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Garment industry

in South Asia
Rags or riches?

Competitiveness, productivity and job quality


in the post-MFA environment

Edited by
Gopal Joshi

South Asia Multidisciplinary Advisory Team (SAAT)


International Labour Organization
New Delhi
Copyright © International Labour Organization 2002

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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.

Herman van der Laan


Director,
South Asia Multidisciplinary Advisory Team
April 2002 ILO New Delhi
Contents
Page
1. Overview of competitiveness, productivity, and
job quality in South Asian garment industry – Gopal Joshi 1
1. Introduction 1
2. Illusory competitiveness 4
3. Productivity and job quality 9
4. Common strategy 11
2. Garment industry in Bangladesh – Nasreen Khundker 13
1. Introduction 13
2. Static vs. dynamic competitive advantages 19
3. Major issues and prospects in the garment industry 23
4. Strategies for improving competitiveness, productivity, and job quality 27
5. Summary 30

3. Garment industry in India – M. Vijayabaskar 39


1. Introduction 39
2. Characteristics of Indian garment sector 42
3. Features of world garment industry 48
4. Competitiveness of Indian garment exports 57
5. Labour and Indian garment exports: A case study of Tiruppur knitwear industry 62
6. Possible impact of removal of quota restrictions 69
4. Garment industry in Nepal – Dinesh Pant and Devendra Pradhan 83
1. Introduction 83
2. Globalization context of garment industry in Nepal 90
3. Employment and quality of jobs in garment industry in Nepal 102
4. Strategies for improving competitiveness, productivity and
job quality in garment industry 115
5. Garment industry in Pakistan – Asir Manjur 137
1. Introduction 137
2. Global market 138
3. Apparel exports 141
4. Unit price realization 148
5. Apparel industry structure 151
6. Quotas in textile trade 159
7. Issues, concerns and suggested strategy thrust
for apparel sector development in Pakistan 167
6. Garment industry in Sri Lanka – Saman Kelegama and Roshen Epaarachchi 187
1. Introduction 187
2. Major issues facing the industry 193
3. How competitive is the Sri Lankan garment industry? 196
Page
4. Contributing factors to low productivity 199
5. Impact of globalization on garment industry 210
6. Key strategies for improved productivity and competitiveness
in Sri Lanka’s garment industry 215

7. Sub-regional meeting on competitiveness, productivity


and job quality in the garment industry in South Asia,
Kathmandu, 25-26 September 2001 233
Proceedings and conclusions 233
1. Inauguration 233
2. Technical sessions 234
3. Country presentations 234
4. Panel discussions 237
5. Conclusions 239
6. Closing 242
List of tables
Page

1.1 Employment in the garment industry in South Asia 1


1.2 Quota exports of garments from South Asia 3
1.3 Labour costs in selected countries (in US $/hour) 4
1.4 Growth of intraregional garments trade, 1990-98 5
1.5 Share in world garment exports, 1998 6
1.6 Unit price realization of selected garment exports (in US $/piece) 8
1.7 Productivity and wages 9
2.1 Growth rate of RMG exports 16
2.2 Sectoral composition of female employment in Bangladesh, 1995-96 17
2.3 Participation indicators of female employment in Bangladesh, 1995-96 18
2.4 Inter-country comparative average hourly wage in the RMG industry 20
2.5 Gender discrepancy of participation and wage rates in export-oriented RMG 22
2.6 Cost structure and profit margin of RMG units 28
2.7 Trend in nominal and real wage in garments by skill category 30
3.1 Growth rate of exports of Indian apparel, 1980-2000 44
3.2 Machines installed by apparel export firms (nos.) 46
3.3 Employment within the textile and apparel industry in India 47
3.4 Sex-wise distribution of workforce in the organized Indian garment sector (1997/98) 48
3.5 World’s leading exporters of apparel, 1980-95 49
3.6 Cost structure of the apparel industry 51
3.7 Labour costs in apparel industry across regions (in US $/hour) 52
3.8 US imports from selected countries by MFA categories, 1996 (unit values) 58
3.9 Rank correlation coefficients of the RCA indices for pairs of countries (garments) 61
3.10 No. of workers employed in the knitwear industry in Tiruppur 63
3.11 Worker characteristics in finishing units, Tiruppur 64
3.12 Break-up of cost of production 66
4.1 Cost composition and profit margin 88
4.2 Import of raw materials and accessories for garment industries 93
4.3 Garment export as percentage of GDP 94
4.4 Share of South Asian countries in total garment import of U.S.A 94
4.5 US imports from SAARC region in 1999 95
4.6 Comparative cost structure and profit margin (in US dollar) 96
4.7 Manufacturing labour productivity indices of selected Asian countries 96
5.1 Comparative unit price realization of men’s wovenwear exports 149
5.2 Comparative unit price realization of men’s knitwear exports 149
5.3 Comparative unit price realization of women’s wovenwear exports 150
5.4 Comparative unit price realization of women’s knitwear exports 150
5.5 Comparative unit price realization of exports of T-shirts & pullovers 151
Page

5.6 Number of stitching machines installed 153


5.7 Extent of losses in the knitwear industry 154
5.8 Competitiveness of apparel manufacturing in Pakistan 155
5.9 Average monthly salaries based on skill levels in the apparel industry 156
5.10 Apparel industry average hourly wages 156
5.11 Pakistan’s quota utilizations in the USA 161
5.12 Quota utilization in EU 162
6.1 Distribution of factories by size 189
6.2 Geographical distribution of garment establishments
and numbers of employees, 1999 190
6.3 Garment industry gender composition in labour force
by occupational categories, 1998 191
6.4 Quota and non quota exports 192
6.5 Percentage share of quota and non quota garment exports 193
6.6 Growth in garment industry 197
6.7 Hourly labour costs including social & fringe benefits (US $), 1996 198
6.8 Selected characteristics of the wearing apparel sector in selected
South Asian countries, (annual data), 1993/4 199
6.9 Garment industry labour turnover and absenteeism (percentage) 202
6.10 Mode of training in garment industry (percentage), 1999 203
List of figures and exhibits
Page

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

A5.4 EU imports of apparel 176


A5.5 Types of EU imports, 1999 177
A5.6 Breakup of Asian exports to EU, 1999 177
6.1 Quantity of garment exports 187
6.2 Value of garment exports (US $) 188
6.3 Sri Lanka garment exports to EU, 1999 191
6.4 Total value of export of garments and value of imports
to the garment industry, 1990-1998 208

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

Countries No. of workers Percent Percent of


female total exports

Bangladesh 1.5 million 90 76


India 4.3 million 34* 13
Nepal 40,000 15 38
Pakistan 700,000** 10 60
Sri Lanka 277,000 87 52
* Estimate based on a sample study of Tiruppur knitwear industry.
** Estimate based on formal sector garment industry and installation of machinery.
Sources: 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.

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

* Senior Enterprise Specialist, ILO-SAAT, New Delhi.


12 GARMENT INDUSTRY IN SOUTH ASIA

(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.

1.1 Dependence on quota


Among several reasons, there are primarily two situations that have caused rapid expansion
of garment industry in last two decades in the South Asia; such as, Bangladesh, Nepal and Sri
Lanka, which have no resource endowment or historical tradition of garment exports. These two
situations are:
ü Relocation of manufacturing platforms in South Asia from other Asian countries
including larger neighbours within the region largely due to availability of quotas
for export to the US and EU markets.
ü Low wages and ease of entry and exit in these countries for operating garment
manufacturing.
South Asian countries are preponderantly dependent on quota based exports, more so
in regards to the smaller countries with no resource endowments (Table 1.2). The quota
system was fashioned by industrialized countries under the MFA (Multi-Fibre Agreement)
in 1974 as a temporary arrangement to protect their domestic garment industries from the
onslaught of cheap imports from low wage countries.
As a result of the quota restrictions, the Asian countries, which had used up their quota,
initially established manufacturing platforms in other Asian countries, which were not in a
position to fully utilize the available quota. Quota arrangements under MFA are due to
terminate in a phased manner by the end of the year 2004. While it supposedly frees up the
market for exporting countries to export garments without quota restrictions, there is a great
deal of apprehension that the jobs and incomes of a very large number of people in the
OVERVIEW 13

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.

1.2 Job quality for productivity


ILO would naturally be concerned about loss of jobs and deterioration of job quality
as globalization affects garment industry as well, which provided some respite by generating
jobs for the rapidly swelling ranks of job seekers in the labour markets of South Asia. ILO
has articulated the need for promoting Decent Work for the working women and men,
whereby they have opportunity for remunerative and productive jobs with workers’ rights.
However, a massive job loss is detrimental to the mission of promoting Decent Work.
Furthermore, competitive pressures deteriorating job quality would not only harm the cause
of Decent Work but also dampen the prospects of expansion of job opportunities when the
success of the industry is doubtful. Therefore, the questions faced in preventing job losses
and degradation in job quality in the garment industry are:
q Can there be a strategy to prevent job losses through improvement in productivity
and competitiveness?
q Should such strategy examine the possibility of gradually reducing the dependence
on quota allocations and seeking other avenues of exporting garments?
q How could improvement in job quality contribute to the enhancement in
productivity and competitiveness?
q What are other measures required in improving competitiveness?
14 GARMENT INDUSTRY IN SOUTH ASIA

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)

Countries 1991 1993


Bangladesh NA 0.16
India 0.25 0.27
Pakistan 0.24 0.27
Sri Lanka 0.39 0.35
China 0.24 0.25
Indonesia 0.18 0.28
Thailand 0.59 0.71
Italy 13.5 NA
UK 7.99 NA
US 6.77 NA
Sources: Moore 1997, Table 2; Ramaswamy and Gereffi 1998, 123 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.

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.

2.1 Growth of intraregional trade


There has been a growing trend in intraregional garments trade among the countries in
North America, Europe and East Asia, which has begun to impact the exports from other
developing countries regardless of the price advantage of the latter. Table 1.4 provides a
glimpse of such growing trend in intraregional garment trade. Such growth has been largely
motivated by:
ü Proximity to the markets in developed countries, where the garments assembled
from the material inputs from these countries can be exported.
ü Flexibility in production processes whereby the garment importing countries are
not entirely dependent on the exporting countries from design to marketing.
ü Political considerations of having stable economies with employment in the
neighbouring countries.
ü Regional trading blocks; i.e., EU and NAFTA.
Table 1.4: Growth of intraregional garments trade, 1990-98

Regions Growth 1998 Trade volume


(in percent) (US$ billion)
Intra-Western Europe 2 46.5
Asia to W. Europe 4 18.6
Asia to N. America 5 31.2
Central & EEC to W. Europe 20 8.7
Intra-Asia 11 19.6
Mexico & Latin America to N. America 20 11.7
Source: WTO as quoted in Implications of the phase out of MFA on exports of garments and textiles
and the structural adjustments required, a study by KSA Technopak, India for Ministry of Textiles
and FICCI.

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.

2.2 Features of garments trade in South Asia


Although the growth of garment exports among South Asian countries has been
phenomenal in many respects, the share of their exports in the total world garments trade
still remains quite marginal (Table 1.5). The items being exported by these countries remain
quite narrow and few, while other Asian countries have far more diversified and high-value
added exports. On the other hand, China’s share of garment exports has risen to over 15
percent by 1995 from 4 percent in 1980.3 It has climbed to be the top exporter from the
eighth rank during the period with comparative advantage in as many as 32 categories of
export items vis-à-vis such exporting countries as India and Indonesia.4
Table 1.5: Share in world garment exports, 1998
In percentage
Countries US market EU market
Bangladesh 3.77 1.9
India 3.14 3.3
Nepal 0.4*
Pakistan 1.8* 1.1
Sri Lanka 2.56
*1997
Sources: 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.

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.

2.3 Export of commodities


There are several layers of global hierarchy in sourcing indicating the extent of the
value garments are able to command on the basis of value addition and branding (Figure
1.1). South Asian countries fall in the outer periphery beyond ring 3, where the garments
are sold through mass merchandisers and discount chains. South Asian countries are carrying
out more of a role of commodities exporters responsible for assembling low-cost discount
clothing without much role as independent exporters of branded merchandise or even as
commercial subcontractors or component suppliers. As a result of the above weaknesses
described in Section 2.2 above, the exporters from South Asia are largely confined in buyer
driven commodity chains (BCC) rather than producer driven commodity chains (PCC).
As a result of the above confinement of exports at mass merchandising and discount
chain outlets on a commodity basis, the region generally receives much less value in

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

Figure 1.1: Rings of global sourcing

Ring 1: Designers’ products

Ring 2: Top quality, high priced brands and labels

Ring 3: Specialty stores with brand name

Ring 4: Mass merchandising

Ring 5: Discount chains and small retailers

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)

SITC Product Bangladesh India Pakistan Sri Lanka China Thailand


description
Men’s woven wear
8414 Trousers 4.21 3.91 3.67 6.44 5.74 6.35
84151 Cotton shirts 4.82 5.59 3.74 6.15 4.02 7.51
84159 Shirts (other material) 4.17 6.16 2.89 5.72 5.28 4.85
Men’s knit wear
84324 Trousers 3.17 2.80 3.21 3.90 2.04 3.29
84371 Cotton shirts 2.97 4.53 4.06 7.44 5.49 7.48
84379 Shirts (other material) 3.45 4.62 3.81 6.08 8.14 3.34
Women’s woven wear
8425 Trousers, breeches 3.47 4.77 4.04 5.39 7.53 6.05
8426 Blouses, shirt-blouse 4.55 4.22 3.67 5.87 5.85 7.13
8427 Skirts 3.28 3.94 3.14 5.69 6.77 7.04
Women’s knit wear
8425 Skirts 0.00 2.92 5.68 4.85 3.13 4.41
8426 Trousers, breeches 2.59 3.74 2.90 4.82 6.78 4.54
Source: “Globalization and the Apparel Industry of Pakistan,” a discussion paper prepared by Asir Manjur for SMEDA
(Small and Medium enterprise Development Authority) for the Sub-regional Meeting on Productivity, Competitiveness and
Job Quality in Garment Industry in South Asia, Kathmandu 25-26 September 2001.
OVERVIEW 19

3. Productivity and job quality


The rising competitive pressures in the post-MFA environment may force South Asian
countries to examine their strategies in dealing with the competition. They may choose to
take the ‘Low Road’ of price competitiveness based on low wages and low quality or the
‘High Road’ of quality based competitiveness with emphasis on quality, branding and higher
value. Thus, the strategy of ‘Low Road’ of price competitiveness through reduction in labour
costs may take them on a downward spiral of further reducing not only wages and prices
but also towards deterioration of overall job quality for the workers. As it is, there are
numerous instances of the workers in the garment industry, particularly female workers,
having endured harsh working conditions and environment and exposure to workplace hazards.
Long working hours, cramped working and living conditions away from home, absence of
basic facilities (such as, adequate toilet facilities, meal breaks and crèche for childcare), and
lack of workers’ rights have been often noted. These conditions can be expected to further
worsen, as price competitiveness becomes primary concern of the manufacturer.
However, low wages and lower levels of benefit do not necessarily make a manufacturer
more competitive in the long run. With low wages and adverse working environment, not
only productivity is expected to suffer but also retention of skilled workers becomes harder.
Table 1.7 below illustrates the levels of productivity and wages among selected countries.
It is essential to examine whether a different strategy of ‘high road’ should be taken whereby
the efforts are made to improve productivity and value addition and thus enhance
competitiveness. Such strategy would lead to securing of high value in the export items thus
leading to higher spiral of larger incomes and investments.

Table 1.7: Productivity and wages


in US$
Countries Wages Productivity Share of wages (%)
Bangladesh (1992) 340.9 890.1 38.3
India (1994) 627.5 3,146.1 19.9
Nepal — — —
Pakistan (1991) 1,553.5 3,236.1 48.0
Sri Lanka (1993) 653.1 1876.1 34.8
Sources: 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.

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.

