Buyers now have a range of sources from which to choose; and countries such as
Mexico (supplying to the USA) and Turkey (supplying to the EU) have the added advantages
of being in close proximity to their major markets, lower transport cost and shorter turnaround
times. Moreover, Mexico and Turkey possess competitively priced labour, good quality
products and quota free access to their major markets.
One factor contributing to this reduced level of price-competitiveness is the increasing
cost of labour in Sri Lanka compared to other garment producing nations. Labour costs have
been steadily increasing and currently constitute between 15 - 30 percent of the total production
costs in the average Sri Lankan garment manufacturing firm (Table 6.8). 7 Table 6.7 highlights
hourly wage rates of a number of garment manufacturing nations and indicates that Sri
Lanka’s competitors currently have relatively lower wage cost structures.8 For those
competitors who have higher wage cost structures (and higher global market shares), their
strengths lie particularly in their high levels of productivity.
Available studies show that total factor productivity (TFP) in the garment industry has
improved after 1977 liberalization policies (Kelegama, et. al., 1999 and Athukorala and
Rajapathirana, 2000). “Among the industries which exhibited impressive and consistent
improvements in productivity, textiles and clothing tops the list” (Athukorala and
7
UNIDO ( 2000) has found out that the average labour cost is around 20 per cent of the cost of production in the garment
industry. Apart from this, in the Greater Colombo area, costs for land and buildings ( rent payment) amount to 17 per
cent, the cost for interest payments of small and medium enterprises amount to 3 per cent.
8
Sri Lankan wage rates are currently at least 30 per cent higher than rates in Vietnam and Cambodia.
208 GARMENT INDUSTRY IN SOUTH ASIA
Rajapathirana, 2000: 165). However, the Kelegama et. al. (1999) study shows the TFPG for
the textiles, clothing, and leather products sector (ISIC No. 32) declining from 6 percent in
1981-87 to 1.2 percent during 1987-93. The study also shows that when textiles (ISIC No.
321) and clothing (ISIC No. 322) are removed from the entire sector (ISIC No. 32), the
TFPG improves from 2.0 during 1981-87 to 5.1 percent during 1987-93. Clearly, there has
been a decline in factor productivity in the textiles and clothing sector in the latter period
of 1987-93. Whether this decline happens in the textiles sector or the clothing sector is
difficult to judge from the study. Data on unit labour cost in the textiles and clothing sector
show that it has increased over the two periods of comparison. Moreover, there has been a
decline in labour productivity growth (measured both in terms of real output per employee
and real value added per employee) for the textiles and clothing sector for the two periods
of comparison. The finding of the study is that there has been a general decline in the
competitiveness of the textiles and the clothing sector.
Country (US$)
Japan 16.29
Taiwan 5.10
Hong Kong 4.51
S. Korea 4.18
Malaysia 2.52
Mexico 1.08
Thailand 1.06
Philippines 0.62
Sri Lanka 0.41
Indonesia 0.34
Vietnam 0.32
Bangladesh 0.31
China 0.28
Pakistan 0.26
Source:Fonseka and Fonseka (1998).
Table 6.8: Selected characteristics of the wearing apparel sector in selected South Asian
countries, (annual data), 1993/4
Low Productivity
➝
9
Based on discussions with a range of garment manufacturers. According to their labour cadres and capacity utilization,
we categorize them as small, medium and large, or ‘weak’ and ‘strong’ enterprises.
210 GARMENT INDUSTRY IN SOUTH ASIA
to improving output. Some factories also lack basic facilities such as canteens, toilets, etc.,
and in many cases, regular breaks for using these facilities are not provided. Within the
factory itself, a common problem for many of the female workers has been harassment, and
in particular, sexual harassment.10 The Sri Lanka Apparel Exporters Association, since of
late, has come up with a new code of business conduct in factories to address this problem,
but monitoring mechanisms appear to be weak; and the coverage does not exceed 50 percent
of factories.
While working hours have been specified by labour regulations, there are numerous
instances where workers are required to work longer hours to achieve production targets. For
the additional hours of input, most often the workers are not entitled to extra payment. In
some garment factories, workers are required to work on continuous shifts. For workers
required to work night shifts, though some factories provide transport, most do not. Moreover,
some of the surrounding roads are not adequately lit at night; and female workers in some
cases encounter harassment and other unsafe situations. For workers travelling long distances,
infrastructure weaknesses such as poor and unpunctual public transportation services contribute
to a certain degree of stress even prior to starting of the work. The resulting worker stress
has significant adverse effects on productivity.
In many cases, factory workers are from rural areas and are compelled to find
accommodation in the vicinity of the factory (Exhibit 6.2). The available accommodation for
the workers are generally of poor condition due to increasing congestion around the urban
garment factories and Free Trade Zone areas. The lodging facilities are commonly small
rooms with limited additional facilities and inadequate sanitation (for details, see Wellawatte,
1999). Furthermore, the rent can constitute a significant proportion of the workers’ salaries.
In 1999, the Government constructed a new hostel complex for female workers in the
Katunayake Free Trade Zone to address some of these problems. It was far from adequate
to address the problems of all the workers in the industry. In fact, since mid-2000 there has
been 12,000–18,000 vacancies in the garment factories, particularly in the ones located in
the Free trade Zone. The solution to the problem lies partly with the industrialists. While the
majority of manufacturers maintain that the costs of providing accommodation for their
workers are too high for them to stay in business, the stronger enterprises have demonstrated
that improving workers’ living conditions have long run dividends by in terms of improved
productivity.
Enhanced working conditions are inexorably linked to improved productivity, and the
failure to acknowledge this has contributed to low productivity and has eroded Sri Lanka’s
competitive advantage. In an increasingly competitive international environment, foreign
buyers now place greater pressure on manufacturers to upgrade their factories and worker
standards in order to satisfy buyer requirements. Of course, there are significant capital costs
10
These facts and information were disclosed during the face-to-face interviews with the Workers’ Council of the garment
factories and NGOs working in the field of welfare of workers in the Export Processing Zone, Katunayake, Sri Lanka.
SRI LANKA 211
and future maintenance costs involved in this process, and manufacturers are under increasing
pressure to conform. It could be considered as a “blessing in disguise”.
Exhibit 6.2: Transport and hostel facilities available for garment workers
Facilities provided Large scale producers Middle grade producers Small scale operators
Transport
Transport provided but late Some factories provide No transport provided.
comers for work are not transport for the night-shift 95% of the workers
permitted entry. Extra pay- only. Others do not provide normally live in the
ments made for achieving transport at all. Around 5 % vicinity. High
targets. Absenteeism around are normally late for work. absenteeism due to extra
1% or less. No extra payment for target engagements. No extra
completed. Work till late to payments.
complete the given targets.