If a garment manufacturer decides to adopt the strategy of improving productivity


through high value addition and high quality, it can be pursued through a combination of
various measures:
Ø Investments in new technology and equipment
Ø Upgradation of skills among the workers
Ø Improvement in production organization and processes
Ø Carrying out productivity campaigns and emphasis on quality improvement
Ø Improvement in Job Quality
Investments in new technology and upgradation of skills could certainly contribute to
improvement in productivity and competitiveness, as in the cases of Bangladesh and Sri
Lanka. However, improvement in working environment, workers’ concerns (for instance,
crèche for the children of working mothers), benefits and incentives, safety and security and
other working conditions would provide motivation for the workers to utilize such skills and
technology for enhancement in productivity. Improvement in production organization and
process emphasizing on productivity campaigns and product quality can certainly orient the
workers towards the need for higher levels of productivity. Improvement in production
organization and process is not, however, complete without improvement in working
environment. For instance, if a manufacturer strives for hygienic and dust-free environment
OVERVIEW 21

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

countries. Global scale capacities as being developed elsewhere through information


flow and knowledge management on garments manufacturing and export could
also benefit South Asian garment industries.
ü Avoiding non-tariff barriers against garment imports in developed countries by
exchanging information on the compliance to these barriers relating to labour
standards, environment, human rights and democracy. Voluntary compliance to
labour standards, particularly in the areas of freedom of association, child labour,
workers’ rights and health and safety, could be promoted through exchange of
best practices.
ü For poverty alleviation through job creation, making a common case on the basis
of the least developed status for access to the European and North American
markets beyond the year 2004.
ü Lastly and most importantly, promoting local market within the sub-region for the
garments since the existence of such local market is an important cushion against
the market fluctuations as well as for promoting the scale of operation required
for innovation and value addition.
23

2 Garment industry in Bangladesh*

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.

1.1 Contribution of RMG to the economy


Globalization, especially the intensification of trade liberalization in the 1990s, has had
a significant impact on the Bangladesh economy, opening up opportunities in the export
sector and subjecting the import-competing sectors to greater international competition.
Overall, exports in the 1990s have increased by a factor of four, with imports also rising.
The ratio of exports to GDP rose from around 5.5 percent in the early 1980s to around 13
percent in 1997. GDP increased to nearly 5 percent on average over this period, leading to
a modest rise in per capita income. Unfortunately, the growth in income has also been
accompanied by a rise in income inequalities, the national Gini coefficient rising from
around 0.36 in 1983/84 to around 0.43 in 1995/96. Absolute poverty, at around 47.5 percent
of the population, has registered hardly any decline from 1988/89 to 1995/96, although the
percentage of the hardcore poor (those unable to meet 1,805 k. cal per person per day) has
declined a few percentage points, and still accounts for 25 percent of the population.1
Within the export sector, there has been a shift away from more traditional exports such
as tea and jute, to items such as RMG, fish and seafood, and leather. The change in revealed
comparative advantage (ratio of net trade flows to total trade) between 1990
and 1995 is shown in Table A2.1 in Annex, while the heavy concentration of exports of RMG
in total exports (around 76 percent in 1999/00) is shown in Figure 2.1 (Table A2.2 in Annex).
Figure 2.1: RMG exports from Bangladesh

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

The current manufacturing growth experienced by Bangladesh is thus by and large


driven by the growth of the RMG industry. In 1992, knit and woven RMG accounted for
7 percent of units, 11 percent of fixed assets, 21 percent of annual investment, 30 percent
of the employment and wage bill, and 23.5 percent of gross value added and returns on
capital attributable to Bangladesh’s private manufacturing sector.2 A study of the country’s
manufacturing sector’s performance in the 1980s found that the top 11 sub-sectors were, in
terms of growth in value-added, RMG, fertiliser, tea processing and blending, compressed
liquefied gas, bidis, leather shoes, printing and publishing, bakery, fish and sea food, silk
and synthetic textiles, dyeing and bleaching textiles, soft drinks, hand and edge tools, china
and ceramic wares, and tanning and finishing.3 According to a more recent study, RMG and
pharmaceuticals are the two sub-sectors which demonstrated the most robust growth in
output between 1988/89 and 1995/96, and thus commanded the most significant weight in
the manufacturing structure.4

1.2 Growth of RMG units


Since its beginning more than two decades ago, the RMG industry has shown phenomenal
growth, despite Bangladesh’s generally sluggish industrial base, turning the country from a
traditionally jute-centred export economy to one primarily based on RMG exports. Between
1983 and 1984/85 the number of garment manufacturing units increased from only 47 to
487. In the 1990s, Bangladesh Garments Manufacturers and Exporters Association (BGMEA)
membership experienced an annual average growth rate of 18 percentage points (see Figure
2.2 below, Table A2.3 in Annex).5

Figure 2.2: BGMEA membership


3500

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

1.3 RMG exports


The dynamic performance of the RMG industry has transformed Bangladesh from a
jute exporting country into what is primarily a garment exporting economy. From about 4
percent of Bangladesh’s total export earnings in 1983-84, within a time span of 15 years,
the RMG industry currently accounts for about 76 percent of the country’s total export
earnings, making Bangladesh one of the 12 largest apparel exporters in the world. More
than 95 percent of the output of the RMG units and about 90 percent of that of the knitwear
units cater to the foreign market.
The success of Bangladesh’s RMG exports is in part attributable to availability of
cheap labour; preferential treatment received from the European Union (EU) under the GSP
scheme; and substantial quotas available in the USA (as against quota restrictions imposed
on its principal competitors, e.g. China, India, Pakistan, Sri Lanka, and Thailand).
In the late 1970s and early 1980s, intermediate buyers began to shift sources of RMG
products from neighbouring countries, due to the imposition of quotas, to countries like
Bangladesh. Abundant cheap labour in Bangladesh ensured competitive prices, and thus
acted as a primary incentive, while political turmoil in neighbouring countries (e.g. Sri
Lanka) further induced this transfer process.
By relaxing the need for working capital and allowing duty-free access to inputs for
the RMG sector, conducive domestic economic policies such as the granting by the Bangladesh
Bank of back-to-back letters of credit (L/C) and bonded warehouse facilities further accelerated
the process of establishing new RMG units. Superimposed on this process has been the
impact of the North American quota system and the European Union’s preferential treatment
under various schemes, e.g. the General System of Preferences (GSP). While in the USA and
Canada, quotas imposed on apparel imports mean guaranteed access for developing countries
like Bangladesh, the GSP provided by the EU lends crucial support in maintaining competitive
prices, and thus a competitive edge for Bangladesh’s RMG exports.
Consequently, RMG exports have boomed (see Table 2.1 below). Over the last decade
(1987-1997) the compound growth rate of RMG exports was more than 25 percent. Between
1992 and 1997, the annual compound growth rate of RMG exports experienced a robust
growth of 19.4 percentage points, four times higher than GDP growth rates registered over
the same period.
Table 2.1: Growth rate of RMG exports

Last 10 years In the 1990s Last 5 years


Exports (FY 1987-FY 1997) (FY 1990-FY 1997) (FY 1992-FY 1997)
Woven-RMG 21.6% 19.5% 14.7%
Knit-RMG 75.5% 45.0%
Total RMG 25.4% 24.4% 19.4%
Source: Bhattacharya and Rahman, 1999
BANGLADESH 27

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.

1.4 Female employment in the manufacturing sector


Although female economic activity rates have been increasing compared to those of
their male counterparts, they have remained at a very low level, reflecting the usual trend
among labour markets in developing countries. The female share in Bangladesh’s total
labour force is about 38 percent (around 19 million), of which only a little more than 7
percent is involved in manufacturing activities, as shown in Table 2.2.6
Table 2.2: Sectoral composition of female employment in Bangladesh, 1995-96

Female employees as a % of total employment 38.10


Women’s share in non-agricultural labour force as a % of total female employment 22.60
Women’s share in manufacturing as a % of total female employment 7.04
Women’s share in services/commerce as a % of total female employment 14.90
Women’s share in agriculture as a % of total female employment 77.40
Source: Labour Force Survey 1995-96, Bangladesh Bureau of Statistics

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

repetitive process functions on the other—account for entrepreneurs’ explicit preference, in


export-oriented enterprises, for employing young, mostly single women with some formal
education.
Table 2.3: Participation indicators of female employment in Bangladesh, 1995-96

Age group years


Indicators 15+ 15-19 15-29 20-24 25-29
Female labour force participation rate 37.77 37.50 43.28 48.39 44.00
Rural 40.63 37.74 45.45 50.98 47.54
Urban 26.09 36.36 33.33 36.36 28.57
Female economic activity rate 55.65 47.59 55.73 59.14 60.04
Rural 63.60 54.61 64.03 67.27 69.26
Urban 30.44 28.99 30.80 33.14 30.56
Source: Labour Force Survey 1995-96, Bangladesh Bureau of Statistics.

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

2. Static vs. dynamic competitive advantages

2.1 Wage levels in the RMG industry


The principal static comparative advantage that Bangladesh enjoys over potential
competitors is its cheap labour force. The wage level in the RMG industry is low both for
males and females, compared with workers in a similar category in other sectors. For
instance, a comparison on the basis of wage data provided by Bangladesh Bureau of Statistics 8
shows that the average monthly wage of skilled RMG factory workers is 1.4 to 2 times lower
than that of similar factory workers in the textile and other sectors. Real wage indices also
show the comparatively low wages in this sector (Table A2.5 in Annex). Moreover, female
employment in the industry is confined primarily to low-paid jobs such as helpers and
operatives.
On an international scale, the RMG wage level is one of the lowest in the world (Table
2.4). Even by South Asian standards, it remains very low, with the average hourly wage in
Bangladesh being 42 percent, 50 percent, and 33 percent of those in India, Nepal, and Sri
Lanka, respectively.
Low wages, however, do not necessarily imply a low per unit cost of production.
Labour productivity, non-wage cost and the exchange rate are also equally significant factors.
As labour productivity also remains relatively low, the per unit production cost of output
tends to be high in spite of low wages. It has been calculated that person-minutes required
per basic product in Bangladesh’s RMG sector is 25.0, compared to 14.0 in the USA; 19.7

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.

Figure 2.4: Productivity and wages in Bangladesh RMG industry

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.

2.2 Gender discrepancy in job type and wage rate

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

Type of work Wage/pay per month Average female


(taka) participation rate
Operators
Plain and overlook 1 200-1 600 80-95%
Flat lock 1 500-1 800 40-60%
Helper 500-700 40-60%
Supervisors 2 000-3 500 10-20%
Finishing in-charge 4 000-5 000 0-5%
Production manager 12 000-25 000 Extremely rare
Source: Bhattacharya and Rahman (1999).

2.3 Job quality

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.

2.4 Impact of globalization on employment and job quality

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.

3. Major issues and prospects in the garment industry

3.1 Need for market diversification

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.

3.2 Need for product diversification

As already mentioned, due to its low labour productivity Bangladesh is competitive,


with low value and thus low-priced items, at the lower end of the RMG market. RMG
production is concentrated in a relatively limited range of products such as shirts, T-shirts,

16
Rahman and Rahman, 2001.
BANGLADESH 35

trousers, and shorts. To be internationally competitive, Bangladesh needs to expand its


product range and should begin producing fashion-wear and higher value-added items. Product
diversification is essential to meet the challenges of the post-MFA world. Evidence suggests
that Bangladeshi entrepreneurs are already shifting to higher-value knitwear products.
One way of understanding how entrepreneurs have responded to market opportunities
and have diversified their products, as well as built up skills and capacity, is to look at
changes in revealed comparative advantage over time. The revealed comparative advantage
(RCA) (Table A2.9 in Annex) has increased for trousers, outer garments, knitted
undergarments, jerseys and headgear. The table also shows, however, that there is scope for
diversifying into a range of other products.
Policy-makers must recognize that sufficient capacity building is required for such
diversification, which involves improving skills such as fashion design and cutting as well
as upgrading technology. Entrepreneurs can also benefit from a data bank which gives
comparative RCAs for close competitors, enabling them to better understand market trends
and potential.

3.3 Establishing backward linkages

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.

3.4 Improvements in productivity


It is clear from the discussion so far that one issue facing the RMG industry in
Bangladesh is the slow rate of increase in productivity, and the gap that exists between this
country and other competitors in this regard. There is also scope for capacity building in
different types of skills and processes.
The aim should be to move the industry up to a different regime, wherein competition
is based on higher productivity, an improved working environment, and backward and
forward linkages to meet the new challenges of the post-MFA era. A more concerted action
plan is needed in this regard.
Interviews with entrepreneurs, for example, have suggested that Bangladesh is at a
disadvantage compared to other countries in South Asia; such as, Sri Lanka, where a more
educated labour force, especially at the supervisory and managerial levels, increases labour

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.

3.5 Responsiveness to consumer ethics and standards


New challenges facing the RMG industry and the export sector in general include
greater consumer awareness of quality, health, and environmental standards. These issues
may well act as non-tariff barriers, but entrepreneurs have little option other than to meet
these requirements and codes of global transactions. Similarly, working conditions—including
safety, health, and the earnings of workers, together with issues such as child labour—are
growing concerns on the part of international consumers.
The industry needs to improve its image in this regard, advertising recent achievements
such as the abolition of child labour and improvements in occupational safety. Efforts to
further improve standards, furthermore, are likely to have longer-term payoffs.

3.6 Need for a data bank


Interviews with entrepreneurs suggested considerable uncertainty regarding the behaviour
of competitors and their responses to the new global environment. A considerable gap also
exists in knowledge about trade and investment flows. This is understandable, given that
most entrepreneur interactions are with buyers who merely specify their product needs,
provide the designs, etc. The emerging global environment, however, calls for more strategic
action with regard to major competitors.
In this respect, international organizations such as the ITC, UNIDO, and the ILO can
have special roles to play. The relevant ministries can also maintain easily accessible data
banks on trade flows by country and region, including information on product line, changes
in unit costs, special opportunities, new technologies, cost effectiveness of different
technologies, etc., especially in the backward linkage industries. The BGMEA should also
try to disseminate such information to all types of entrepreneurs.

4. Strategies for improving competitiveness, productivity, and job quality

4.1 RMG industry at a crossroads


The discussion above underscores that the RMG industry in Bangladesh is at the
crossroads, where the phasing out of the MFA and the increased pace of liberalization will
impose new challenges. Meeting these challenges, and remaining competitive in the global
market, will entail the transition to a new regime, the main elements of which involve
strategic interventions aiming to:
l ensure higher productivity, skills development and better job quality;
38 GARMENT INDUSTRY IN SOUTH ASIA

l diversify products and markets; and


l establish backward linkage industries.
The RMG industry in Bangladesh, it may be argued, arose within a fortuitous set of
circumstances. Its comparative advantage was based on factor endowments, particularly an
elastic supply of cheap female labour. Government policy measures were also important in
fostering sustained growth in the industry.
While initial growth was largely unplanned, the industry subsequently built up its
capacity and learned from experience, even though gains in productivity have been slow.
One of the important learning effects has involved the building of relationships with buyers
and gaining market access.
Future action, however, calls for a concerted national action plan to address the main
issues highlighted in this paper. It also demands a recognition that the low wage-low
productivity regime, hitherto the cornerstone of the RMG industry’s competitive advantage,
will no longer present a viable strategy in the post-MFA era.
The following two sections further elaborate this conclusion with regard to changes in
the cost structure of existing firms, including wages and skills composition. Recommendations
are summarized in the final section.

4.2 Cost structure of the RMG industry


Although RMG manufacturing is a highly labour-intensive process, according to some
findings labour costs account for a modest share in the entire cost structure of RMG products.
In the absence of any intertemporal data representing the entire RMG sector in Bangladesh,
we present the findings of two sector studies—a survey of 72 RMG units by the World Bank
under its Industrial Sector Strategy (ISS) in 1992; and a study of 38 RMG units by the
Bangladesh Institute of Development Studies (BIDS) in 1995—to indicate the recent cost
structure and profit margin of RMG units (Table 2.6).
Table 2.6: Cost structure and profit margin of RMG units

Indicators ISS Study (1992) BIDS Study (1995)


Value of output 100 100
Costs: 87.00 76.00
* Industrial cost (excluding wage)1 73.00 64.00
* Non-industrial costs2 03.00 05.00
* Employment cost (wage bill) 11.00 07.00
Gross value-added 23.00 31.00
Profit margin 13.00 24.00
Source: Bhattacharya and Rahman, op. cit., Table 10, p. 17.
Notes: 1. Industrial costs include expenditures on raw materials, packing materials, fuel and
electricity, spares, and sub-contracting.
2. Non-industrial costs include expenditures on overheads, i.e., costs other than direct material and
labour expenditures. These costs include advertisement and facilitation expenses, selling and
distribution costs, interest payments, and taxes.
BANGLADESH 39

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.

4.3 Recent trends in the wage rate

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

l better regulation and supervision of factories, reinforcing government regulatory


capacity in this regard to ensure compliance with the Factory Act;
l compliance with labour laws with regard to wages, weekly holidays, canteen and
crèche facilities, occupational safety including attention to fire hazards, etc.;
l setting up a data bank by the relevant ministries in collaboration with such
organizations as the ITC, the ILO, and UNIDO to monitor trade flows by product
and region, information on new technologies, etc.;
l dissemination of information by the ILO regarding linkages between job quality
and productivity and best practices in other countries, aiming to promote attitudinal
changes among entrepreneurs;
l respect for basic workers’ rights, promotion of better industrial relations and
encouragement of freedom of association in the entire industry sector, including
in the EPZs.
l introduction of productivity-enhancing schemes by agencies such as the ILO,
with dissemination of best practices in competing countries; and
l dissemination to international consumers of information concerning improved
working conditions such as the MOU on the abolition of child labour, and, it is
to be hoped, of on-going improvements undertaken by the BGMEA, the ILO, and
the Government.
42 GARMENT INDUSTRY IN SOUTH ASIA

ANNEXURE 1
Table A2.1: Revealed comparative advantage (1990 and 1995)

SITC codes Group of products Revealed comparative advantage1


1990 1995
03 Fish, crustaceans, molluscs, preparations thereof 99.9 97.9
Ox Other food and live animals chiefly for food -66.4 -91.1
1 Beverages and tobacco -71.6 -94.7
264 Jute and other textile based fibres, n.e.s, raw/processed 100.0 100.0
2x Other crude materials, inedible, except fuels -15.6 -96.3
3 Mineral fuels, lubricants, and related materials -89.2 -94.9
4 Animal and vegetable oils, fats, and waxes -99.9 -99.7
5 Chemicals and related products, n.e.s. -87.5 -56.0
61 Leather, leather manuf., n.e.s., and dressed fur/skins 97.1 92.2
65 Textile yarn, fabrics, made-up art., related products -21.3 -66.1
6x Other manufactured goods class. chiefly by material -96.7 -95.3
7 Machinery and transport equipment -99.3 -96.6
842 Outer garments, men’s of textile fabrics 99.6 99.0
844 Under garments of textile fabrics -100.0 98.2
845 Outer garments and other articles, knitted -100.0 98.3
846 Under garments, knitted or crocheted -100.0 98.9
848 Art. of apparel and clothing accessories, no textiles -87.9 41.8
8x Other miscellaneous manufactured articles 86.5 -55.7
1
Revealed comparative advantage is measured as the ratio of net trade flows to total trade (imports plus exports).
Source: ILO Task Force based on data from Statistics Canada (1998) World Trade Analyzer CD ROM.

Table A2.2: RMG exports of Bangladesh: a comparative scenario

Year Export of RMG Total export of Bangladesh RMG export as a


(in US$ million) (in US$ million) % of total export
1983-84 31.57 811.00 3.89
1984-85 116.2 934.43 12.44
1985-86 131.48 819.21 16.05
1986-87 298.67 1 076.61 27.74
1987-88 433.92 1 231.2 35.24
1988-89 471.09 1 291.56 36.47
1989-90 624.16 1 923.70 32.45
1990-91 866.82 1 717.55 50.47
1991-92 1 182.57 1 993.9 59.31
1992-93 1 445.02 2 382.89 60.64
1993-94 1 555.79 2 533.9 61.4
1994-95 2 228.35 3 472.56 64.17
1995-96 2 547.13 3 882.42 65.61
1996-97 3 001.25 4 418.28 67.93
1997-98 3 781.94 5 161.2 73.28
1998-99 7 019.98 5 312.86 75.67
1999-2000 4352.39 5752.19 75.66
Source: Export Promotion Bureau, Dhaka, September, 1999 and Bangladesh Garment Manufacturers and Exporters’
Association.
BANGLADESH 43

Table A2.3: BGMEA membership fiscal year-wise

Year No. of members Growth rate (%)


1990-91 834
1991-92 1 163 39.45
1992-93 1 537 32.16
1993-94 1 839 19.65
1994-95 2 182 18.65
1995-96 2 353 7.84
1996-97 2 503 6.37
1997-98 2 726 8.91
1998-99 2 963 8.69
Average annual growth rate(%) - 17.72
Source: Export Promotion Bureau, GOB.

Table A2.4: Employment in the RMG industry in 1990s

Years Male Female Female employment Total


as a % of total
employment
1991-92 8 730 494 700 85 582 000
1992-93 120 600 683 400 85 804 000
1993-94 124 050 702 950 85 827 000
1994-95 120 000 1 080 000 90 1 200 000
1995-96 129 000 1 165 042 90 1 294 042
1996-97 139 756 1 257 808 90 1 397 564
1997-98 150 000 1 350 000 90 1 500 000
Source: BGMEA.
44 GARMENT INDUSTRY IN SOUTH ASIA

Table A2.5: Real wage indices of industrial workers (all employees)

(Base: 1985-86 = 100)

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

Table A2.6: Productivity and wages in apparel in Bangladesh

Year Annual wages Labour productivity Average size Share of Share of


(US$) (US$) wages (%) value added (%)
1981 305.7 778.8 25 39.3 35.0
1982 308.5 788.7 123 39.1 31.7
1983 344.4 803.1 163 42.9 28.3
1984 329.6 810.4 234 40.7 25.4
1985 350.0 806.2 206 43.4 30.9
1986 338.3 638.0 252 53.0 27.1
1987 344.4 692.8 205 49.7 26.0
1988 299.5 869.3 244 34.5 25.8
1989 345.5 989.4 239 34.9 27.4
1990 352.2 965.1 245 36.5 28.0
1991 334.7 951.1 288 35.2 26.6
1992 340.9 890.1 315 38.3 24.7
Source: Islam, S. , 2001.
Notes:
1. Average size refers to the average number of employees per establishment.
2. The share of wages refers to the share of wages in value-added.
3. The share of value added refers to the share of value-added in output.
4. The data is from UNIDO, Industrial Statistics Database at the 4-digit level of the SIC system.
46 GARMENT INDUSTRY IN SOUTH ASIA

Table A2.7: Productivity and wages in selected countries: Apparel

Countries Wages Productivity Share of Average


(US$) (US$) Wages (%) Size

India 626.0 627.5 1 323.6 3 146.1 19.9 74


(1981) (1994) (1981) (1994) (1994)
Hong Kong, China 4 121.5 13 389.3 6 720.1 20 454.4 65.5 24
(1981) (1995) (1981) (1995) (1995)
Indonesia 664.9 1 119.6 1 230.7 3 555.8 31.5 169
(1981) (1996) (1981) (1996) (1996) (1996)
Korea, Republic of 2 096.9 13 024.3 5 562.4 37 195.4 35.0 22
(1981) (1995) (1981) (1996) (1996) (1995)
Malaysia 1 363.4 3 895.0 2 915.3 7 182.9 54.2 20
(1981) (1996) (1981) (1996) (1996) (1995)
Mexico 1 817.8 4 622.6 5 181.7 9 767.7 47.3 158
(1987) (1994) (1987) (1994) (1994)
Pakistan 1 228.4 1 553.5 2 587.1 3 236.1 48.0 128
(1985) (1991) (1985) (1991) (1994)
Philippines 955.1 2 328.8 1 648.4 5 696.1 40.9 96
(1983) (1997) (1983) (1997) (1997) (1995)
Singapore 3 045.1 9 522.5 5 236.5 13 236.3 71.9 66
(1981) (1994) (1981) (1994) (1994) (1994)
Sri Lanka 499.4 653.1 1 554.9 1 876.1 34.8 464
(1990) (1993) (1990) (1993) (1993) (1993)
Thailand 1 708.3 3 646.8 3 792.0 5 420.4 67.3 438
(1982) (1994) (1982) (1994) (1994) (1994)
Turkey 1 703.2 2 168.6 6 839.0 14 839.3 14.6 62.0
(1981) (1994) (1981) (1994) (1994) (1994)
Italy 18 505.8 23 991.7 27 460.3 36 251.4 66.2 55
(1989) (1991) (1989) (1991) (1991) (1991)
Japan 6 787.3 18 645.1 12 747.6 33 573.1 55.5 20
(1985) (1993) (1985) (1993) (1993) (1993)
USA 9 024.6 16 226.2 19 580.7 42 193.3 38.5 41
(1981) (1997) (1981) (1997) (1997) (1992)
Source: Islam, S., 2001, based on UNIDO data.
Figures in parentheses are years for the data reported.
BANGLADESH 47

Table A2.8: Trend of RMG export to the US and EU in the 1990s

Year Exports to the USA Exports to the EU Combined share of the


(as a % of total export) (as a % of total export) US and EU export (%)
1991-92 49.14 46.42 95.56
1992-93 48.72 45.69 94.41
1993-94 38.08 55.43 93.51
1994-95 45.15 49.36 94.51
1995-96 39.33 55.17 94.50
1996-97 41.49 54.11 95.50
1997-98
1998-99 43.24 52.38 95.65
Source: Export Promotion Bureau (EPB) and Bangladesh Garments Manufacturers and Exporters Association
(BGMEA).

Table A2.9: Revealed comparative advantage (RCA) of Bangladesh in clothing


(selected years)

SITC Codes Years


1980 1985 1990 1996 1997
8421 (Overcoats, men’s) 1 9.0 13.0 4.1 5.1
8422 (Suits, men’s) 0 0.5 13.0 1.4 0.3
8423 (Trousers) 0 3.0 1.0 20.7 22.7
8429 (Outer garments) 0.6 5.4 55.2 25.2 29.4
8431 (Coats and jackets) 0 2.8 0 2.4 4.9
8432 (Suits of women) 0 0.2 0 0.9 5.5
8433 (Dresses, women’s) 0 0.4 0 7.4 7.9
8434 (Skirts, women’s) 0 4.7 0 7.7 7.0
8441 (Shirts, men’s) 0.2 52.2 0 55.8 52.9
8442 (Undergarments) 0 11.7 0 15.3 19.5
8451 (Jerseys, pullovers) 0 1.1 0 15.9 20.2
8452 (Dresses, knitted) 0 0 0 5.3 3.6
8459 (Outer garments, knitted) 0.2 0 0 9.7 10.9
8461 (Undergarments, knitted) 0 0 0 29.8 23.4
8465 (Corsets, etc.) 0 0 0 3.1 3.2
8471 (Clothing accessories) 0 0 7.4 0.5 0.8
8472 (Clothing accessories, knitted) 0 0.4 15.5 2.3 2.2
8481 (Clothing accessories ofi) 0 0 0.1 0.3 0.3
8482 (Clothing accessories ofp) 0 0 0 .2 0.2
8483 (Fur clothing) 0 0 0 0 0
8484 (Headgear and fittings) 0 0 .4 53.8 56.0
Source: Islam, S. (2001).
48 GARMENT INDUSTRY IN SOUTH ASIA

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

3 Garment industry in India

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.

1.1 Issues being examined


The report is largely based on secondary literature and published data sources. Statistics
published by the Apparel Export Promotion Council, by garment industry associations, and
by multilateral agencies would be used for the purpose apart from studies done in this area
50 GARMENT INDUSTRY IN SOUTH ASIA

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?

1.2 Organization of the report


This report first provides a framework outline to understand the issues under
consideration. In the next section, the major characteristics of the Indian garment industry
are delineated, and its position in the world garment industry is examined. The dynamics of
the world apparel market would obviously exert a key influence upon the mode of participation
in the world market and consequent production imperatives. The characteristics of the market
segments that Indian garment industry caters are identified. To comprehend the sources of
competitiveness of Indian garment industry, the production structure of the Indian garment
industry and the factors enabling the formation of such a structure are examined. This
exercise is attempted in a comparative frame, relating some of India’s structural and
performance characteristics with that of a few of its competing countries so as to comprehend
India’s competitive strength better.
Possible changes are examined in input and output markets wrought by the onset of a quota-
free trade regime. Here, the focus is on a few important dimensions of the Indian garment sector,
and its labour market in particular. The constraints and opportunities for its development are
highlighted. Finally, the nature of institutional intervention required to sustain and upgrade the
quality and quantity of employment in the garment sector are suggested.

1.3 Nature of global sourcing


Since it is important to understand the trajectory of a commodity sector embedded in
a global division of labour and its implications for labour, a framework is necessary for
understanding the dynamics of production and trade as impacted by the global division of
INDIA 51

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.

2. Characteristics of Indian garment sector

2.1 Changes in export composition

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).

2.2 Destination characteristics


The change in the composition of garments exported also partly reflects changes in the
destination of Indian exports. In the initial phases of Indian apparel exports, USSR and
Eastern Europe were the biggest importers. Right from the mid-1960s through the mid-
1970s, they accounted for roughly over 50 percent of the market for Indian apparel exports
(Chatterji and Mohan 1993, M 99). Since the late 1970s and the beginning of the 1980s,
there has been a gradual shift to US and European markets along with the decline of the
former East European and USSR markets. By 1999, a major share of Indian garment exports
catered to the US and European markets, 29.54 and 33.63 percent respectively (calculated
from AEPC 2000).
Indian exports to these countries have been subject to quantitative restrictions. Along
with currency depreciation, this has in fact governed the relative share of garment imports
by these regions from India. While during the early 1980s, the share of the EEC market was
around 50 percent, it declined in proportion to increase in the share of US market, only to
again increase and stabilise at 43-44 percent during the late 1980s and early 1990s (Chatterji
and Mohan 1993, M 102; Exim Bank of India 1995, 35). Since quotas given in most
countries have been fulfilled, analysts expect that the removal of MFA restrictions would
enhance the ability of Indian exports to penetrate these markets. Moreover, there has been
a slight diversification into non-quota markets in recent years with quota markets’ share
declining from 82 percent in 1987 to 74 percent in 1993 (Exim Bank of India 1995, 7) and
to 68 percent in 1999 (Handbook of Export Statistics, AEPC 1999). These new markets are
UAE, Switzerland, Japan, Russia, Saudi Arabia and Australia. Table 3.1 gives the growth
in restrained and non-restrained markets since 1980.
Table 3.1: Growth rate of exports of Indian apparel, 1980-2000
(compounded rate of growth)
Period Restrained markets Non-restrained markets
1980-84 1.25 32.8
1985-89 11.5 11.9
1989-94 7.5 22.8
1995-2000 4.8 7.8
Entire Period 8.83 17.9
Source: Panthaki (2001, 85).

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

2.3 Relative performance


Indian garment exports do not compare well with many other peripheral economies.
The growth in India’s share has been relatively slow, having moved from 1.5 percent in the
1970s to around 2.4 percent in 1992 (Exim Bank of India 1995, 7) and then to 2.6 percent
by 1994 (Ramaswamy and Gereffi 1998).3 Even the latest figures for India’s exports place
it at only around 2 percent (Tiruppur Exporters Association 2000). Though the growth of its
exports has moved in tandem with world garment trade, its performance does not compare
too well with that of other peripheral economies.
Economies like Thailand, Indonesia, Bangladesh, Mauritius, Pakistan and Sri Lanka have
achieved higher growth rates during this period as compared to that of India (Exim Bank of
India 1995, 8; Ramaswamy and Gereffi 1998, 124). China, for instance, has more than tripled
its share from 4 percent in 1980 to 15.2 percent in 1995 (Ramaswamy and Gereffi 1998, 124).
Bangladesh has increased its share to 0.9 percent from near nil exports in the early 1980s. As
a result, India’s share in ‘developing’ countries’ exports has not improved beyond the 4 percent
mark achieved in 1974 (Chatterji and Mohan 1993, M 96). To add, India’s rank among
‘developing and NIE’ country exporters has fallen from 5 in 1980 to 8 in 1992 (Exim Bank
of India 1995, 8). This relative stagnation assumes further significance in the context of India’s
advantages in terms of cheap cotton production and availability of large pools of labour. In
fact, substantial quantities of cotton fabric and yarn are exported from India to some of these
economies from where they are made up into garments and exported.