Hostel
Some factories provide hostel No hostel provided. Around No hostel facilities
facilities and the government 80% of workers come from provided. Around 95%
has constructed hostels for private boarding places. Poor come from their own
the EPZ workers. 99% of the nutritional condition has led residences. Low salaries
workers are in hostels or to lethargy or other physical inadequate to meet
lodges. High congestion and disorders. 20% of workers minimum nutritional
various social harassment. travel from distances of 20 standards. Working
to 40 Km radiuses and spend capacity is far below the
an average of two hours average.
travelling.
Source: Based on interviews conducted for the study.
When stress increases over an optimal level, work performance deteriorates, unfavourable
reactions develop, which if not controlled will gradually result in psychological stress. The
direct consequences are that the person’s productivity gets diminished with feelings of low
achievement, and increased absenteeism. Other factors, which contribute to such situation,
are poor interpersonal relationships at the work place, autocratic management style, lack of
variety in work, low use of skills, poor pay, and low value given to work in the society,
especially for the female garment labour.
11
Flat rate includes: food allowance, attendance bonus, transport allowance, etc. (EFC, 1998).
212 GARMENT INDUSTRY IN SOUTH ASIA
suggestion. However, stronger enterprises, such as MAS Holdings, have conducted “time
and motion studies” and implemented well-structured incentive schemes for workers, which
have significantly improved productivity levels.12 Gain sharing schemes have not been
implemented in any of the garment factories.
4.3 Labour turnover and absenteeism
Shortage of skilled labour available to the industry is another factor adversely affecting
productivity.13 Consequently, it is more difficult to use the existing labour in the most
efficient manner; and as the supply of labour is less than the demand, low productivity
results. The garment sector has recorded average labour turnover rates of around 55 percent
per annum, with the highest rate of 60 percent being recorded for factories in the Western
Province (Table 6.9).
Absenteeism is another serious problem contributing to low productivity. The average
rate of monthly absenteeism amongst labour in the garment industry is approximately 7.4
percent (Garment Gazette, June 1999). However, the ‘stronger’ enterprises, which devote
significant resources to improving labour productivity, manage to maintain their monthly
labour absenteeism rates at around 1- 2 percent.14
Garment manufacturers who spent 30 percent or more of their turnover on human
resources development (HRD) and workers’ welfare, have maintained very low labour
turnover, and absenteeism around 1 percent or less. Some garment manufacturers have
invested on social development programmes such as construction of schools and maintenance
of daycare centres for workers’ children in the village where the factory is located. They
have also provided transport facilities for the factory workers and made attempts to integrate
the garment factory to be a part of village life.
Table 6.9: Garment industry labour turnover and absenteeism (percentage)
Province Monthly labour turnover (%) Absenteeism (monthly %)
Western 5.9 8.5
Southern 3.1 5.3
Central 3.4 7.5
Eastern 7.2 8.1
North Western 5.2 6.5
North Central 2.5 3.4
Uva 1.2 6.4
Sabaragamuwa 3.3 4.4
Northern 8.0 12.0
All-island Average 4.9 7.4
Note: North includes only Vavuniya.
Source: TVEC, 1999.
12
Each machine is connected to a computer which indicates the productivity per hour / per employee, and each employee
is thus aware of his or her efficiency.
13
Designers, Cutters, Technicians, etc., are in short supply.
14
Based on a survey done and interviews with industrialists.
SRI LANKA 213
There are a number of reasons attributed to the high rates of labour turnover and
absenteeism. A poor working environment and worker-stress are among the main reasons.
Workers’ facilities greatly vary among the garment factories, with only a few of the ‘stronger’
enterprises having satisfactory working conditions. Differences in allowances and facilities
among factories have resulted in the continual movement of labour to enterprises where
working conditions are better.
A poor social image of factory workers is another factor contributing to high labour
turnover. Due to the bad reputation the industry has gained for harassment of women
workers and the poor working conditions, the factory worker has a social stigma.15 These
factors too have led to high labour turnover, which in turn has impeded the productivity of
labour and affected Sri Lanka’s international competitiveness.
Method of training
Occupational category In house training/ Public sector Local private sector Foreign
Industry training Training institute Training institute training
Senior Management 55 25 11 9
Middle Management 50 36 8 6
Front Line Management 47 47 6 -
Mechanics 74 21 5 -
Operators 93 5 2 -
Helpers 95 3 2 -
Checkers 91 6 3 -
Line Leaders 84 13 3 -
Cutters 87 10 3 -
Ironers 100 - - -
Other 94 - 6 -
Source: TVEC (1999).
In-house/industry training is the most common form of training in the garment industry,
followed by training received predominantly at public sector institutions and then private
15
Based on interviews and the survey done with garment workers (female) and employers. The average number of vacancies
is 15 to 20 in a garment factory in the country. Especially, sewing machine operator grades are highly vulnerable. Industrialists
disclosed that the industry has faced a more severe labour shortage in this operative grade, especially female employees.
214 GARMENT INDUSTRY IN SOUTH ASIA
sector institutions (Table 6.10). Over 90 percent of the operative grades are trained in-house.
Some ‘strong’ garment factories have their own training units, which have separate training
instructors and trainers who are paid an allowance during the training period. However, in
most ‘weak’ garment factories, focus is more on minimizing the training costs. Industry-
based training is favoured for its hands-on approach and the ability to cultivate industrial
culture directly at the site. Training conducted by other institutions tend to be in short
courses and with less practical exposure in the course content.
Currently, there are only a few institutions, predominantly run by the government,
conducting training programmes for the garment industry (Exhibit 6.3). The government-
established Clothing Industry Training Institution (CITI) is one of the main organizations,
which the garment industry relies heavily upon for its training requirements. As the capacity
of the CITI is not sufficient to cater to industry training requirements, there have been
concerns raised within the industry as to the institution’s ability to provide high quality
training courses.16 A course at the CITI can cost between US $ 55 -110 per worker, and
manufacturers claim that the standards have not met their expectations in many cases.
Exhibit 6.3: Present garment industry training institutes and programs
16
CITI syllabuses have not been revised to keep up-to-date with new trends in the garment industry.
SRI LANKA 215
There are no recognized graduate level advance courses on fashion designing, pattern
making, fabric painting, etc. in the recognized universities in Sri Lanka. While the government
Labour Department has designed and conducted training programmes to educate employees
in the garment industry, both within the Export Processing Zones (EPZs) and outside, these
have been ad hoc measures which have not been developed under a broader framework. To
fill this lacuna, the ADB is considering giving a grant to the Government of Sri Lanka to
establish a Clothing Fashion and Design Centre.
The Government has set up a special unit to undertake skill development programmes
called the Skills Development Fund for the industrial sector. Financial grants will be given
to private enterprises to establish training units to increase their productivity. The garment
sector has hardly been able to utilize the funds from this unit up to this date.
17
In fact the first trade union in the free trade zone was formed in January 2001.