2.4 Government policies and production structure


The strategy of import substitution based industrialisation, with emphasis on growth of
heavy industry has exerted a strong influence on prospects of the garment industry. Since
heavy industries are capital intensive, and given the huge labour surpluses in India, the state
assigned a few light goods industries, including the garment sector, the role of a labour
absorber. Further, since there already existed a strong traditional artisanal garment sector,
it was felt that it needs protection from the more ‘efficient’, modern capital. Consequently,
sectors like the garments were reserved for firms that fall under the ‘small scale’ sector.
Firms with a capital investment limit of less than Rs. three crore4 are categorised as ‘small’
and any firm with greater investment need to commit to export more than 75 percent of its
output. Since no time frame is provided for this requirement, it is said that big firms do not
will to risk entry into this sector (Chatterji and Mohan 1993, M117). Further, the small firms
too would be unable to upgrade their technology, as this would invite a movement beyond
the capital ceiling fixed for the small-scale sector.5 As a result, the Indian garment sector
is found to consist of smaller firms as compared to other exporting peripheral nations,
3
ASSOCHAM Parliamentary Digest puts India’s share in textile exports for 1997 at 2.5 per cent (1999, 216)
4
It has been revised to Rs. three crores only since 1998, and the limit was Rs. one crore during the 1990s.
5
“In the case of export of cotton garments to the US in 1989, the average unit value realisation for Indian products was $
3.50 as against a figure of $ 4.61 for Hong Kong, $4.73 for Taiwan and $5.1 for Korea.” (Chatterji and Mohan 1993, M115).
56 GARMENT INDUSTRY IN SOUTH ASIA

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.)

Pre-cutting Cutting Sewing Special Processing


S. Korea 2.9 12.3 134.3 77.5 31
Taiwan 2.6 7.5 185.1 49.5 12.8
Hong Kong 2.3 13.2 455.4 112.7 27.9
Thailand 2 12.8 460.8 72.4 21.9
India 0 2.3 103.7 8.6 4.6
Source: Kathuria and Martin (2000, 10).

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

2.5 Labour employed

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

No Sector Employment (in million)


1 Handicrafts 7.1 (18.64)
2 Sericulture (Silk Industry) 6 (16)
3 Readymade garments 3 (7.87)
4 Woollen sector 1.2 (3.15)
5 Handloom 12.4 (32.5)
6 Decentralised powerloom 6.8 (17.85)
7 Man-made fibre/filament yarn 0.06 (0.16)
8 Cotton/man-made fibre/Yarn Textile/Mill Sector 1.14 (2.99)
9 Jute 0.4 (1.05)
Total 38.1 (100)
Note: Figures in parenthesis in Column 3 are the percent shares of employment in the sector.
Source: Tait (2001, 44).

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)

Industry No. of No. of No. of Share of female


Code factories male workers female workers workers (in %)
260 1380 24708 7612 23.5
265 2983 7637 148910 95.2
Note: ‘260’- Knitting mills; ‘265’ -ready made garments sector other than knitting mills where fabrics are cut and
sewn into garments.
Source: Annual Survey of Industries, 1997-98.

3. Features of world garment industry


3.1 Wage cost differences and strategy of shifting location
The characteristics of garment production, as noted earlier, low sunk costs, relative
absence of advanced technology and skills, have always induced apparel firms in the advanced
capitalist countries to shift labour intensive operations to peripheral economies. Studies
supportive of the ‘New International Division of Labour’ hypothesis, in fact, view the
process of globalization as a movement from high wage cost regions to low wage cost ones
(Frobel, Heinrichs and Kreye 1980). While in the case of garment manufacture in Europe,
shifting of production to low wage regions initially took place mostly within the continent7 ,
movement to other peripheral countries was largely initiated by apparel manufacturers from
the United States of America (USA or US) (Bonacich 1994, 81). This process has its origins
in the 1950s when manufacturers began to shift production to Japan to take advantage of the
lower wages prevailing there. This sourcing of garments from Japan with still lower wage
levels followed the earlier movement of US garment production from the northern part of
the country to the less unionised and lower waged southern regions (Markusen 1987, 134).8
Subsequent to the economic boom in Japan during this period accompanied by rise in wage
rates, manufacturers began to shift production to Hong Kong (Jones 1971, 140). From Hong
Kong, capital migrated to South Korea and Taiwan to benefit from the lower wages prevalent
there (Bonacich et al. 1994, 23). The process of incorporation of other East Asian economies

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

Countries Share in world exports


1980 1990 1995
Hong Kong 11.5 8.6 6
China 4 8.9 15.2
Italy 11.3 10.9 8.9
Germany 7.1 7.3 4.7
South Korea 7.3 7.3 3.1
US 3.1 2.4 4.2
France 5.7 4.3 3.6
Turkey 0.3 3.1 3.9
Thailand 0.7 2.6 2.9
Portugal 1.6 3.2 2.3
Chinese Taipei 6 3.7 2.1
India 1.5 2.3 2.6
Indonesia 0.2 0.5 2.1
UK 4.6 2.8 2.9
Netherlands 2.2 2 1.8
Source: Ramaswamy and Gereffi 1998, 124.

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.

3.2 Changes in mode of organization

The globalization process was paralleled by important changes in organization of the


apparel commodity chain. While the initial phase of globalization was dominated by
manufacturing capital in the advanced capitalist economies, it was, from the early 1970s,
replaced by retail capital (Bonacich et al. 1994, 83; Fine and Leopold 1993,107-110). This
process was once again facilitated by the requirements of low investment and technology in
the industry. Earlier too, the manufacturers did not produce the entire output in-house. They
sourced a substantial portion of their output through ‘contract manufacturing’, whereby they
contracted production to small producers, many of them located overseas. The bigger
manufacturers focussed on supplying designs to the producers in the low-waged regions, and
ensured control over quality of output sold to wholesalers and retailers in the metropolitan
regions. Since traders could undertake the same process of outsourcing as well, wholesalers
and retailers sought to bypass the manufacturers and began to source directly from overseas
manufacturers.
Importantly, this process transformed the mode of pricing in this industry. While
previously, pricing was primarily based on cost of production, with the dominance of trading
capital, pricing increasingly was based on what the customers could afford to pay (Bonacich
et al. 1994, 83). Since they could aggressively market the output, they could peg the prices
at a much higher level as compared to the cost of production. This process has important
ramifications for the modes of organising production in the sector since then, with the
industry becoming an archetype of a buyer driven commodity chain. Given their relatively
less knowledge of production, they competed primarily on the basis of design, marketing

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

Cost components Percent


Retail Shop Profit & Other Costs
(Personnel, rent, administration & advertising) 50%
Brand Profit, Overhead and Promotion 25%
Material Costs and Factory Profits 13%
Transportation/Taxes/Import costs 11%
Factory Workers’ Wages 1%
Retail Price 100
Source: http://www.stanford.edu/class/e297c/trade_environment/rights/haddress.html

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

3.3 Persistence of dominance of core economies

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)

Europe 1991 1993 Asia 1991 1993 S. America 1991 1993


UK 7.99 NA Hong Kong 3.39 3.85 Brazil 0.76 NA
W. Germany 14.81 NA South Korea 2.75 2.71 Mexico 1.17 NA
France 12.41 NA Taiwan 3.74 4.61 Argentina 1.81 NA
Netherlands 14.95 NA India 0.25 0.27 Peru 0.88 NA
Italy 13.5 NA Indonesia 0.18 0.28 Uruguay 1.59 NA
Ireland 7.5 NA Malaysia 0.62 0.77 Venezuela 1.38 NA
Belgium 12.57 NA Pakistan 0.24 0.27
Denmark 15.91 NA Philippines 0.46 NA
Greece 4.26 NA Sri Lanka 0.39 0.35
Portugal 2.65 NA Thailand 0.59 0.71
Spain 7.11 NA China 0.24 0.25
Japan 7.44 10.64
US 6.77 NA Singapore NA 3.06
Bangladesh NA 0.16
Mauritius NA 1.04
Source: Moore 1997, Table 2; Ramaswamy and Gereffi 1998, 123.

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.

3.4 Protectionism in the advanced economies

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.

3.5 The fragmentation of the apparel market


Fashions have always influenced creation of demand in this industry, especially after
the rise of retailers’ control of the commodity chain. Given their closeness and greater
understanding of the market than manufacturers, these traders sought to compete through
market innovations like new designs and fashion marketing rather than through cost reductions
by innovations in production techniques. Here again, there are differences across various
segments. Women’s and children’s wear is subject to more fashion based design changes as
compared to men’s wear (Fine and Leopold 1993, 109). Further, socio-economic and related
cultural changes have created a general trend in clothing towards more informal and casual
wear since the 1970s. Consumption based identities have begun to play a bigger role in
marking one’s position in the social hierarchy, thereby facilitating the creation of market
niches (Underhill 1998, 77). All these factors have led to the rise of distinct segments in the
apparel market.
This trend has accentuated in recent years, when it is said that the recession in advanced
economies has led to a more skewed distribution of income, creating two distinct market
segments (Mody and Wheeler 1987; Hoffman 1985). Others point to the rise of post-Fordist
life-styles, with consumption being an important marker of one’s identity, as responsible for
this phenomenon (Underhill 1998; Lash and Urry 1987). The causes notwithstanding, the
apparel industry has been divided into two key segments with different characteristics; i) a
vibrant and growing upmarket fashion segment and ii) a relatively stagnant, low priced and
standardised segment.
The former market is highly volatile and is characterised by short production runs, fast
changing fashions and designs, aggressive marketing and higher mark-ups. In response to
market instability, firms target smaller, more rapidly changing market niches, which require
quick alteration of product designs. Here, cost advantages do not matter as much as in the
mass-market segment. More important is the ‘quick response’ factor (QR), the ability to
deliver in time and adjust production to changing designs and quantities. In other words,
‘flexibility’ becomes an essential characteristic of production for this segment. Thus, the
cost advantage gained in dispersing production to low wage areas tends to be offset by
slowness in supply response. Production in distant locations is not suited for such markets,
INDIA 65

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.

3.6 High transaction costs for dispersion


A key factor that works against greater dispersion of garment production globally is the
amount of transaction costs involved in co-ordinating a global network of decentralised
producers and traders. The high vertical and horizontal disintegration in this industry increases
the volume and rapidity of inter-firm transactions. The location of production will therefore
be also influenced by geographical proximity to suppliers, contractors and final markets,
particularly when transactions are “small scale, irregular and involve production for quickly
changing niche markets” (Storper and Scott 1990, cited by Christerson and Appelbaum
1995, 1364).
In a cluster of firms in a region, the social embeddedness of production organization
creates extra economic ties that facilitate transactions. Community and ethnic relationships
provide certain regions with economic advantages in such a milieu. This is more relevant
to the garment sector dominated by vertically disintegrated firms. Firms tend to cluster in
regions that have a common ethnic or communal identity that enable entrepreneurs to enter
into long term contracts with less risk. Christerson and Appelbaum’s study on location of
garment industry in East Asia provides empirical support to this argument (1995). It has also
been observed that it is easier for Taiwanese and Hong Kong firms as compared to the
Korean firms to enter into contracts with overseas Chinese businessmen because of these
social networks (Bonacich et al. 1994, 138).
Given the high transaction costs involved, it may not be too feasible for buyers to shift
their point of sourcing too often taking into consideration only the labour cost advantage.
In fact, studies point to the fact that buyers increasingly prefer to negotiate with more

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

Representative Type of retailer Main global Characteristics of


firms sourcing area buyers orders
Fashion oriented Armani, Donna Karan, First and Expensive designers’ products
companies Polo, Ralph Lauren, second rings requiring high levels of craftsmanship;
Boss, Gucci orders are in small lots
Department stores Bloomingdale’s, Saks Second, third Top quality, high priced goods sold
fifth Avenue, & fourth rings under a variety of national brands
Neiman Marcus and private labels (i.e. store brands)
Speciality stores Macy’s, Norstorm, Second, third Medium to large sized orders, often
brand named J.C. Penny, The Gap, & fourth rings co-ordinated by department store
companies The Limited, buying groups (such as May
Liz Claiborne, department store company and
Calvin Klein Federated department store)
Mass merchandisers Sears Roebuck, Second, third s Good quality, medium priced
Montgomory Ward, & fourth ring goods predominantly sold under
J.C.Penny, Woolworth private labels; large orders
Discount chains Walmart, Kmart, Third, fourth Low-priced, storebrand products;
Target & fifth rings giant orders
Small importers Fourth & fifth Pilot purchases and special items;
rings sourcing done for retailers by small
importers who act as ‘industry scouts’
in searching out new sources of supply;
orders are relatively small first, but
have the potential to grow rapidly if
the suppliers are available.
Note: Ring 1: Italy, France, UK and Japan
Ring 2: Taiwan, Hong Kong, South Korea and Singapore
Ring 3: Indonesia, Philippines, China, India, Malaysia, Thailand, Brazil, Mexico, Egypt and Turkey.
Ring 4: Sri Lanka, Pakistan, Bangladesh, China, Tunisia, Morocco, Gulf and Caribbean countries, Eastern Europe, Mauritius,etc.
Ring 5: Fiji, Maldives, Cambodia, Myanmar, N.Korea, Madagascar, Vietnam, Nicaragua, Bolivia, Peru, etc.
Source: Gereffi 1994, 22.
INDIA 67

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.

4. Competitiveness of Indian garment exports


While garment exports have registered impressive growth rates relative to the rest of
manufactured exports from India, as we saw in an earlier section, India’s relative performance
vis a vis its competing nations have not been too well. India, falls under ring 3 along with
a few other Asian peripheral economies. In this section, based on existing studies and new
computations, we seek to measure the competitiveness of India’s exports. With the withdrawal
of quota and price restrictions from 2005, India, despite having unrestrained access to global
markets, may face tougher competition from similar countries seeking to expand their market
shares. Hence, it is imperative that measures are taken to meet the possible increase in
competition.
Competitiveness, in existing studies, has been measured primarily by a comparison of
market shares (Chatterji and Mohan; Exim Bank of India 1995; Ramaswamy and Gereffi
1998). Alternately, as an input measure, labour costs corrected for labour productivity can
be used. However, given the high presence of production in the informal sector, data on
labour use is insufficient to use. Further, this measure is also difficult to be used as a
comparative measure given the impact of exchange rates on wage costs. Given the importance
of non-price factors like quality in influencing the competitiveness of garments, unit value
realisation may be a better indicator as a measure of competitiveness. This measure, once
again, is problematic given the highly fragmented nature of the apparel market. Higher unit
values may probably indicate a foothold in a different market segment rather than competition
in a similar market. Nevertheless, higher unit values indicate an ability to upgrade, which
would be a critical factor in sustaining or improving competitiveness over time. Lastly,
given the importance of many non-price factors like quick response, quality of fabric and
processing, no single indicator can reflect the extent of competitiveness of Indian garment
exports. Consequently, in this section, we draw upon a multitude of indicators to understand
this dimension of Indian apparel exports.
At the three digit level (Table A3.4 in Annex) garment categories, non-knit women’s
outerwear, non-knit undergarments and knitted undergarments constitute the biggest shares
and together account for more than 70 percent of exports from India. Even within these
categories, specific items like women’s blouses and men’s shirts dominate the export basket.
When compared to the market shares of these and other product categories of Indian exports
against few of its competitors (Table A3.5 in Annex), India’s competitive edge is quite
68 GARMENT INDUSTRY IN SOUTH ASIA

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)

Category description Average India Bangladesh Pakistan Indonesia Hong China


Kong

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)

As a step towards further refining the measures of competitiveness, we next calculate


the revealed comparative advantage (RCA) in some of the product categories of Indian
garment exports and compare them with that of China and Indonesia. It is well known that
INDIA 69

the comparative advantage of a country is influenced by a number of factors, which may be


broadly classified as price and non price factors. It is however, difficult to obtain information
on these factors across products and countries. For example, sufficient information to make
inter-country cost comparisons is not available. Thus Balassa (1965) suggested that it is
sufficient to provide information on Revealed Comparative Advantage. The RCA, a well
known measure, is simply a ratio of the industry A’s export share to total merchandise
export from that country to the export share of the world exports of A to total world exports.
The RCA is thus a ratio of two shares and is expressed as:
RCA= (India’s export of product A/India’s total merchandise export)/(World export of
product A/World’s total merchandise exports).
It has definite advantages over use of market share as an indicator. The simple market
share is very sensitive to the size of the country. To illustrate, China obviously will have
larger share in the world exports as compared to say, Nepal. Such a large market share need
not be related to comparative advantage per se as the larger share may be reflecting the
larger size of China. But, RCA is a standardised measure and using this measure it is
possible to find that Nepal records a comparative advantage despite its low share in the
world market. To be explicit, one cannot say anything about comparative advantage on the
basis of simple shares. But, if RCA is greater than 1, one can make a definite statement that
the country has a comparative advantage. Similarly, if the RCA is less than 1, one can make
a definite statement that the country has a comparative disadvantage.
To add, unit values are generally not used as a measure of comparative advantage.
Rather, it is used as a measure of quality of the product. This measure as an indicator of
quality also is not free from flaws. It is very sensitive to the level of aggregation used. At
higher levels of aggregation, it is not an accurate measure as the units of measurement may
vary at specific product level. Thus, differences in unit value need not capture quality.
Rather, it may arise as a result of the particular aggregation followed.
The use of ‘revealed comparative advantage’ offers other advantages as well. Its basic
thrust is to `measure’ the patterns of comparative advantage as are revealed by the observed
trade flows. The Hecksher-Ohlin-Samuelson theory tries to explain trade flows in terms of
factor intensities and factor endowments. In other theories of comparative advantage, there
are propositions about the relationship between some other determinants of trade flows and
the actual trade flows. For example, such determinants include technology gap (as in
technology gap theory), economies of scale (Dreze, 1960), and domestic demand (Linder,
1961) etc. In the approach of RCA, there is an explicit recognition to the effect that the
observed pattern of comparative advantage is the result of multiplicity of factors, which
encompass all the standard theories of comparative advantage.
The main advantage of the RCA measure over simple share and unit value is clear from
the above discussion. That is, the RCA measure is very much derived from theory, whereas
the uses of simple shares and unit values do not have any theoretical rationale. For calculation
70 GARMENT INDUSTRY IN SOUTH ASIA

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)

Pairs of countries Rank correlation Karl Pearson correlation

India and China 0.119 -0.095


India and Indonesia -0.050 -0.025
China and Indonesia 0.230 0.114
Note: None of the correlation is statistically significant.
Source: Calculated from ‘India Trades’, CMIE.