18
The Joint Consultative Workers’ Council consists of seven office bearers, four members nominated by the employer and
three members appointed by election.
216 GARMENT INDUSTRY IN SOUTH ASIA
The consensus amongst the majority of garment manufacturers is that the current
labour regulations governing employment are too restrictive and adversely affect Sri Lanka’s
international competitiveness. The Government of Sri Lanka advocated specific legislation
applicable to the garment manufacturing industry in September 1963, covering particular
employment terms and conditions specific to the garment trade. Similarly, the Wages Board
for the Garments Manufacturing Trade was set up in October of the same year. Regulations
were based on legislation such as the Trade Unions Ordinance No. 14 of 1935, the Wages
Board Ordinance No. 27 of 1941, the Factories Ordinance No. 45 of 1942 and the Industrial
Disputes Act No. 43 of 1950, amongst others. While some of these regulations have been
subject to minor revisions, others have remained as they were, thus making them an
impediment for modern day factory operations.
Under the Termination of Employment of Workmen Act (TEWA), employers must
follow a stringent process to dismiss workers, which industrialists are strongly opposed to,
and prefer a more structured, but flexible system (Gunatilake and Kelegama, 1996). In
addition, the Factories Ordinance No. 45 stipulates that workers can only be employed for
100 overtime hours per year, which has proved to be impractical in the manufacturing
process and has thus limited Sri Lanka’s overall productivity compared to competing
manufacturing nations. Factories in the Free Trade Zone follow it in the breach. Many
employees are willing to work through the additional time-period in specified shifts for
appropriate remuneration.
As international buyers of garments also strictly assert that local labour regulations
must be adhered to, as a pre-condition for purchasing the goods, this places the manufacturer
in an inflexible situation. A minority of ‘strong’ manufacturers has been able to circumvent
this international pressure by developing a close understanding with their buyers; however,
for the majority of manufacturers, buyers cannot accept the stringency of the local labour
regulations. The Sri Lanka Apparel Exporters’ Association has appealed to the government
to amend this Act to suit the modern day needs of the garment industry (SLAEA, 2000a).
The employer is legally bound to consider the outcomes of collective bargaining with
a recognized trade union (more than 40 percent worker representation). Many industrialists
are opposed to this legislation on fears of the workforce becoming politicized by large,
external, politically motivated trade unions. However, the minority of ‘stronger’ manufacturers
maintain that positive and solid employer - employee relations within an organization should
result in minimal conflicts and disputes, regardless of such amendments.
The garment manufacturing industry has become a hi-tech industry worldwide. For the
Sri Lankan garment industry to develop a competitive edge, it has to shift to higher value
SRI LANKA 217
added products. In order to achieve the quality standards required to penetrate higher value
markets, it is necessary for manufacturers to invest in advanced technology. Without such
investment, garment manufacturing will be limited to the area of standard garments where
they are currently shielded by the quota system. Once this protective umbrella is lifted, Sri
Lankan manufacturers will have to face intense competition from rival countries, which can
produce standard garments at lower costs.
Large international competitors in the higher value added segment of the global garment
market are technology-driven and this has given a “wake–up call” to Sri Lankan manufacturers
to upgrade their technology in order to remain competitive. The manufacturers are generally
unwilling to acknowledge the importance of investment in technology due to the massive
capital costs they would have to incur and the resulting increases in overhead costs. They
ignore the fact that initial high costs can be outweighed in the long run by gains in productivity,
quality and subsequently higher margins. This unwillingness and inability is seriously
constraining the growth and competitiveness of garment manufacture in Sri Lanka.
One reason for the slow switching to new technology is that the garment industry was
promoted by the state as an employment generator. The 200 GFP virtually rubber-stamped
this view and under the programme the ratio of workers: machines was 2.5:1 which is quite
high. In fact, the 200 GFP has ballooned the Sri Lankan overall average of workers:machine
to 1.8:1 compared to, for example, Hong Kong, which has the ratio of 1.2:1. There are cases
in Sri Lanka where, for example, a stitching of a pocket is done by 10 workers whereas it
could be done by one person with a suitable machine. Most garment factories continue with
Juki sewing machines with an average age of five years. Some medium size factories have
invested in new cutting machines and high speed sewing machines during the last 6 years. In
fact, only 5-10 factories have invested in CAD/CAM machinery during the last three years.
The Government has imposed a cess of Rs. 1 per piece of garment to develop a
consolidated fund with a view to upgrade technology in the industry. The accumulated funds
have been utilized for budgetary management instead of upgrading technology in the industry.
The Sri Lanka Apparel Exporters Association has suggested to the Government that a
technology upgrading fund should be put into operation to address the current needs. The
matter remains pending. There is a tendency among ‘weak’ garment manufacturers to spend
on personal luxury of the owners, such as purchasing a BMW car, and also to wait till the
last moment in 2005 to do the necessary switching to high technology. The ‘stronger’
enterprises maintain that emphasis should be placed on long-term and progressive financial
management in order to absorb, and benefit from, the costs of investment.
of fabric requirements are imported. On average, over 65 percent of material inputs are
imported and this comprises almost 70 percent of manufacturing costs (Kelegama and Foley,
1999). As shown in Figure 6.4, the import costs to the garment industry have been increasing
against garment exports over the past decade.
Figure 6.4: Total value of export of garments and value of imports to the
garment industry, 1990-1998
2500
2000 n
n
n
1500
n
w w
n
w w
n w
1000
w
n
w
n w
500
w
0
1990 1991 1992 1993 1994 1995 1996 1997 1998
w Import n Export
Other garment manufacturing countries such as Hong Kong, South Korea and Taiwan,
which have their own domestic sources of required inputs, in addition to high productivity,
have a significant comparative advantage in production. Most inputs needed for the Sri
Lankan garment industry – fabric and accessories, like buttons and zippers are imported
from other countries. Buyers normally have their own suppliers. They often direct
manufacturers to purchase garment inputs from these sources. The cost of raw materials,
which the industry depends on the sources outside the country, has been increasing
steadily in real terms. The manufacturers must thus explore other avenues to maintain
competitiveness.
In addition, importation of raw materials results in longer lead time, which has become
another serious threat to the international competitiveness of the industry. Lead time of Sri
Lanka’s garment exporters also is longer than that of some of her competitors. According
to Sri Lanka’s industrial sources, the lead time, after an order is placed is 80 to 120 days,
while in other garment producing countries, it is less than 60 days (Kelegama and Foley,
1999). It would be vital therefore, to reduce lead time to 30 – 60 days from 80 –120 days
to compete effectively in a world of free trade.
SRI LANKA 219
Sri Lanka made concerted efforts to promote backward linkages, particularly fabric
industries, in the early 1990s. But attempts failed since the conditions required for high
capital intensive industries were not prevalent in the country. Kelegama and Foley (1999)
argued that state-led ‘forced’ promotion of backward linkages could be counter-productive
and in fact could kill the garment industry. They argued that formation of backward linkages
in a developing economy like Sri Lanka is time dependent and will emerge in the long run
with industrial deepening. Since the late 1990s the government has given less emphasis on
promoting backward linkages. On the recommendation of the Sri Lanka Apparel Exporters
Association, the Government is attempting to reduce the turnaround time by streamlining the
documentation requirements and procedures and by computerizing customs office by
introducing an electronic data flow system.
The new trend in the industry is ‘Just-In-Time’ production, whereby the buyer minimizes
the fashion risk by placing the orders closer to the season and in smaller quantities thus
transferring the financial risk to the manufacturer, which demands a more different and more
efficient linkage between the fabric suppliers, contractors, manufacturers and retailers. In other
words, the orders have become smaller, lead times have become shorter, and buyers demand
not a simple product but an ‘on-line service’. It is a quick response technique. To face this
situation, the ‘stronger’ factories have introduced ‘supply management’ techniques and
effectively networked with the required players of the production process. Moreover, they
practice designing process through internet or on-line services and get the approval from the
buyers. Very little has been done by the ‘weaker’ factories to face this new challenge.
Is the Garment Industry likely to ‘shrink’? Yes, the ‘weaker’/non-competitive enterprises may go
out of production.
Is unemployment likely to result? Although there may be some unemployment in the
short-term, labour is likely to be absorbed into the
remaining ‘strong’ and expanding enterprises in the
medium and long term.
Are working conditions/job quality likely While there is no clear evidence to indicate whether
deteriorate? working conditions will/will not deteriorate in the
short-term, it is likely that, in the long-term, labour
conditions will improve due to increasing global
pressure from buyers for adherence to international
labour standards and the need to comply with WTO
regulations.
Are wages likely to be reduced? No, because the national labour regulations stipulate
minimum wages.
Will there be a link between improved job Yes, labour productivity in the industry can be
quality and improved productivity? increased by improving job quality.
Source: Based on interviews conducted for the study.
quotas under the MFA are phased out. Some surveys reveal that 50 percent of the industry
would be forced to close down, because, more than 60 percent of the garment exports still
depend on quota-based items, and on an average 80 percent of the small and middle level
factories do not operate according to the demand in the exports market. Some of the reasons
for the fears expressed are described below.
The majority of enterprises in the Sri Lankan garment industry are “weak” in terms of
low labour productivity, poor working conditions and factory standards, demonstrating a
lack of professionalism and financial discipline and poor work ethic, as discussed in preceding
sections. In addition, lack of investment in technology and low levels of value addition as
well as weak relationships with buyers are also factors that make small and medium enterprises
vulnerable to a quota free environment.
Quota utilization is restricted to the hot categories; consequently, annual quota utilization
rate is around 60 percent . This indicates that Sri Lanka has still not gone into the production
of variety of items for which a quota is available. In other words, it is also an indication of
the supply potential. Buyers can now access unlimited supplies from anywhere in the world.
As long as Sri Lanka concentrates mainly on the manufacture of standard garments (which
are dependent on price), buyers are at liberty to purchase cheaper items from countries; such
as, China, India and Bangladesh. Unless the supply potential is improved by diversifying the
product range, it is going to be difficult to survive in a quota free environment for small and
medium scale industries.
Furthermore, as buyers are now extremely particular about factors other than the product
itself (i.e., labour conditions, factory conditions, environmental concerns, etc.), it is likely
that buyers may not give preference to Sri Lankan manufacturers if Sri Lanka does not meet
these requirements.
Most garment manufactures have still not shifted from an export marketing mode to
an international marketing mode. Fonseka and Fonseka (1998) have shown that climbing in
the export ladder has been slow with very few brand names. Due to the geographic distance
from Sri Lanka’s major markets which are US, EU and Canada, it has become necessary to
establish promotional outlets in these markets in order to maintain convenient accessibility
and fast transactions with buyers. So far very little has been done by the Sri Lanka Apparel
Exporters Association with the Sri Lanka Foreign Ministry to establish such outlets via the
Sri Lankan Diplomatic Missions. Besides, the formation of lobby groups that are favourable
to Sri Lanka in the foreign markets has been slow to emerge. The entire marketing strategy
for the garment sector needs a radical transformation.
Sri Lanka has not felt the impact of the phasing out of the MFA yet. Developed
countries have not strictly adhered to the mechanism of phasing out the MFA. For instance,
by 1 January 1998, compared to the target of 33 percent of product integration, USA and
EU had integrated only 1 percent and 7 percent, respectively (ESCAP, 2000: 71). Moreover,
developed countries have exploited a loophole of the MFA, where ATC does not provide
222 GARMENT INDUSTRY IN SOUTH ASIA
19
This argument is generally prevalent among authorities, and the Director General of the BOI himself supported this view
in an interview (see Business Today, Vol. 3, No. 10, February, 1999).
SRI LANKA 223
l As there is currently a high rate of labour vacancies in the garment factories, the
expansion of these enterprises in the post-quota era will allow for some of the
excess unskilled labour to be absorbed.20 Moreover, Sri Lankan industrialists now
functioning in countries like Bangladesh, Madagascar, etc., are planning to expand
their units in Sri Lanka once the quotas in those countries are exhausted. These
units too will absorb some labour.
20
There are averages of 15 to 20 vacancies in 80 per cent of the garment factories with a greater number of vacancies
in the sewing machine operator grades.
224 GARMENT INDUSTRY IN SOUTH ASIA
5.5 Will there be a link between improved job quality and improved productivity?
Labour productivity in the industry can be increased by improving job quality. How?
l Enhanced job quality and working conditions have undeniably been linked to
improved labour productivity, as explained earlier. The failure to recognize this
fact has been one of the significant weaknesses of Sri Lanka’s garment industry
and has undoubtedly played a role in the erosion of Sri Lanka’s competitive
advantage.
l Increases in global pressure will definitely result in a need to improve labour
productivity which will, in turn, motivate manufacturers to improve the job quality
of their workers through better investment in human resource development, well
structured incentives and allowances, and improved dialogue with workers.
SRI LANKA 225
Productivity Labour productivity is the key factor determining the levels of international
competitiveness of Sri Lanka’s garment industry. Factor productivity has
been traditionally low, except for the cost of labour, which is now
increasing. Proper factory designs, improved working conditions,
improved incentive pay structures must be developed in order to improve
productivity and to secure a competitive advantage in this industry.
Fabric Base Industry A strong fabric-manufacturing base (for accessories and trims) is required
to support the garment export sector and to reduce costs of imported raw
materials. The lack of such base is a serious impediment to the future
development of the garment industry. Infrastructural support may be
required to facilitate the development of such a capital intensive industry.