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.

5. Labour and Indian garment exports: a case study of Tiruppur knitwear


industry
In earlier sections, the pattern of distribution of the workforce in Indian textiles and
garments sector has been already depicted. The growing share of cotton knitwear in India’s
export basket of garments is obvious. Knitwear has gradually increased its share in total
garment exports from 16.9 percent in 1983 to 33 percent in 1999, and manufacturing of
knitwear in and around Tiruppur accounts for the major chunk of exports under this category.
In fact, its growth since the mid-1980s owes solely to the massive surge in exports of cotton
knitwear. Being one of the most vibrant of the export segments, a study of labour market
changes in the region would reflect the macro-changes consequent to export production.
Interestingly, labour in the Tiruppur knitwear industry, despite being confined largely
to the unorganized sector, has a long history of labour mobilisation through two trade unions
affiliated to the two dominant parliamentary communist parties in India, CPM and the CPI
(CITU and AITUC respectively). Discussions with respondents among exporters reveal that
Tiruppur’s major competitors are China and Bangladesh. However, they claim to have an
edge in the relatively low-volume, fashion-intensive category compared to these countries
on account of their dense networking and modes of labour use. This observation, as other
studies point out, is not unique to Tiruppur and can be safely extended to other centres of
garment production in India as well (Tait 2001, 44). In this section, we profile the important
changes in the labour market and modes of labour use and attempt to seek inferences for
labour in a post MFA regime. However, we also draw upon other studies undertaken with
regard to garment industry in other parts of India to adduce further evidence.

5.1 Growing feminisation of the workforce


Exports from Tiruppur began in the early 1980s and has been increasing rapidly since
then. Given the high labour requirements of the industry, this growth process has been
enabled by the growing incorporation of women and children into the workforce apart from
sourcing of migrant labour from the arid agricultural hinterlands of Tamil Nadu. The following
table depicts the feminisation of the workforce during this period (Table 3.10)
Given the predominance of ‘informal’ sector activity as the garment sector elsewhere
in India, the data is highly unreliable insofar as the magnitude is concerned. Only 904
factories are listed for 1998 when informal sources reveal that there are over 5000 firms in
Tiruppur. If the latter number were fairly accurate, it would imply that only 20 percent of
the factories are in the organized sector. Further, data for the year 1990 is very inaccurate
INDIA 73

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.

Table 3.10: No. of workers employed in the knitwear industry in Tiruppur

Year Tot. no Sub. Total Men Women Male Female Boys Girls Share of FL
returns

1998 904 721 28298 19892 8406 0 0 183 997 33


1997 843 670 12263 8804 3459 0 0 0 0 28
1990 311 289 4338 3993 311 19 15 0 0 8
1985 219 185 2235 1525 312 200 143 50 5 21
Note: ‘Males’ and ‘Females’ are adolescents aged between 15 and 18 while boys and girls represent child labour. ‘Sub.’-
factories submitting returns, ‘Share of FL’- Percent share of total female labour employed.
Source: Inspectorate of Factories List, Palladum Taluk for year 1985, and Tiruppur Taluk, respective years.

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.

5.2 Segmented labour markets

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

Processes Job Age Sex Approximate


wage rate in
1999

Cutting Pattern master A M >5000 per month


Cutting master A M 80-100
Stitching Tailors A M,F 75-90
Helpers C M,F 30
Trimmers C M,F 30
Folders C M,F 40
Checkers A F 65
Button holing & fixing A M 60
Label fixing A,C M,F 60
Pressing Iron master A M 90-100
& Packing
Packers A,C F 60-65
Note: Wage rates, except otherwise stated refer to that paid per shift (8.30 AM to 5.30 PM).
‘A’- Adult, ‘C’- Children, ‘M’-Male, ‘F’- Female.
Source: Fieldwork undertaken in 1999.

5.3 Casualisation of labour


With movement to the global market, demand has become more seasonal, uncertain
and flexible. It is therefore imperative for capital to flexibilise the workforce to adjust the
quantum of labour employed to production requirements. For most firms in Tiruppur,
production ceases for nearly four months in a year and hence, it is expensive for firms to
maintain a permanent workforce. Along with the movement to the export market, there has
been a growing casualisation of the workforce, with recruitment ‘just-in-time’. Workers,
especially tailors who constitute bulk of the labour force, are recruited indirectly through
labour contractors who would bring in labour whenever required. These labour ‘gangs’
under the contractor move from firm to firm according to employment availability. As a
result, workers find employment in the industry only for eight months in a year. On the other
hand, workers employed in firms catering to the domestic market are recruited directly and
employed on a permanent basis. Given the uncertain employment prospects, households of
INDIA 75

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.

5.4 Work intensity and conditions of work


Under the Indian Factories Act of 1948, and the Shops and Establishment Act, workers
ought not work for more than 48 hours per week. However, in Tiruppur, such regular and
optimal work hours are found only in firms catering to the domestic market. The movement
to the export market has rendered the need for a labour force willing to work for long hours.
Given the importance of sticking to delivery schedules, workers during peak season are
found to work intensively for lengthy periods. In tailoring units, workers including child
workers, tend to work for 36 hours at a stretch, and then go home for a short break, only
to return to work the following day. On an average during peak season, workers in finishing
firms, especially tailors, work for a minimum of 10 hours, six days a week. Working for
three or four continuous shifts are however quite common.
It is said that the turnover time, i.e., the time taken between the placement of an order
with an exporter and the arrival of garments on the sellers’ premises, has come down over
time and this squeeze on time available to complete orders subject workers to such intense
work hours. And importantly, such intense work hours alternate with bouts of unemployment
during which workers are engaged in search for employment. A study finds that the high work
intensity and the cotton dust permeating the town has led to serious ailments among workers
including children (cited in John 1998). In fact, over 60 percent of child workers reported ill
health that included mouth ulcers, respiratory problems, stomach-ache, giddiness, etc.
Apart from such effects of long work hours, work also poses serious hazards due to
inadvertent slipping of fingers or hands or dresses into the stitching machine. An incident
in point is the recent death of a child worker. While she purportedly worked in a unit that
would fall under the Factories Act, the accident however took place in a neighbouring unit
run by the owner’s son which was not registered. This unit functioned as an extended
production unit of the former firm and worked on the excess orders of the parent firm passed
on to this unit to overcome capacity constraints. Hence, legal redressal could not be sought
(John 1998, 9).

5.5 Mode of wage payment


During the initial phase of exports, when quality requirements were low, payment of
wages moved to piece-rate system from the time-rate system extant in the segment catering
76 GARMENT INDUSTRY IN SOUTH ASIA

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.

5.6 Wage rates


Despite periodic wage agreements between trade unions and exporters’ association,
and consequent hikes in nominal wage rates, real wage rates have continued to stagnate
since the early 1980s (Bhattacharya 2000)17 . Further, given the decline in quantum of
employment in a year, it is difficult to anticipate any improvement in the total income
earned as well. That the wages do not constitute a ‘living wage’ is clear from the fact that
most worker households tend to send more than one member to work in the industry
(Vijayabaskar 1999). An oft-cited reason is that income from one person is not sufficient to
sustain a household over the year. This is especially true in the context of uncertain
and seasonal availability of employment. The knitwear complex therefore sustains a low-
cost workforce by employing family labour and paying less than a ‘living wage’ to individual
members of the household. However, such wage cost reducing strategies are
undertaken despite the relatively low share of labour costs in the total cost of production
(Table 3.12).
Table 3.12: Break-up of cost of production

Cost components Percentage share


Raw materials (yarn) 60-70
Fabrication 2
Processing 10-15
Finishing 15
Source: Vijayabaskar 2000, 12

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.

5.7 Declining unionisation


As stated earlier, the knitwear industry in Tiruppur has been characterised by a strong
trade union presence despite its confinement to the ‘unorganized’ sector. Throughout the
1970s and early 1980s, a series of strikes that sought to wrest some rights for workers like
shorter working day, implementation of a time-rate system, social security benefits, etc were
carried out with a fair degree of success. The rise of a decentralised production system with
dense layers of subcontracting is, in fact, partly in response to this labour strength (Cawthorne
1993). At present, however, few firms provide these benefits to the workers.
Working hours have increased considerably as discussed earlier. Given the high
fragmentation of production and casualisation of labour, workers increasingly fall outside
the ambit of seeking legal redressal. In the course of interviews with trade union officials,
everyone concurred that though they have a significant role to play, in recent years their
effectiveness has been undermined due to changes in nature of the product market and the
attendant changes in production organization. Demand being seasonal and labour status
‘casual’, employment is available only for six to eight months a year. On the other hand,
during peak season, the need to stick to delivery schedules forces labour through long work
hours. This insecure employment for which ‘local’ capital is less responsible prevents trade
unions from demanding any kind of social welfare and employment security measures from
producers. Further, since employment is only seasonal, workers do not have an incentive to
organize themselves during peak season as they need to work long hours to compensate for
offseason unemployment. Another factor that has rendered worker mobilisation difficult is
the large scale use of internal migrant labour, especially that of temporary migrant workers.
Even the wage rates fixed after negotiation by trade unions are, however, not adhered to by
most firms in Tiruppur.
The unionisation levels have declined and at present trade union membership would
not exceed 10,000 members among a workforce of over 200,000. As a senior trade union
official remarked,
“I can’t say that we are completely powerless now. We can call for strikes now and
we continue to settle capital-labour disputes at the firm level. However, it is true that the
number of people who come to us have declined, especially with women and migrant
workers’ entry. You can’t blame them. They have work only for a maximum of eight
months a year and they would like to work as much as they can during this period”
(Official AITUC, interview by author in Tiruppur, 5/8/2001).
Thus, worker mobilisation has been gradually undermined over the years through an
interplay of various factors. Though not necessarily a conscious strategy of local capital, the
78 GARMENT INDUSTRY IN SOUTH ASIA

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.

5.8 Pressure for labour flexibility

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.

6. Possible impact of removal of quota restrictions


Studies in general point to various possibilities for low-income economies like India
in a post-MFA era. While greater access to markets is a distinct possibility under the post-
MFA environment, competition from other countries may also possibly undermine the market
shares. Given the multiplicity of factors determining outcomes of global integration, the
outcomes cannot be, however, predicted with a great degree of certainty.
Irrespective of the possible trajectories that the sector may assume, the immediate
impact of quota removal on labour is likely to be negative. Studies have pointed out that
quota restrictions do constrain Indian garment exports (Khanna 1990). It is generally
recognized that the removal of quota restrictions would lead to an expansion of export
markets for Indian garment producers. On the other hand, the lower labour productivity of
Indian labour observed in an earlier section, as compared to some of its competing nations
like China, Indonesia and Bangladesh, may threaten India’s competitiveness and hence lead
to a decline in exports. Since India seemingly has an edge in the semi-fashion segment
where economies of scope rather than scale matter, it is possible that they may continue to
retain or expand their shares in such markets. However, respondents from the industry and
other secondary sources do indicate an anticipated threat from China even in this segment
(Manager, Export firm, interview by the author in Tiruppur, dated 5/8/2001).
Given the structure and dynamics of the world garment industry, two possible strategies
can be delineated to sustain/enhance apparel exports from India. One requires a spread to
the mass market, through improved productivity, ensuring of scale economies by movement
to large-scale production, installation of productivity enhancing techniques, etc. Given the
presence of a domestic base in cotton, a movement to the large-scale sector would definitely

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

component of a ‘high road’ strategy. Another complementary strategy to overcome this


hurdle to enable the labour to retain or improve their incomes would involve expansion of
the domestic market and competition in the domestic market through design and fashion.
Expertise built in the domestic market may serve to build competitiveness in the global
premium segments.
82 GARMENT INDUSTRY IN SOUTH ASIA

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

1983 6.9 16.9 76.2


1984 4.9 17.0 78.1
1985 3.5 15.6 80.9
1986 1.9 17.6 80.5
1987 1.1 19.5 79.4
1988 0.9 21.2 77.8
1989 0.6 22.0 77.4
1990 0.3 22.5 77.2
1991 0.3 22.7 77.0
Source: Chatterjee and Mohan 1993, M-104.

Table A3.2: Segmentwise and fibrewise composition of garment exports, 1991/92 – 1999
(in percent value)
Year Knitted garments Handloom garments Mill made garments

Cotton Synthetic Wool Cotton Synthetic Wool Cotton Synthetic Wool

1991-92 22.1 0.9 0.30 0.4 — 0.00 41.3 28.9 0.2


1992-93 26.5 0.9 1.2 0.7 0.2 0.00 46.1 24.2 0.5
1993-94 26.5 1.3 1.8 0.7 0.2 0.00 47.9 20.4 1.4.
1995 23.3 1.06 1.46 0.82 0.03 0.00 44.8 25.12 2.29
1996 26.59 1.6 2.48 0.61 0.01 0.02 44.1 23.08 0.98
1997 29.14 1.23 2.52 0.25 0.01 0.01 42.01 23.67 1.33
1998 28.11 1.86 2.26 0.16 0.01 0.02 42.51 24.26 0.81
1999 30.97 2.28 2.16 0.13 0.03 0.03 39.34 23.88 1.18
Source: Handbook of Export Statistics, AEPC, and various issues.
INDIA 83

Table A3.3: Ranking of leading apparel exporting countries, 1980-95

Rank 1980 1990 1995

1 Hong Kong Italy China


2 Italy China Italy
3 South Korea Hong Kong Hong Kong
4 Germany Germany Germany
5 Chinese Taipei South Korea US
6 France France Turkey
7 UK Chinese Taipei France
8 China Portugal South Korea
9 US Turkey Thailand
10 Netherlands UK UK
11 Portugal Thailand India
12 India US Portugal
13 Thailand India Chinese Taipei
14 Turkey Netherlands Indonesia
15 Indonesia Indonesia Netherlands
Source: Calculated from Ramaswamy and Gereffi 998, 124.