Information Technology A future challenge for garment manufacturers is to now adopt the internet-
driven approach to speedy delivery and more efficient service in the
export of garments. Many of the leading buyers and retailers in the US
and Europe now operate e-commerce sites. As a garment manufacturing
country competing globally, Sri Lanka will have to access this route also
to remain competitive and to ensure faster reaction times, shorter lead
times and more flexible manufacturing.
Human Resource Development Human resource development is considered one of the most important
strategies for improving labour productivity in this labour-intensive
industry. More attention is required to improve the skills of the workforce
and their standards of work. Labour training programmes need to be
improved to maintain high labour productivity and quality levels in the
industry. While there are several institutions conducting similar training
programmes, the quality and duration of the programmes need to be
revised. Private sector involvement in training should be increased in the
future as well. In addition, there is room for significant improvement of
the skills of middle and lower management.
Investment in Technology The industry must address the need to invest in technology in order to
improve productivity and competitiveness. The acquisition of new
technology also requires the efficient implementation of technological
know-how, transfer of product technology, quality control and marketing
of the finished products. Therefore, prior planning and sound financial
discipline are vital in prioritizing and planning for future investments in
technology.
Product Differentiation Product differentiation is an important strategy in maintaining and
developing orders in an internationally competitive environment. While
most Sri Lankan garment manufacturers are producing standard garments,
which are low value added products, it is essential to move into the higher
value added niche clothing markets. It is also essential for manufacturers
to specialize in a few higher value clothing categories to reap higher
margins, given the inability to be price competitive in standard garments.
contd.
226 GARMENT INDUSTRY IN SOUTH ASIA
Key strategies for improved productivity and competitiveness in Sri Lanka’s garment industry (contd.)
Strategy Implementation
Product Integration Garment manufacturers now need to provide accessory products along
with garment items, which increase the level of value addition. Buyers
expect a wider spectrum of ancillary services related to the business, and
it is important to market clothing and accessories as one complete package
in order to establish a competitive advantage.
Code of Business Conduct The recognition and adoption of an internationally accepted code of
business conduct is important to maintain high levels of factory and
working conditions, to improve productivity and to remain competitive.
Manufacturers can now obtain a ‘Certificate of Conformity’ locally to
guarantee that certain conditions are met. Such industry-wide conformity
to standards helps to build international confidence in the Sri Lankan
garment industry and improves the ability to compete in the global market
with high levels of business ethics, integrity, social accountability, quality,
value and service.
Improving factory standards
and working conditions Factories, which are not standardized, have been impeded from achieving
technical economies of scale through poor production line design. At
present, it is difficult for the industry to enjoy financial economies of
scale such as obtaining better discounts on orders of raw materials and
better prices for their finished products. In addition, there is a lack of
knowledge or reluctance on the part of the manufacturers to acknowledge
the fact that satisfactory working conditions lead to higher yield and is
a major contributing factor. Improved working conditions are a critical
factor in enhancing the productivity of this industry.
Moving to higher value
products The domestic value-addition of this industry is extremely low due to
high dependency on imported raw materials. The Sri Lankan exporters
will have to target middle and upper level markets and will have to
move from “export marketing mode” to “international marketing mode”.
Improving Product Quality Placing increased emphasis on quality is important, as Sri Lanka needs
to develop a non-price based comparative advantage in garments. As
buyers and customers in Western markets are now more quality conscious,
Sri Lanka can cater to this demand by concentrating more on this area.
Improving backward linkages In order to reduce lead-time due to the reliance on imported raw materials,
the development of backward linkages is essential. Quick delivery period
and quick response times are taken as given in a highly competitive
trade environment, and heavy reliance on imported raw materials can
seriously affect the industry in meeting these demands.
Building Export Alliances The small and medium scale garment enterprises can form export
alliances, as their production is not unique and is mainly low value
added, standard garments. As these manufacturers are hampered by a
lack of funds for promoting their products and attracting buyers, a
mutually beneficial system can be developed to reduce the time and cost
burden.
SRI LANKA 227
Annex of Tables
Table A6.1: Composition of exports (percentage)
31 Food, beverage and leather 29.5 21.3 27.1 25.3 23.8 23.8 22.8
32 Textile, wearing apparel, etc. 11.4 10.5 24.6 32.2 43.1 44.9 46.6
33 Wood and wood products 1.4 1.6 1.8 0.8 0.8 0.7 0.7
34 Paper and paper products 4.2 2.6 3.1 2.2 2.0 1.5 1.4
35 Chemical, petroleum, etc. 37.0 51.4 33.9 24.4 16.6 15.7 16.1
36 Non metallic mineral products 6.7 6.3 4.8 8.7 7.2 6.7 6.1
37 Basic metal products 2.5 2.6 0.3 1.2 0.7 0.8 0.7
38 Fabricated metal products, etc. 6.7 3.4 4.1 4.8 3.4 3.6 3.4
39 Other manufactured products 0.6 0.3 0.3 0.3 2.3 2.3 2.1
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Estimated from data available from the CBSLAR (various issues).
Table A6.3 (a): Rate of growth of export earnings (US$ terms) , 1990-1999
Agriculture Export 17.9 -11.0 -5.7 8.2 7.3 18.1 16.1 10.4 2.3
Industrial Export 31.2 19.4 42.5 19.1 14.3 19.6 5.0 14.3 3.2
Textile & Garment 28.4 28.0 51.0 16.2 10.0 19.4 2.9 19.6 8.2
Manufacturing 27.4 22.7 46.3 18.4 14.9 20.2 4.3 15.0 4.1
Source: CBSLAR, Various Issues
228 GARMENT INDUSTRY IN SOUTH ASIA
Year Total export Industrial exports Textile and Percentage share Percentage share
US$ Mn US$ Mn clothing exports of total export of industrial export
US$ Mn
1990 1904 1032 631 33 61
1991 1933 1192 762 39 64
1992 2337 1680 1114 48 66
1993 2784 2047 1323 47 65
1994 3174 2372 1457 46 61
1995 3613 2721 1657 46 61
1996 3993 2936 1752 44 60
1997 4639 3436 2172 47 63
1998 4735 3544 2316 50 65
1999 4609 3550 2430 53 68
2000 5522 4283 2710 49 63
Source: Annual Report Central Bank of Sri Lanka, Various Issues.
Table A6.6: Revealed comparative advantage for Sri Lankan manufacturing industries,
1994
Table A6.8: South Asian market share in 16 categories of MFA imports of the US, 1996
Top apparel exporters to USA21 , 2000 Top apparel exporters to EU, 1996
Country (%) Country (%)
21
Apparel Imports to USA by value US$ mn.
232 GARMENT INDUSTRY IN SOUTH ASIA
APPENDIX 1
Garment industry project contact list
APPENDIX 2
Questionnaire- Sri Lanka garment industry
2. Location,
Industrial Zone
Out
Quota Nil 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100
5. Category-wise Business
Percentage
Standard Garments
Non Standard Garments
Non Apparel
Other
12. During the last five Years (1995 to 2000), the number of incidents of
Number of Incidences
Strikes
Lockouts
Work to Rule
Go Slow
Boycott
Picketing
13.Export Destinations
Country Percentage
1
2
3
4
5
19 Cost of Production
As a percentage of total cost
Labour
Raw material/Fabric
Other
20 Productivity Measurements
Number of pieces per hour
Number of pieces per labour
Number of pieces per machine per hour
28. Rank these problems in descending order, (Most crucial problem =1)
1 Poor Infrastructure
2 Politicization of Labour
3 Lack of Capital
4 No good Training Institutes
5 Lack of Skilled Labour
6 sluggish manner of public sector supportive services
29. What adjustments have you suggested for the operation after elimination of MFA quota. Check if
appropriate
1. Foreign Incumbent
2. Developing Brand Name
3. Downsizing
4. Productivity Improvements
5. Expanding markets
6. Changing production
7. Product Diversification
8. Factory modernization
9. None
30. Remarks.
238 GARMENT INDUSTRY IN SOUTH ASIA
APPENDIX 3
Profile of garment industries studied
1. Forbes Textiles (Pvt) LTD. 275 113 T-shirts, Shirts, Jackets, Embroidery 80 % non-quota
Non- garment items Printing transaction,
Smocking compliance ISO
standard,
During the last five
years no labour
disputes, Main markets-
Canada, UK.
2. Falcon Apparel (Pvt) LTD. 250 150 16,500 Doz BA Shirts, T-shirts, Uniform Embroidery 95% non quota
3. Kings Apparels (PVT) LTD. 200 110 360,000 Pcs Hospital/Hotel Factory Non- fashion Not standard garments
Uniform garment / No labour disputes
Uniform etc
4. Janatha Garment 726 421 Embroidery
Manufacturers Ltd. Washing
5. Facination Exports 425 200 50,000 Doz Jackets, pants, Shorts, No inhouse 90 per cent quota
(Private) Ltd. facilities, hire UK and USA are
those if main markets
necessary
6. Dial Textile Industries. 3200 No Exact Quantity Design Apparel Conditions provided for
and non-apparel workers all inclusive
7. Exotic Collection (Pvt) Ltd. 255 160 Ladies’ Nightwear, Embroidery Most garments items
Prime Collection (Pvt) Ltd. Lingerie Printing are non-quota items.
Prime Vision (Pvt) Ltd.
8.Colmons Garment Industries 1260 500 2.3 million pcs Embroidery
(PVT) Ltd
9. Chirathu Industries 191 109 280,000 pcs Ladies’ Blouses, Embroidery -No labour disputes
Overcoats during the last five
years
contd.
Profile of garment industries studied (contd.)
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242 GARMENT INDUSTRY IN SOUTH ASIA
243
1. Inauguration
The workshop was opened by Mr. Palten Gurung, Minister for Labour and Transport
Management, who stated that development of a strategy to improve productivity and job
quality in the garments industry has become urgent since increasing globalization has already
started to place pressures on the quantity and quality of employment. The Minister further
stated that the Ministry of Labour and Transport Management in Nepal realizes the importance
of social dialogue for enhancing productivity. The Labour Act and the Trade Union Act
are being amended in Nepal to further increase tripartite coordination. He urged the
participating countries to develop a strategy for alternative options to compete in the global
market since the garment industry in general has been so far dependent on quota for
its growth.
Earlier welcoming the participants, Ms. Leyla Tegmo-Reddy, Director, ILO Kathmandu
pointed out that the ILO has been naturally extremely concerned about potential job losses
in large numbers and the deterioration of the working environment as a result of competitive
pressures resulting from phasing out of MFA. Speaking on behalf of the SAARC Secretary
General (South Asian Association for Regional Cooperation), Mr. Amit Dasgupta, SAARC
244 GARMENT INDUSTRY IN SOUTH ASIA
Secretariat Director for Economic Trade and Transport, stated that there is a need for greater
degree of coordination among apparel industries in South Asia. He suggested that SAARC
Secretariat could play a role in facilitating the process of setting up a mechanism for greater
cooperation and complementarity among the garment industries across the sub-region.
Employers and workers’ representatives spoke about the importance of improving efficiency
and job quality in the industry, for which social dialogue would play an important role.
Mr. Suraj Vaidya representing the FNCCI and EC (employers) in Nepal and Mr.
Jitendra Lal Karna of DEFONT (workers) also spoke during the occasion. Mr. Vaidya
pointed out that there is a need for modernization of technology and management system
and the whole working attitude. He stated that all three social partners – the government,
entrepreneurs and the workers have a stake in the survival of the garment industry, and there
is a need for all these partners to work together.
2. Technical sessions
Two technical presentations were made by Mr. Gopal Joshi, Senior Enterprise Specialist
SAAT New Delhi. Providing an overview of the garment industry in South Asia on the first
day, Mr. Joshi pointed out that there has been a phenomenal rise over the last few years in
garments exports and employment in the industry, with large percentages of female workers
(as much as 90% for Bangladesh and Sri Lanka) joining the manufacturing jobs. These jobs
are, however, increasingly in jeopardy as the garment industry has grown on the basis of the
availability of the quota from developed countries, which is going to be removed at the end
of the year 2004 upon termination of MFA. He further stated that as the competitive pressures
increase, the garments industry in South Asia can take the ‘low road’ of price competitiveness
with low wages and bad working environment or ‘high road’ of high value addition and
better job quality.
During the second presentation on international perspective, Mr. Joshi pointed out that
there is a trend of increasing regional trade to benefit from proximity and flexibility and
from integration and complementarity across the countries and continents at the level of
enterprises so as to enhance their competitive position in the world market. The industries
operating in the fringes of value chain, offering heavily discounted commodity, are bound
to come under heavy pressures as globalization takes effect. Therefore, it is imperative that
both the countries and industries need to increase their cooperation and complementarity to
increase their competitiveness.
3. Country presentations
Country presentations describing the state of employment, job quality and
competitiveness in the respective garment industry in five South Asian countries were
presented by the respective resource persons.
PROCEEDINGS AND CONCLUSIONS 245
3.1 Bangladesh
Presenting the country paper on Bangladesh, Dr. Nasreen Khundkar pointed out that
the growth of garment industry in Bangladesh is the direct result of the MFA and other trade
agreements. It has had free market access to EU markets and the US which also gave
Bangladesh sizeable quota thus turning it into one of the important suppliers to both American
and European markets. The economic importance of the garment industry for Bangladesh is
signified by the fast rise in its share from 4 percent of the total exports in 1983 to 76 percent
in 1999-2000. The industry employs 1.5 million workers, 90 percent of whom are female
workers.
Once quota is removed, Bangladesh is expected to suffer from its lack of textile
industries and poorly developed infrastructure. Although Bangladesh seems to enjoy the low
wage cost advantage, it also suffers from low productivity and poor job quality.