Table A3.4: Itemwise composition of India’s garment exports

Item description 1991 -$ Million 1991 -Share 1994 -$ Million 1994 -


Share

Clothing and accessories 2531.1 100 3711.9 100


Men’s outerwear non-knit 94.0 3.7 156.8 4.2
Women’s outerwear non-knit 1032.8 40.8 1409.2 38.0
Dresses 191.8 7.6 286.0 7.7
Skirts 85.5 3.4 193.9 5.2
Blouses 510.2 20.2 617.7 16.6
Outer garments 166.8 6.6 214.6 5.8
Undergarments non-knit 435.5 17.2 724.6 19.5
Men’s shirts 408.6 16.1 659.0 17.8
Of cotton 325.6 12.9 604.5 16.3
Of synthetic fibres 83.0 3.3 54.5 1.5
Outwear knit non-elastic 236.6 9.3 338.5 9.1
Jerseys, pullovers, etc 70.0 2.8 116.0 3.1
Outer clothing accessories 123.5 4.9 175.6 4.7
Undergarments knitted 298.2 11.8 480.3 12.9
Textile clothing accessories nec 106.4 4.2 172.6 4.7
Headgear non-textile clothing 327.5 12.9 429.9 11.6
Source: Ramaswami and Gereffi (1998, 124)
84 GARMENT INDUSTRY IN SOUTH ASIA

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

No SITC Code RCA SITC code RCA SITC Code RCA

1 6216 20.41868 6214 25.47747 6101 12.31565


2 6213 16.97167 6105 23.72659 6201 10.68808
3 6207 13.76015 6206 21.77933 6202 7.458491
4 6208 13.15757 6205 18.29961 6207 6.877363
5 6116 13.03601 6204 8.569124 6105 6.400447
6 6201 10.50433 6213 7.260608 6113 6.216069
7 6202 9.861238 6208 7.053777 6205 5.369276
8 6103 9.814193 6209 6.599515 6103 5.20369
9 6211 8.670356 6102 6.317059 6112 5.006139
10 6203 8.625962 6207 5.751711 6208 4.550881
11 6204 8.084695 6107 5.482587 6216 4.540025
12 6209 7.954618 6106 4.257315 6206 4.030377
13 6110 7.395208 6103 4.172825 6209 3.937918
14 6109 7.388566 6108 3.699704 6102 3.822141
15 6107 7.314404 6111 3.083288 6210 3.677161
16 6206 6.675327 6104 2.573658 6212 3.563028
17 6205 6.602632 6114 2.487196 6204 3.454933
18 6108 6.594367 6109 2.462706 6116 2.943717
19 6102 5.658824 6117 1.864298 6108 2.872122
20 6214 5.21159 6211 1.850897 6104 2.811419
21 6104 5.197849 6110 1.797846 6111 2.772384
22 6112 5.17591 6203 1.671318 6110 2.614283
23 6101 4.389822 6210 1.640403 6203 2.606099
24 6212 4.296899 6202 1.337566 6115 2.353513
25 6217 4.109059 6216 1.252611 6109 2.257602
26 6215 3.861471 6215 0.951947 6106 2.242135
27 6117 3.749343 6101 0.744278 6107 2.19887
28 6210 3.711216 6115 0.701844 6211 1.362646
29 6111 3.506931 6217 0.569176 6114 1.245352
30 6113 3.033534 6112 0.564115 6117 0.726294
31 6114 2.655998 6201 0.544429 6214 0.562155
32 6115 2.64036 6113 0.473302 6217 0.457038
33 6105 0.868824 6116 0.449461 6213 0.154843
34 6106 0.578157 6212 0.083619 6215 0.011023

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

Trade classification(SITC) description Code

Articles of apparel and clothing accessories, knitted or crocheted 61


Men’s or boys’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets), 6101
wind-cheaters, wind-jackets and similar articles, knitted or crocheted, other than those
of heading No. 61.03.
Women’s or girls’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets, 6102
windcheaters, wind-jackets) and similar articles, knitted or crocheted, other than those
of heading No. 61.04.
Men’s or boys’ suits, ensembles, jackets, blazers, trousers, bib and brace overalls, 6103
breeches and shorts (other than swimwear), knitted or crocheted.
Women’s or girls’ suits, ensembles, jackets, blazers, dresses, skirts, dividend skirts, 6104
trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted
or crocheted.
Men’s or boys’ shirts, knitted or crocheted. 6105
Women’s or girls, blouses, shirts and shirt-blouses, knitted or crocheted. 6106
Men’s or boys’ underpants, briefs, night-shirts, pyjamas, bathrobes, dressing gowns 6107
and similar articles, knitted or crocheted.
Women’s or girls’ slips, petticoats, briefs panties, night-dresses, pyjamas, negligees, 6108
bathrobes, dressing gowns and similar articles, knitted or crocheted.
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
Garments, made up of knitted or crocheted fabrics of heading No. 59.03, 59.06 or 59.07. 6113
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
Articles of apparel and clothing accessories, not knitted or crocheted 62

contd.
88 GARMENT INDUSTRY IN SOUTH ASIA

Table A3.8: SITC codes for garment product categories under the harmonised system (contd.)

Trade classification(SITC) description Code

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
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’ shirts 6205
Women’s or girls’ blouses, shirts and shirt-blouses. 6206
Men’s or boys’ singlets and other vests, underpants, briefs, nightshirts, pyjamas,
bathrobes, dressing gowns and similar articles. 6207
Women’s or girls’ singlets and other vests, slips, petticoats, briefs, panties, nightdresses,
pyjamas, negligees, bathrobes, dressing gowns and similar articles. 6208
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
Shawls, scarves, mufflers, mantillas, veils and the like. 6214
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
INDIA 89

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92 GARMENT INDUSTRY IN SOUTH ASIA
93

4 Garment industry in Nepal

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.

1.2 Present status


The garment industry sector has not maintained progressive trends that it recorded in
its early years. It has shown a mixed picture, both encouraging and discouraging, in recent
years as described below.

1.2.1 Number of industries


According to Garment Association of Nepal (GAN), the number of registered industries
increased from 58 in Fiscal Year 1982/83 to 165 in FY 1983/84 and to 757 in FY 1992/93.
It has been found from a separate source that the ‘cumulative’ number of garment industries
registered from FY 1991/92 to FY 1997/98 was 1857 (BM 1999). The industries are
94 GARMENT INDUSTRY IN SOUTH ASIA

concentrated in Kathmandu valley, with extension to other 50 districts focusing on Morang,


Kaski, Parsa, Rupendehi, Chitwan and Jhapa. While production capacity was equivalent to
Rs. 7,070 million, the capital investment recorded was equivalent to Rs. 1822.6 million.
There are currently over 215 garment manufacturers, which hold capacity to employ
over 50000 workers and have total investments shooting above 6 billion (TKP, 2001). Not
all the registered garment industries are currently operating. According to GAN, the number
of operating industries is 95. In terms of scale of business, 10 are large, 25 are medium and
60 are small. However, the total number of industries may come further down to about 60
when only those industries operating on a full-fledged basis are considered. Presently operating
industries are those few large and medium industries which have been able to expand,
modernize and develop linkages directly with the American buyers and improve quality of
products. They are concentrated among few entrepreneurs in Kathmandu valley and in few
other industrial towns.
1.2.2 Export performance
The total export performance has been generally in the rising trend (as shown in Fig.
4.1). However, the export figure differs according to the source. As reported by the Ministry
of Finance, the total export earning increased from Rs. 10 million in FY 1982/83 to Rs.
470.9 million in FY 1984/85 and to Rs. 1350.3 million in FY 1990/91 (MOF, 1999).
According to the Trade Promotion Center of Nepal, which has computed the export figure
on the basis of actual garment items, the export figure declined from Rs. 5756.5 million in
1993/94 to Rs. 5357 million in FY 1994/95 whereas it again started growing and reached
Rs.11500.2 million in FY 1999/2000. It has recorded a slight decline by 4 percent bringing
the export figure to Rs 11030.7 million in FY 2000/01. It was in FY 1998/99 that the
garment industry overtook woolen carpet industry, for the first time after more than a
decade, as the leading export industry of Nepal.
The average rate of annual growth in export earning is 16.6 percent in the last ten fiscal
years (1991/92-2000/01), though the growth in total volume during the same period is not
encouraging (Annex 4.1). It grew from 25.3 million pieces in FY 1991/92 to 40.7 million
pieces in FY 2000/01. The average annual growth in export volume is 10.3 percent for the
same period.
The export earnings have increased by more than three times (increment by 254 percent);
while the total volume has increased only by 61 percent. The high annual growth in earnings
is largely attributed to increment in exchange rate of US dollar. Moreover, the present export
earnings too have been largely attributed to the export performance of a few large garment
industries currently operating in Nepal.
1.2.3 Market segment
As regards the country-wise classification of export performance, the United States has
been the largest market for the Nepalese garments. Almost 87 percent of total export earning
NEPAL 95

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

Fiscal Year 2000-01

Source: Trade Promotion Center, Lalitpur, Nepal

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

1.2.4 Niche market


The main export items have varied over time since 1983. However, as described above,
the exports of garments from Nepal continue to concentrate in the US market as the main
market. There are altogether 12 quota categories covering both cotton and rayon products.
96 GARMENT INDUSTRY IN SOUTH ASIA

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

USA Other countries

Source: Trade Promotion Center, Lalitpur, Nepal

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

- Cotton shirts for men and boys (Quota category 340)


- Cotton trousers and shorts for boys and girls (Quota category 347/348)
- Cotton /rayon dresses for ladies (Quota category 336/636)

1.2.5 Employment and its patterns and growth


Though no authentic data are available, it is estimated that the employment has come
down after mid-nineties along with decline in the number of garment industries. It is stated
that the current level of employment in the industry is around 25000 to 30000 people (BM,
1999), while the previous level of employment was around 100,000 in early 1990s (Pant,
1998). No data were available to analyze the employment pattern in terms of skill level.
However, as shown in Figure 4.3, the ratio of male to female is 85:15 and 40 percent of
people employed in this sector are Indians. These ratios have now gradually changed in
favour of both females and local labour in individual industries.
Figure 4.3: Ratios of male female employment and local foreign labour

Male female employment ratio Local foreign employment ratio

Female Foreign
15% 40%

Local
60%
Male
85%

Source: Sample study

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

1.2.6 Capacity utilization.


The overall capacity utilization of garment industries in Nepal cannot be estimated, as
many registered industries are not in operation. Since the production capacity of all the
industries registered during the 1992-1998 has been estimated to be equivalent to Rs. 7070
million (BM 1999), the export earning recorded in 1998 indicates a situation of full capacity
utilization. However, as a study shows, the capacity utilization in nine sample industries has
ranged from 50 to 100 percent (Annex 4.5).
1.2.7 Cost of production
The cost of production of Nepalese garments continues to be relatively high when
compared with similar cost in India and Bangladesh. Transportation is the main cost element
for both import of raw materials and export of products. The cost of transportation of goods
from Nepal to Calcutta constitutes 70-80 percent of transportation cost from Calcutta port
to the US port. This has been the main cost disadvantage for Nepalese exporters compared
to those in Bangladesh and India. The cost of loan from commercial banks is relatively high
which ranges between 14 to 16 percent whereas it ranges as low as 8 to 10 percent in
Bangladesh. It needs to pay about 3 percent for various service fees, excluding the recent
increment in export tax and development tax.
The cost of labour which ranges from 18 to 30 percent of total production cost (including
cost of fabrics) in sample industries is considered to be relatively high compared with similar
cost in India and Bangladesh (Annex 4.6). The cost of raw materials such as fabrics and
accessories, which are imported mainly from India, is naturally higher than that in India.
However, recent government policy of allowing Nepalese entrepreneurs to procure fabrics
through letter of credits in US dollar has helped them to reduce the cost of fabrics to some extent.
The profit margin in each exported item is not as high as it is generally thought of.
During the present study, the garment industrialists were asked even to illustrate the cost
composition and profit margin of a particular product on a sample basis. As shown in Table
4.1 below, the profit margin per piece of cotton shirt for men can be as low as US 15 cents.
However, the higher value item such as children’s wear can offer as high profit margin as
US $ 1.15.
Table 4.1: Cost composition and profit margin

Cost factors Sample item X Sample item Y


(men’s cotton shirt) (children’s wear)
Fabrics US $ 2.00 US $ 1.70
Others (labour, transportation, accessories, etc) US $ 1.25 US $ 1.65
Total cost: US $ 3.25 US $ 3.35
Unit price: US $ 3.40 US $ 4.50
Profit US $ 0.15 US $ 1.15
Source: Sample study
NEPAL 99

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

n Export of Garments w Total National Exports

* Provisional estimate for the first eight months


Source: Economic Survey, Ministry of Finance (1999), Kathmandu.

1.2.9 Value addition


The garment industry has been largely based on imported raw materials such as fabrics
and accessories (e.g., button, threads, zippers, etc.) and foreign skilled manpower (e.g.,
100 GARMENT INDUSTRY IN SOUTH ASIA

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.

2. Globalization context of garment industry in Nepal


2.1 Globalization process and its meaning in Nepal
2.1.1 Background
It has been gradually realized that the immediate impact of globalization in Nepal is
on its garment industry sector through the implementation of TCA under the WTO regime.
This is because the quota system will be completely dismantled and integrated with the
WTO system from 2005. With the removal of quota system, restrictions for neighbouring
countries to export unlimited volume of garment product to USA and Europe will be
removed and these countries will be able to export large volume of garment products. On
the other hand, Nepal’s garment export is feared to decline sharply because of lack of its
own unique market.
Nepal needs to make preparations seriously to meet the challenges of globalization
under the WTO regime, but the preparations seem to have been far from being satisfactory
due to frequent political changes and continued confusions among the intellectuals and
business communities regarding the country’s membership of WTO. Debates on whether
Nepal should be a member of WTO are going on since the establishment of WTO in 1995.
However, the government has already submitted a memorandum in July 1998 for its entry
into WTO as it applied for the membership of GATT in the wake of trade and transit
impasse with India in 1989. Nepal participated in the last ministerial meeting of WTO in
Seattle as an observer.
Nepal has entered into various rounds of bilateral and multilateral negotiations for
accession to WTO and is likely to get accession after the conclusion of negotiation and
endorsement by WTO authorities. The WTO regime will have profound influence on Nepal’s
economy. The Uruguay agreement allows for subsidies for countries having less than $1000
per capita on industrial products as long as it is less than 3 percent of domestic market.
NEPAL 101

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

2.2 Competitiveness and productivity of garment industry and impact of globalization


As describe in earlier chapter, the garment industry has been prospering in recent years
as the top export-oriented industry of Nepal. But it will now have to improve its productivity
and competitive edge to survive and prosper in the emerging competitive world market after
the full-fledged implementation of the WTO system. In this context, it is necessary to review
its present structure, performance, competitiveness, productivity and future prospects in the
context of globalization.

2.2.1 Industrial structure and export performance


Data were collected from nine garment industries to analyze their structures and
performances (Annex 4.8). This was done with a view to observing the changes in the
garment industry sector that could be attributed to effects of globalization process in general
and phasing out of quota system in particular. Majority of these industries were established
in the mid-eighties with few industries established in the early nineties. They have now
transformed their technology from piece-rate system to assembly line system, though a few
industries are still using both the piece-rate system and assembly line system depending
upon the types of product. Such a transformation in manufacturing system has been made
through replacements of the traditional Indian machines by modern Japanese machines.
Similarly, employment size in each of these industries has gone up significantly, in sharp
contrast to overall reduction of employment in the garment industry as a whole due to
closure of many small industries in recent years.
Garment entrepreneurs have made some efforts towards market diversification, but the
export of garment industries of Nepal is still largely concentrated in the US market. However,
as stated in earlier chapter, the share of US market is on slight decrease with increment in
share of European and Asian markets after 1990.
All nine sample garment industries that were covered by the present study were
performing well in terms of their export business. They have now recorded export performance
that is more than double of their first year of establishment. In some cases, the increment
ranges from as high as 3 to 23 folds (Annex 4.8). This has been compatible with the
increasing trend of total garment exports from Nepal (details in Annex 4.1 and 4.2)
Nepal has been enjoying duty free imports of fabrics from India when payments are
made in dollar as India provides 20 to 30 percent subsidy on their fabric export through duty
draw back scheme when transactions are made in US dollar. Such a situation has indeed
been favourable for Nepal, and it has contributed towards making Nepalese products slightly
competitive. According to the WTO rule, developing countries with per capita income of
less than $1000 can subsidize their export product as long as the domestic consumption is
not greater than 3 percent. India is likely to subsidize its fabric export even after the year
2005. It means cheap fabric import will continue to help Nepal to become competitive in
this respect for some time to come unless there is change in India’s subsidy policy.
NEPAL 103

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

Cotton Textile 1738.9 1402.8 1569.8 1094.4 1249.5


Cotton Thread 531.6 407.3 587.5 664.9 438.8
Synthetic Textile NA 119.7 243.8 127.5 143.2
Synthetic Thread NA 76 123 53.3 332.9
Button and Fastener NA 8.5 9.6 7.2 7.8

(II) From Overseas (Rs. in million)


Year 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Synthetic Thread 630 748.7 402.5 470.7 372.7 304.4


Cotton Textile 117 0 60.8 164.5 416.8 283.3
Button 10.6 0 20 19.2 42.5 45
Textile Dyes 55.3 94.9 42.4 73.9 56.5 43.1
Cotton Thread 2.7 0 27.5 9.5 7.5 19.5
Other Thread 327.5 0 627.5 505.1 233.8 290.8
Other Textile 285.5 0 357.5 292.3 347 431.2
Fastener 75 0 141 115 322 366
Synthetic Textile 57.1 332.8 60 133.9 169.2 274.1
Source: BM (1999)

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.