Dr. Khundkar predicted that the initial impact of the phasing out of the MFA would
be highly disruptive. Thousands of jobs will be at stake, particularly for women workers,
and working conditions are expected to further deteriorate. The strategy for further
improving competitiveness of Bangladesh garment industry should include: (a) market
diversification; (b) product diversification to include high value fashion wear; (c) backward
linkages to reduce the high dependence on imported inputs; (d) productivity
improvement through improved job quality; and (e) responsiveness to consumer ethics and
labour standards.
3.2 India
Presenting the country report on India, Dr. M. Vijayabaskar stated that in the initial
phases of Indian apparel exports, USSR and Eastern Europe were the largest markets, but
by 1999 a major share of Indian garments exports was destined to the US and European
markets. Indian exports to these counties have been subject to quantitative restrictions. Since
quota given to India in most developed countries have been fulfilled, analysts expect that
the removal of the MFA restrictions would enhance the ability of Indian exports to penetrate
these markets. Exports to non-quota countries have recently grown at a much higher
rate than that for quota countries, indicating a degree of competitiveness of Indian
apparel. However, 51 percent of the garment exported continues to be governed by quota
restrictions.
The presentation outlined the possible elements of the strategy to be followed in the
post-MFA environment for enhancing competitiveness as: (a) promotion of mass marketing
for achieving the scale of economy; (b) enforcement of international labour standards;
(c) moving up the value chain by targeting the specific niches; and (d) creation of a
competitive environment in the domestic market through promotion of fashion design
facilities.
246 GARMENT INDUSTRY IN SOUTH ASIA
3.3 Nepal
Dr. Dinesh Pant presented the country study of Nepal. He pointed out that the employment
in the garments industry has come down to 25-30,000 workers from 100,000 in early nineties
along with decline in the number of garment industries. Remaining jobs are expected to be
further threatened as the quota system is abolished since the garment industry in Nepal has
grown as a spillover from the neighbouring country. The competitiveness of the garment
industry in Nepal is particularly constrained due to transportation costs and low productivity.
Workers in the industry state the lack of contract and other rights and benefits normally
available to the manufacturing workers. They seem to feel that the situation is further
aggravated due to existence of the foreign workers in the industry. On the other hand,
employers are likely to seek to reduce the wage costs as the competitive pressures build up
after the removal of the quota at the end of 2004.
The country report recommended formulation of a national strategy with: (a) focus on
high value products; (b) product and market diversification; (c) development of backward
linkage industries; (d) completion of dry port projects; (e) utilization of WTO provisions for
least developed countries; (f) improvement in human resource management for enhancing
productivity; and (g) upgradation of technology and processes.
3.4 Pakistan
On behalf of Mr. Asir Manjur, SMEDA (Small and Medium Enterprise Development
Authority), Mr. Nabeel Goheer stated that with more than 700,000 workers, the garment
industry is the single largest industrial employment provider in Pakistan. The labour force
in the industry is dominated by male workers (90 percent) as labour laws in the country have
regulatory restrictions on women’s employment, like working hours, maternity benefits, etc.
Phasing out of the MFA is likely to open new opportunity in the product segments at
the top-end of the textile value chain. At the same time, it would adversely affect the growth
of exports from developing countries; such as Pakistan, which are dependent on a limited
product range and are competing in the global market on the basis of the price advantage
rather than quality.
In Pakistan, the existing quota policy not only discourages diversification but also
hampers the entry of new exporters through imposition of high entry barriers in the shape
of huge investments in quota procurement. In the areas of labour costs and the costs of other
inputs, Pakistan is still competitive in apparel manufacturing. The total cost of garments is
below the average unit price realization of different competitors.
The country report recommended a strategy that would include: (a) human resource
development; (b) diversification of export destinations; (c) tapping the regional market; (d)
seeking preferential treatment from developed countries as a regional bloc; (e) innovative
product development through promotion of design facilities; and (f) instituting liberal import
regime for importation of the inputs and equipment
PROCEEDINGS AND CONCLUSIONS 247
4. Panel discussions
Panel discussions were held at the end of country presentations, during which the
panelists representing the government, employers and workers made comments on the country
papers presented and further raised the issues for discussion. Mr. Atul Chaturvedi, Joint
Secretary Ministry of Textiles, Government of India, chaired the first panel discussion on
the presentations on Bangladesh, India and Nepal. Mr. Mohammad Abu Taher, Joint Secretary,
Ministry of Labour and Employment, Bangladesh, chaired the second panel discussion on
the presentations on Pakistan and Sri Lanka.
During the discussions, Government representative from Bangladesh pointed out that
the country has been exporting under the GSP (General System of Preferences), which is not
exactly the quota system. However, this arrangement is also subject to the discretion of the
developed countries. The employers’ representative from Nepal pointed out the need for the
strategic alliance among the garment manufacturers and exporters throughout the sub-region.
248 GARMENT INDUSTRY IN SOUTH ASIA
The employers’ representative from India stated that there should also be networking of the
firms within the country as a strategy to deal with the removal of the quota system.
The need for labour market flexibility was raised during the discussion for the firms
to be able to compete in the globalized market. However, it was pointed out by the workers’
representatives that the flexibility should be based on the employability of the workers, who
have opportunity to upgrade their skills and choose employment opportunities in the labour
market. The employers’ representative from Sri Lanka pointed out the need for intensified
training of the workers with the establishment of training schools catering solely to textile
and garments. The employers’ representative from India pointed out the need for formalizing
the training being given by various training organizations.
Lack of clarity in the labour laws in South Asia was pointed out by the employers’
representatives. Workers’ representative from Sri Lanka pointed out the need for labour law
reform. He also urged inclusion of labour standards in the social charter of SAARC (South
Asian Association for Regional Cooperation).
Regarding job quality and productivity in the garment industry, workers’ representatives
from participating countries pointed out the need for gain-sharing schemes, which would
provide incentives for improvement in productivity. The workers’ representatives emphasized
that incentive for the workers would help in the improvement in job quality and productivity
of the workers. It was pointed out by the representative from India that female dominated
industry has had traditionally lower wages. The government representative from Sri Lanka
however pointed out that the wages for both male and female are the same, but the female
workers endure other forms of difficulty, i.e., harassments, hardship in travel to and from
work, dual responsibility of family and work, etc.
Regarding the temporary workers, the workers’ representatives noted that as the garment
industry depends more on external factors; such as, seasonal demand and tight delivery
schedule, sub-contracting resulting in hiring of temporary workers is quite prevalent. The
workers’ representative from Pakistan pointed out that since no registration of contract
workers takes place and since many of them are migrant workers, they are deprived from
the regular benefits available to other workers. The employers’ representative from Sri
Lanka stated that the buyers from importing countries do not allow casual labour in the
industry. However, the workers’ representative disputed by stating that though trade unions
have fought for permanent employment and welfare provisions, there was no legal binding
for the household units to provide any permanent provision to the workers. It was generally
agreed that the lack of social security system has been a major disadvantage for the temporary
workers. It was, therefore, agreed that a tripartite discussion needs to be organized for
working out the safety net for temporary workers.
The chairmen of the panel discussions provided their concluding remarks at the end of
each of the panel discussions. Small and micro enterprises may have difficulty in surviving
the full force of globalization as the quota system is removed. There needs to be greater
cooperation among the countries in the sub-region for promoting complementarity among
PROCEEDINGS AND CONCLUSIONS 249
the respective industries and in attaining vertical integration among different levels of
enterprises within the industry.
Until now, the basic foundation of this industry has been low wages accompanied by
low productivity and low value added. One of the suggestions floated during the discussion
was that South Asian garment manufacturers need to move up in the value addition chain
because they have so far remained as suppliers of the garments at the lower end of the chain.
5. Conclusions
The participants were then divided in three groups for discussion on the issues raised
during the meeting and for providing recommendations for consideration by the governments
and social partners. The representatives from the governments and social partners presented
the conclusions of the group discussions.
5.1 Employers
The employers’ representatives summarized the conclusions reached during the group
discussion by pointing out the challenges faced and strengths inherent in the garment industries
in the sub-region. The challenges were mainly concerned with weak infrastructure, rising
competition, unemployment, weak implementation of labour standards and low product
quality. The industries also have inherent strengths of domestic demand potential, large pool
of labour and local fabric in some of the countries. While trying to mitigate the weaknesses,
the industries need to utilize the inherent strengths to the extent possible. It has been
concluded that each of the three parties - employers, workers and governments - has roles
to play in formulating a strategy to deal with the post-MFA environment of competitive
environment in garments trade.
The employers in the participating countries were urged to:
w adopt and implement the labour standards and monitor the compliance among the
SAARC countries;
w explore new market for diversification of the export destinations;
w regularly liaison with the government, ILO, SAARC secretariat and other related
agencies in establishing improved working methods;
w further upgrade the manufacturing facilities and re-strategize and right size the
structure for meeting the new challenges;
w reactivate the SAARC- Japan Fund for establishment of social infrastructure, such
as hostel/ residential facilities for workers employed predominantly in EPZ;
w establish a SAARC backed capital market funded by World Bank/IMF/ADB for
financing business activities, upgradation of technology and infrastructure, and
providing grants and soft lending for compliance of international standards;
250 GARMENT INDUSTRY IN SOUTH ASIA
5.2 Workers
The workers’ representatives summarized the conclusions reached during the group
discussions and presented the role to be played by the workers’ organizations in readying
the garments industry in facing the post-MFA environment of globalization. The workers’
group pointed out the common challenges of job security, job quality improvement, and
compliance to labour standards and trade union rights as the competitive pressures build up
on the garments industry with the removal of the quota system. In such an environment, the
workers’ group recommended to the ILO constituents in South Asia in developing a common
strategy of:
w skills development;
w raising awareness towards the effect of globalization, specifically abolition of
quota;
w including ILO’s labour standards into the SAARC social character; and
w forming a coalition of SAARC trade unions.
PROCEEDINGS AND CONCLUSIONS 251
The workers’ group further recommended improving productivity and job quality by:
w enhancing mutual understanding and trust among the employers, workers and
governments;
w agreeing not to compromise on job security, job quality and social security; and
w acknowledging the trade unions as important partners in improving productivity
and competitiveness in the industry.
In order for implementing the above recommendations, the workers’ group suggested
to:
w constitute a tripartite forum at the national and regional levels; and
w educate the workers for cooperation among the tripartite constituencies.
5.3 Government
The government representative summarized the group discussion relating to the roles
of the governments in facing the situation arising out of the removal of quota on the
garments industry. The following recommendations were made by the meeting to the
governments of the South Asian countries.
w Government needs to assume the role of a facilitator rather than acting as an
arbiter.
w Government’s activities need to be service oriented.
w Liberalization of rules and regulations should be carried out to simplify the
procedures.
w In the conflict between the employers and the workers, the role of the government
needs to be like a referee.
w In imparting education and skills training to the working population, government
needs to play an active role.
w Information technology (IT) needs to be promoted in creating a database and
making available market information to the industry.
w Uniform quality control has to be maintained through total quality management
(TQM), which needs to be taken up as a long-term campaign.
w Political commitment should be displayed in carrying out required reform in the
policy and regulatory environment, so as to make it conducive for the further
growth of the garments industry.
w Social recognition should be provided to the exporters and the manufacturers by
way of treating them as commercially important persons and providing awards,
trophy, etc.
w Logistic and infrastructure support needs to be improved for enhancing the
efficiency of the industry.
252 GARMENT INDUSTRY IN SOUTH ASIA
6. Closing
The workshop was concluded with a closing statement by Ms. Moti Shova Shrestha,
Joint Secretary, Ministry of Labour and Transport Management. Reiterating that the garment
industry is one of the most important industrial sectors of the sub region in providing
employment as well as generating exports earnings, she pointed out the problems relating
to low productivity, poor quality of product, cumbersome and lengthy export procedures and
lack of adequate fiscal and financial measures.
Impending removal of the quota system after the end of Multi-Fibre Agreement in
2004 is bound to pose a serious challenge to sustain the employment in garments industry
in South Asia. To cope with the problems associated with this sector, a series of policy and
administrative reforms are needed. Improvement in productivity should be undertaken not
only through innovation and technology upgrading, enhancement of product and service
quality and expansion of market opportunities but also through deliberate efforts in enhancing
job quality and conditions of work.
The countries in the sub-region should adopt a strategy involving high level of
competitiveness, high value product, product diversification, product design and diversification,
backward linkages, reduction in production led-time and intra-regional corporation among
the SAARC countries as.
Attention should be directed in implementing the International Labour Standards. The
standards on fundamental human rights and trade union rights must be implemented without
regard to short-term gains that could be had by ignoring them. Implementation of the
standards is expected to enhance constructive labour-management relations promoting social
dialogue to resolve conflicts.
Ms. Shrestha emphasized that the difficulties arising out of the removal of the quota
system may be a blessing in disguise since the industry may emerge with new strength and
vigour to compete in the liberalized trade environment. It is expected that the discussion and
conclusions of the meeting will provide the impetus towards strengthening of the resolve
for improving the productivity and competitiveness in the industry through improvement in
job quality.
PROCEEDINGS AND CONCLUSIONS 253
APPENDIX I
PROGRAMME
1300-1400 Lunch
1400-1530 Country Presentations I (continued)
Nepal
(Dr. Dinesh Pant)
Panel Discussion
1530-1700 Group Discussion I
APPENDIX II
List of participants
Bangladesh