2.2.2 Comparative review of competitiveness and productivity

Nepal’s export performance is relatively quite low in SAARC region (consisting of


seven countries). For instance, while the total exports of Bangladesh and Sri Lanka were
comparable at around US $ 3473 million and US $ 3798 respectively in 1995, Nepal’s total
exports were quite low to the tune of US $ 354 million in the same year (Joshi, 1999). On
the other hand, the share of garment export as percentage of GDP was relatively high in
Nepal, indicating a small base of both the industry sector and the national economy (Table
4.3). Such a situation continues to remain unchanged even in recent years.
Table 4.3: Garment export as percentage of GDP

Country Garment export in percentage


of GDP

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

Total import from Total value of 1993-97 Percent


(in ‘000 dollar)

World (Total) 64477911 100.0


India 2940689 4.6
Bangladesh 1697340 2.6
Pakistan 1149765 1.8
Sri Lanka 1365718 2.1
Nepal 232053 0.4
Source: Trade Promotion Center, Lalitpur, Nepal

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
NEPAL 105

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.

Table 4.5: US imports from SAARC region in 1999

Total imports Garment imports

Country Value (US$ in million) Percent Value (US$ in million) Percent

India 9071.50 61.67 1962.6 28.17


Bangladesh 1921.80 13.06 235.2 33.76
Pakistan 1742.30 11.84 1140.3 16.64
Sri Lanka 1744.00 11.85 1315.6 18.89
Nepal 177.60 1.21 142.2 2.04
Maldives 54.90 0.37 53 0.76

Total 14712.10 100 6965.7 100


Source: Primary data from Trade Promotion Center, Lalitpur, Nepal.

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)

Factors: Nepal Bangladesh India

Cost of fabrics 2.00 2.00 2.00


Other costs (cutting/finishing, etc) 1.25 0.70 1.00
Total cost 3.25 2.70 3.00
Export value 3.40 3.40 3.40
Profit 0.15 0.70 0.40

Obviously, Nepal is weaker than its neighbouring countries in terms of cost


competitiveness. The average cost of production of garments in Nepal has been estimated
to be about 30 percent higher than in major competing neighbouring countries. The average
value addition of garment industry in Nepal is only 35 percent while it is generally considered
to be about 70 percent in Bangladesh and about 95 percent in India. The cost of bank loans
in Nepal is also significantly higher compared to other South Asian countries.
A study (NPEDC, 2000) shows that the labour productivity index in Nepal has relatively
decreased in the last decade, especially in manufacturing sector (details in Annex 4.9). As
estimated by some Nepalese garment entrepreneurs, labour productivity in Nepal is about 35
percent lower than other neighbouring countries. As illustrated by an experienced industrialist,
if the Bangladeshi garment workers can produce 3000 pieces from 100 machines, Nepalese
garment workers can hardly produce 1000 pieces from the same number of machines.
A comparative review by the Asian Productivity Organization also indicates increasing
trends in productivity indexes of some Asian countries in manufacturing sector, unlike
Nepal. Details are given in Table 4.7.

Table 4.7: Manufacturing labour productivity indices of selected Asian countries

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Bangladesh 100 NA NA 48.3 NA 62.4 NA NA NA NA


India 100 104.4 107.2 119.8 133.7 137 128.4 136.3 135 144.6
Indonesia 100 106.6 115.8 106.8 113 119.8 126.1 131.2 141.1 NA
Pakistan 100 95.1 114.1 115.2 118.1 134.8 139.1 158.9 177.4 177.8
Philippines 100 97.6 98.4 101.4 109.3 99.6 91.9 96 95.9 104.7
Sri Lanka 100 NA NA NA 130 122.2 131.6 146 141.1 131.6
Thailand 100 97.5 120.5 117.6 134.9 124.1 129.6 139.7 146.7 NA
Source: APO (1997)

Infrastructure, which influences competitiveness and productiveness, is also poor, adding


to the cost of production of Nepalese garment entrepreneurs besides causing other problems.
For instance, electricity and water supplies are not only expensive but also insufficient.
Likewise, general conditions of roads and other modes of transportation are relatively poor.
Imported products at the airport often get damaged because of poor storage conditions. The
NEPAL 107

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.

2.2.3 Niche market


Many believe that Nepal’s present so-called niche market is artificial and, if it exists,
is very minimum. It will disappear with the emergence of fully globalized competitive
market under the WTO regime. This is because the so-called niche market of Nepal has
existed mainly due to quota system. Since Nepal has virtually no ancillary industries to
support the present garment industry, everything has to be imported from India and other
countries making the cost of production higher than in other countries. Only a few Nepalese
108 GARMENT INDUSTRY IN SOUTH ASIA

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.

2.3 Challenges and pressures of globalization on garment industry in Nepal


Globalization means both opportunities and problems (threats) in Nepal. The benefits
of globalization to developing countries seem to be extremely limited as the developed
countries have very stringent migration laws that restrain the free movement of labour
contrary to the spirit of globalization (Dahal, 1999). Nevertheless, there are two extreme
views about the challenges of globalization to Nepalese garment industries. While one is
pessimistic, the other is optimistic.
Some of the threats of globalization challenges are related to the following situations
which need to be tackled carefully for garment industry to survive in Nepal.
n The complete phasing out of quota system would put tremendous pressures on the
Nepalese garment industries to be competitive enough to survive since the present
spill-over business resulting from the quota restraints in neighbouring countries
would no longer exist.
n Although a large industries which are running with their own special efforts can
survive for a few years after 2005, majority of medium and small industries,
which outnumber large industries and heavily depend on quota privileges, will
decline due to lack of ability to survive in the open competitive market.
n With the challenge on a few surviving garment industries to be more productive
and competitive, there well be pressures on industries to reduce their cost of
production in a massive scale which will mean in particular downsizing of
employment of labour and reduction or stagnation in wage rate and other facilities
NEPAL 109

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.

3. Employment and quality of jobs in garment industry in Nepal


3.1 Employment situation
No hard evidence exists to ascertain the exact number of people employed in garment
industry sector in Nepal. As noted in earlier chapter, Nepalese garment sector has shown
both growth and declining trend in its employment size. At present, its employment capacity
NEPAL 113

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.

3.2 Review of present job quality


The quality of job in garment industries was reviewed by examining the earlier
publications for the purpose of the present research study (e.g., Adhikari, 1993; Decenzo and
114 GARMENT INDUSTRY IN SOUTH ASIA

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.

3.2.2 Salaries / wages and allowances


In Nepal, the minimum wage determined by the government has occasionally changed
over the years. As of 1997, minimum wages of different levels of manpower range from Rs.
1800 to 2150 according to skill level, though market wages are considerably higher (Dahal,
Karki and Upadhaya, 1999). However, it has often been argued that minimum wages should
be determined and enforced strictly on the basis of clear and standardized norms keeping in
view the subsistence cost. The argument further goes that additional benefits to the workers
should be tied with productivity (Bajracharya, 1999b).
Only 75 percent of presently running garment industries are paying wage by following
the minimum rates determined by the government; the average pay scale in the rest is less
than the standard minimum wage (BM, 1999). However, all the nine industries covered by
the present study have followed the minimum wage rate periodically determined by the
government under the existing labour law as the main basis for fixing minimum wage for
their workers. Some industries have now paid even more than the government rate as their
minimum wage (Annex 4.10). There is no maximum salary limit. It is different from industry
to industry depending on their ability and level of competence of the persons employed. No
industry has adopted differential salary rate for male and female workers. The minimum
wage ranges from the government rate to Rs. 3000. The maximum salary ranges from Rs.
9000 to Rs. 60000. However, it was found during the study that the salary received by
majority of workers and employees within an individual industry ranges from Rs. 3000 to
Rs. 6500.
With regard to allowances, all industries have provided overtime allowance for working
more than eight hours on a workday. Most industries have paid 150 percent increment in
basic salary rate for over-time work. Likewise, they have provided food allowance to workers/
employees for working more than three extra hours in a workday. The allowance ranges
from Rs. 20 to 45 according to paying ability of the industry and level of workers and
NEPAL 115

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.

3.2.3 Skill development opportunities


Except few, all industries have provided skill development opportunities to their staff
and workers in the form of on-the-job training. They first employ their employees as unskilled
labour and make them learn by doing and sharing know-how from their colleagues and
supervisors. Some industries have employed a few people who have been trained from
government’s garment training institute. But such trained people need re-training in the real
job situation. The need for technical manpower has been fulfilled by employing cutters,
masters and designers who are mostly from India and are trained elsewhere either through
formal training courses or practical experiences. Only one industry, the largest in the country,
has well-organized on-the-job training in a wider scale. Most people in this industry are first
recruited as trainees with allowance and then they are gradually shifted to their real jobs
according to the skill level they achieve.
However, most industries do not have positive attitude in sending their staff and workers,
especially female workers, for formal training courses. Two of the sample industries had bad
experiences of losing money by training female workers few years back because these
trained workers left the organization after training. Likewise, GramMom, which organizes
on-the-job training on a regular basis, has been reported to have been losing hundreds of
females every year for social reasons such as marriages and other family obligations.

3.2.4 Promotion opportunities


All industries do not have formal system of evaluating performance of workers and
staff and promoting them to higher level jobs on a regular basis. Few industries have
awarded promotion to their staff such as promoting from junior master to master, tailor to
master or supervisor. But, as noted by industrialists, promotion practices largely depend on
availability of jobs and competency of existing staff and workers to meet the requirements
of those available jobs.
One industry was found to have occasionally awarded promotion to the staff and
workers by increasing salary and wage rate when they improve their job performance. This
is awarded even to those working on a daily wage basis.

3.2.5 Safety at work place


Though the garment industry is not hazardous by its nature, a number of provisions
have been made by many industries to ensure safety at the work place. Most industries
116 GARMENT INDUSTRY IN SOUTH ASIA

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.

3.2.6 Job security

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

3.2.7 Retirement benefits


A few industries claimed that their provisions of provident fund, gratuity and accident
insurance for permanent staff and workers are as per the labour laws. However, most industries
were found to have failed to comply with provisions of labour laws for such retirement
benefits. While this has been an area of criticism of labour union and government labour
officials, employers attribute it to the vulnerable situation of the industry itself and their
financial inability to make long-term financial commitments to their workers.

3.2.8 Other welfare provisions


While a few industries have welfare schemes such as medical insurance, heath service
and child-care, most industries have not done so despite the requirement to do so under the
labour laws. However, some industries claimed that they have offered music entertainment
to workers on the job.

3.2.9 Gender issues


Except in an enterprise (GramMom), each of eight sample industries has a small
number of female workers, ranging from almost 0 to 25 percent. Some industries were found
to employ female workers in supervisory positions too. GramMom has about 5 percent of
working women in supervisory positions, but all others have hardly 1 percent of total
workforce in supervisory positions. A half of the surveyed industries employed no woman
in a supervisory position. However, the industries have not discriminated between male and
female workers in determining wage rate.
Although this industry sector has potentialities to offer employment opportunities to
female workers and reduce the gender gap in overall employment structure, there seems to
be some hesitation on the part of employers to employ females due to their high dropout rate
and some other reasons. Female workers were reported to have the tendency of leaving the
industry after marriage or delivery of child or joining schools and colleges. Moreover, the
Nepalese society likes to avoid sending their girls to factory except under an acute economic
compulsion. As complained by the union leaders, there are some incidents of sexual
exploitation and harassment of female workers by the male employees, supervisors and even
employers in the work place.

3.2.10 Local workers in employment


While three of nine sample industries have largely employed local labour (90% and
above), remaining industries have significant number of foreign staff and workers. The share
of foreign labour in five industries ranged from 20 to 75 percent, while one industry has
employed mostly foreign labour (details in Table 1.4.)
Different opinions prevail about the use of foreign labour in garment industries in
Nepal. The industrialists assert their right to employ those who are fit for their job. Even
118 GARMENT INDUSTRY IN SOUTH ASIA

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.

3.2.11 Benefit sharing


Except few, all industries do not have mechanism for benefit sharing. They do not have
bonus payment system to workers as provisioned in the labour laws nor do they have
provision to increase salary as per profitability and inflation situation, except when the
government itself fixes such a minimum wage rate. However, as noted earlier, only one
sample industry reported having a pay-incentive system according to workers’ ability to
achieve pre-set work targets. Moreover, most industries provide some financial incentives
(equivalent to salary or wage of one to four weeks) during Dashain festival, which vary both
across persons and industries.
Industrialists attribute their inability to have benefit-sharing mechanism due to their
low profitability rate as well as uncooperative attitudes of local workers. However, labour
unions, government officials and experts tend to hold the view that such benefit sharing
mechanism is acutely lacking in the garment industry sector for maintaining the workers’
motivation.

3.2.12 Labour-management relations


Overall, the present state of industrial relations in Nepal tends to be unhealthy. There
exists tremendous gap between the workers and management – in their perception, thinking
and style of working and unless such a gap is narrowed down, there is little room for
harmonious industrial relations in the country (Manandhar, 1999).
Currently, some garment industries that employ more than 200 people have labour
unions at enterprise level. Moreover, there is one central level union called Independent
Garment Workers’ Union that coordinates the activities of unions that are set up at enterprise
level and maintains close working relationships with the Garment Association of Nepal,
formed by the garment industrialists. Such a central union is part of the central level trade
union called GFONT, affiliated with the UML which is currently the main opposition
political party.
NEPAL 119

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).

3.3 Overall impressions of job quality

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.

3.3.1 Employers’ perceptions

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).

3.3.2 Workers’ perceptions


Workers in general are not dissatisfied with the present job quality in garment industries.
They often express grievances over the discrimination between local and foreign workers as
regards to financial packages and insecurity of their employment as they have not received
appointment letters or have permanent job even after completing the period of work prescribed
by the labour laws. The employers are allegedly not taking care of the workers but exploiting
them for their business interest. Workers feel that they have been largely deprived of the
rights and benefits as envisaged in the existing labour laws, especially the rights and benefits
related to issue of appointment letters, job security, provident fund, gratuity and working
hours. They also expressed their grievances over the occasional misbehaviours of employers
and senior staff towards female workers and their inhumane treatment to workers in difficult
situations such as those arising from illness and family obligations.
As the union leaders observed, employers have hardly shown any concern for improving
quality of job in garment industries as their concerns have been limited to making artificial
temporary arrangements during the inspection visits by the buyers. It is also argued that
there are adequate skilled garment workers in Nepal, but the industrialists do not like to use
them because labour law requires employers to give permanent jobs to workers once they
work continuously for 240 days.

3.3.3 Government officials’ perceptions


The government officials, especially those oncerned with labour administration, do not
see existing job quality as satisfactory one. They do not like present tendencies of garment
industrialists to employ workers on a temporary basis, use contractors and foreign workers
and provide no increase in financial benefits even after making high profits involving millions
of dollars. They emphasize the need for improving job quality in garment industry especially
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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).

3.3.5 An overall impression


Job quality in the initial phase of industrialization process in the garment sector was
poor. With the development of professionalism and increase in the export market, job
quality has started improving. The existence of labour laws and establishment of labour
unions have improved the situation of the workers at least by setting standards of job quality
in the form of minimum wage rate, work hour, allowances, safety, job security and retirement
benefit. With growth in garment industry since the mid-eighties, job quality has also continued
to improve, albeit, slowly and mostly in medium and large garment industries.
122 GARMENT INDUSTRY IN SOUTH ASIA

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.

3.4 Possible impact of globalization on employment and quality of job


The possible impacts have been assessed mainly in two areas: employment situation
and quality of job for those who are employed.

3.4.1 Employment situation


The garment industries have declined in Nepal in terms of establishments and total
employment size. Moreover, the export business too (in terms of both value and volume) has
shown declining trend since the last year. Particularly after 2005, without considering the
impact of recent US preferential policies for some countries, it is likely that only those
industries will survive in this sector which can be competitive in the market. The industrialists
are likely to operate their business by reducing the cost of production. In this process, they
might reduce the size of employment through optimum utilization of existing labour and
added automation in work process. It means there is high possibility of retrenchment in the
size of present employment in the garment industry sector.
As indicated in earlier chapter, one serious concern over the impact of globalization in
employment sector in general is the fear of Indianization of national economy. The
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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

Improvement in ¢ Improvement in ¢ Improvement in


Job Quality ¡ Productivity ¡ Competitiveness

Productivity improvement for competitiveness requires among others state-of-the-art


technology, market promotion, modernization of work place, human resource development
and motivation schemes that include opportunities for staff and workers to utilize competency
and develop careers besides enjoying competitive financial packages. Moreover, it requires
restructuring of organization and redesign of jobs in the form of job enlargement and job
enrichment. In overall, productivity improvement drive calls for development of a work
culture that is people-centered (priority for development and utilization of human resources),
performance driven, goal-oriented, innovation-inclined, quality obsessed, and client-
committed. The work culture that possesses these features manifest in itself the high quality
of job in the enterprise. The globalized market hence calls not only for improvement in
productivity and competitiveness but also for improvement in quality of job.
Considering the present low level of productivity and competitiveness in garment
industry sector, emphasis will have to be strategically placed on improvements in productivity.
Keeping in view the present job quality, there is also a broader scope for improving
productivity through improvements in job quality. A few garment industrialists have already
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realized it and started improving productivity and job quality to enhance their competitiveness
to face challenges of the globalized, free market.

4. Strategies for improving competitiveness, productivity and job quality in


garment industry
4.1 Repositioning of Nepalese garment products in the world market
Whatever the role of present quota system and the present strength of garment industry
itself, there is an urgent need to improve competitiveness of garment industry of Nepal in
order to reposition the industry in the competitive, quota free world market. The process of
factory modernization, product quality enhancement, image building and market promotion
through direct relationships with buyers initiated by some large industries should be further
improved. There should be a consensus over the view that the Nepalese garment industry
can not afford to operate in a fashion it used to do in the past to survive and grow in the
borderless competitive world market.
In order to face the challenges of globalization under quota free competitive world
markets, the main strategies for developing the garment industry sector in Nepal should be
directed towards bringing about improvements in three areas such as competitiveness,
productivity and job quality.

4.2 Strategies for improving competitiveness


Competitiveness in the context of garment industry in Nepal should mean improving
quality and price competitiveness as these are the main means utilized (e.g., Bossak and
Nagasimha, 1997) by the competing countries. It should also mean producing such products
that carry high value and are not supplied by the competitors in the world market. An
improvement in such competitiveness also requires application of manufacturing and
management systems that are superior to those of the competitors.
The garment industry needs to do a lot of homework to be competitive in the world
market by identifying both its competitive advantages and disadvantages. For this, it has to
identify its main competitors and their present strengths and weaknesses and develop its own
strategies. Some suggestions are presented below.

4.2.1 Focus on high value products.


Most of the garment products exported are of low value, ranging from 3 to 6 US dollar
on an average. The profit margin ranges from 25 cents to 1 US dollar. The profit, if any,
has been made simply because the business takes place in bulk. The business is risky as it
involves huge amount of money in transaction and many other problems associated with
carrying and forwarding. It should be highly beneficial for garment industries in Nepal to
switch from producing low value products to quality products carrying high value to compete
126 GARMENT INDUSTRY IN SOUTH ASIA

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.

4.2.2 Product diversification


The garment industries, presently focusing on such products as cotton shirts for boys
and men, cotton trousers and skirts for girls and women and children wears, should also
produce some other new products that are in demand but are short in supply. It can be sheets
for bed, pillow, table, sofa, cushion, etc. The growth in exports of terry towels and shop
towels from Nepal to USA in recent years shows feasibility of new non-garment products.
Possibility of using new and unique materials should be explored to offer products of unique
look in the market. Garment products made by Dhaka fabrics and pashmina products seem
to have prospects as proven by recent surge of export of pashmina shawls. The uniqueness
of Dhaka products having its traditional roots and growing popularity of Nepal’s pashmina
products in European markets tend to offer opportunities to improve competitiveness in the
world market.

4.2.3 Market diversification


In recent years, Nepal has promoted export to some European and Asian markets. This
obviously calls for efforts towards exploring new markets by reducing reliance on the US
market. In the era of quota free globalized market, the US and other developed European
markets are likely to be encroached by neighbouring countries such as Poland, Bulgaria,
Cyprus and Latin American countries as the main competitors. Through exploration of new
markets such as European countries, Korea and Japan, Nepal can have some competitive
advantage, especially in terms of transportation cost.

4.2.4 Development of backward-linkage industries


It is necessary to recognize the fact that the main problem of garment industry in Nepal
for improving its competitiveness is the high price due to high cost of production. Some 60
percent of the total cost of production consists of imported raw materials such as fabrics and
accessories (e.g., button, threads, zipper, etc). As a result, the garment industry sector has
not been able to increase its value addition to national economy from its present level of 35
percent. All this justifies the need for establishing some industries that produce fabrics and
accessories required by garment industry sector and help the sector reduce cost of production
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and improve competitiveness. Initiatives from both the government and garment industries
are required to attract both local and foreign investments in such industries.

4.2.5 Development of dry ports


Being a land-locked country, Nepal can never have free access to sea. It is a hard fact
that can not be changed except making compromises and developing alternative measures
to cope with such a limitation. Nepal has already started building dry ports in the three main
cities bordered with India. One of the dry ports is also being linked with India through
construction of a railway line. This is expected to reduce the present transportation cost by
20 to 30 percent. Hence it is suggested that the government completes these projects in time
and both the government and industrialists fully utilize these facilities.

4.2.6 Establishment of export processing zone


It is desirable that development of dry ports be accompanied by development of export
processing zone (EPZ). This is consistent with the proposition made in the existing Industrial
Policy of the government. Once these dry ports are extended to be EPZs they should have
facilities enjoyed by EPZs in other countries. Garment industries should be included in EPZs
to enjoy the facilities offered by them so that they can have access to comfortable bank
loans, subsidized carriage and forwarding facilities, insurance services, exemptions of service
fees charged by the government offices, etc.

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.

4.2.8 Preparedness of industrialists and government


It may be relevant here to quote Singh (1995),
“In an era of increasing competition, survival will depend on inspired planning,
constant innovation and total flexibility. New product development, identification of niche
markets and application of creative strategies will be the vital ingredients for success.
Information gathering must be accepted as a major priority on a continuing basis to
enable companies to respond quickly to change. Quality, cost, and delivery (QCD) will
be the important criteria for competitiveness.”
128 GARMENT INDUSTRY IN SOUTH ASIA

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.

4.2.9 Forming strategic alliances


Both government and individual entrepreneurs should take necessary initiatives in
search of opportunities for manufacturing and exporting garments in collaboration with
foreign partners and attract foreign investments so that Nepal can capture a sizeable world
market with competitive edges. The alliance can be instrumental in many areas such as
reducing cost of production (e.g., minimizing transportation cost), improving product quality
and promoting market.

4.2.10 Coping with the immediate threats


It has been almost certain that the present garment industry can not survive and develop
in Nepal without necessary preparations for improving its competitiveness in the free
globalized market. Its competitiveness level is also influenced by how other countries are
offered special privileges by importing countries such as duty and quota free access to US
markets given by the US government under its AGOA for 33 African Sub Saharan countries.
If other countries continue to enjoy preferential treatments from the USA, Nepal’s garment
industry does not need to wait for 2005 for feeling the pressures of competitive market and
is likely to decline without having time even for preparations for coping with the competitive
situations. It is therefore highly desirable that serious efforts are made at government level
to seek special treatments from the importing countries, especially the US, at least to buy
some time to save the industry from pre-matured death and to build its competitive strengths.

4.2.11 Focusing on price competitiveness


Nepal has very low price competitiveness, estimated to have about 30 percent higher
price compared to the price charged by the main competing neighboring countries. In this
context, all efforts to promote the garment industry in the country should be solely directed
towards reducing such a gap in price competitiveness.
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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.

4.3 Strategies for improving productivity


It has been widely emphasized that productivity drive be linked with the efforts towards
enhancing competitiveness (e.g., Bajracharya 1999a; Joshi, 1999). Since productivity
improvement is mainly concerned with the act of optimum utilization of resources, it helps
to reduce cost of production, which also means increase in cost saving and profit margin that
can be utilized for improving the quality of products as well as reducing their price. The
high quality and low price often help to improve competitiveness and increase sales and
profitability that can again trigger new investments for expanding production as well as
improving productivity. Hence, the improvement in productivity leads to further improvement
in productivity and competitiveness in a cyclic form (Figure 4.6).

Figure 4.6: Cyclic linkages between productivity and competitiveness

Productivity ¢ Cost ¢ New Investments ¢ Productivity


Saving/Profit

¢ 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.

4.3.1 Human resource management


Although it is difficult to combine physical capital and educated workers to increase
output per worker like in fast growing economies in East Asia, human resource management
is a critical factor in improving productivity (Joshi, 1999). It has a strategic role to address
all the issues that motivate employees and channel their physical, emotional and creative
energies towards corporate goals (Monga, 1999a).
Many garment industries covered during the present study have employed foreign
technicians and workers. As shown by sample studies, the percentage of such foreign workers
employed in an individual industry ranges from 10 to 75 percent. They are highly paid
130 GARMENT INDUSTRY IN SOUTH ASIA

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.

4.3.2 Upgrading of technology


In Nepal, while the assembling line manufacturing systems are facilitated by the use
of the Japanese machines (also German machines in one sample industry), piece-rate systems
are being operated through Indian machines. Although majority of garment industries visited
during the present study were using modern technology by switching from piece-rate system
to assembly line system, most of the industries currently operating in Nepal are using
traditional technology by following piece rate system. Both the Indian machines and piece
rate manufacturing system can not meet the present needs for two reasons. First, they can
not meet quality standards to compete with others in the international market. Second,
industries can not have large-scale production to enjoy economy of scale and consequently
reduce cost of production.
It is therefore necessary for industries to make new investments in technology and
modernize manufacturing systems by considering type of markets to be served and the
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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.

4.3.3 Methods of operation


Manufacturing system adopted in an industry largely influences the methods of operation.
Nevertheless, they also include all management procedures and methods, starting from planning
to organizing, co-ordinating, supervising and controlling functions of the industrial enterprise.
Improvements in methods of operations for productivity improvement should include:
l Simplifying the work processes (steps to be followed) in relation to procurement
of raw materials, storage and transportation to the work place, manufacturing and
assembling, and packing and dispatching.
l Developing detailed work manuals and job descriptions in a written form and
orienting the concerned staff and workers to follow them.
l Applying performance goal or target setting systems to facilitate workers for
efficient performance and relating incentives with the performance of targets.
l Making necessary arrangements to apply modern productivity management such
as benchmarking, total quality management and Japanese techniques popularly
known as KAIZEN, 5s, JIT, with required adaptation.
l Exploring several other measures to improve methods of operation that improve
quality, cost-effectiveness and delivery system, also known as QCD.
l Developing a management information system and modeling through computer
applications on targeting, scheduling and monitoring.
l Extending electronic communications to both buyers and suppliers.
A mechanism needs to be devised at the enterprise level to continuously monitor the
work processes and improve them.

4.3.4 Materials management


As the garment industry uses various materials, mostly imported ones, material
management constitutes an important area of consideration for productivity improvement at
enterprise level. Development of backward linkages to industries such as textile, accessories
(like button, threads, zipper), and packing materials may seem to be difficult for the export
oriented garment industries. There are some measures that should be adopted by garment
industries as cited below:
l Making necessary arrangements for outsourcing of raw materials with genuine
parties in foreign countries based on comparative advantages of quality, price and
transportation cost.
132 GARMENT INDUSTRY IN SOUTH ASIA

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.

4.4 Strategy for improving quality of jobs


Job quality is in fact a relative concept and it is also influenced by the well-being of
the enterprise that is demonstrated by its levels of productivity and competitiveness. However,
decisions to undertake organizational changes aiming at improving job quality often hinge
on the potential gain for the enterprise as a whole (Adhikari, 1993). Some deliberate efforts
need to be made by the garment industries for improving quality of jobs as part of their drive
for improvement in productivity and competitiveness. Some suggestions are provided below.

4.4.1 Opportunities for skill development


Workers should be given opportunities to upgrade their skills through training.
Considering the present trend towards assembling line of manufacturing, it is desirable that the
training is not limited to one specific part of production process; and workers are logically and
gradually shifted to different important parts of the production system. In this connection, the
NEPAL 133

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.

4.4.2 Gain sharing


Although there have been conceptual and operational gaps with regard to productivity
and its linkages with wages (Dahal, Thapa and Upadhaya, 1999), financial incentives
continue to deserve importance for both maintaining and improving efficiency of workers
in work place.
Financial packages (including minimum salary, allowances for working beyond regular
hours, observing festivals such as Dashain and Tihar, health services, gratuity, etc.) should
be devised and offered in an equitable manner, without discriminating in terms of skill level
and sex. Moreover, the packages should be fair and adequate as per the profitability of the
enterprise and the prevailing rate in the industry sector, besides making it not less than the
rate fixed by the labour law.
Moreover, as suggested by experts (e.g., Bajracharya, 1999b), minimum wages should
be strictly maintained with productivity-tied differential additional benefits. In this connection,
it is essential that the staff and workers be provided incentives for meeting production
targets and that increment in salary and allowance rate be based on the efficiency and
productivity levels as defined before hand. Emphasis should be placed on employing the
workers by applying a piece-rate system, along with a determination of the minimum level
of work that should be met for earning the basic salary. Bonus system should be compulsorily
put into practice by ensuring that the bonus is fairly distributed for those who have worked
for a period specified by the respective law.
Periodic awards for the best quality circle or best work unit or worker of the week,
months or year can be introduced. The schemes such as benefit-sharing based on team work,
additional payments for special knowledge and skills and production above individual or
group norms and two-tier wage by paying new workers lower wages than senior workers for
a period of time (e.g., Dahal, Thapa and Upadhaya, 1999) can result in improvements in
both job quality and staff motivation.

4.4.3 Job security


The present practice of not offering appointment letters to the workers even after
completing the period specified by the labour law, if any, should be avoided. All the
134 GARMENT INDUSTRY IN SOUTH ASIA

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.

4.4.4 Safety and comfort at work place


The industry, though not hazardous by its nature, needs to have some safety measures
to improve quality of jobs for its workers. They should not think of making safety provisions
in the work place merely as a part of requirements of buyers. It should be made a part of
normal work feature of the industries. The present practice of temporary installation of
safety measures to please the buyers and removing them after the departure of visitors, as
complained by union leaders, should be avoided.
Minimum safety measures should exist in workplace; such as, provision of fire-exits,
fire-alarms, gloves for those involved in ironing, cutting and washing parts of production
functions, aprons and face cover for protection, safe drinking water, comfortable temperature
system and clean toilet. Besides these, some measures required for the comfort of workers
need to be adopted. The main welfare schemes expected in these industries are insurance,
gratuity, provident fund and child-care centers.

4.4.5 Labour-management relations based on benefit sharing


This has been one important area for improvement to enable the garment industry
sector to offer high job quality and at the same time to be more productive as well as
competitive. Both garment industry and union leaders claim that their industry is the most
organized sector as compared to other sectors of the national economy. Though they enjoy
relatively peaceful work situations, their relationship does not look warm and healthy
considering the type of perception they have made for each other.
While the industrialists view local workers as inefficient, undisciplined and problematic,
the workers and union leaders often complain that their employers have exploited them and
are biased against them in favour of foreign workers in matters of employment opportunity
and pay even if they are not inferior. The workers are often apprehensive of the intentions
of their employers as the latter are openly asking government either for non application of
existing labour laws or formulation of a new one specifically designed for their industry
under which both the trade union and its right to strike will be prohibited and the employers
will enjoy the right to hire-and-fire the workers at their will.
It is suggested that both employers and workers carry out dialogue for winning confidence
and maintaining trust of each other. They should realize that while the garment industries
can not improve productivity and competitiveness without competent workforce, workers
also may not have their rights if industries themselves do not survive and progress. There
NEPAL 135

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.

List of interviewees and visited industries

Persons interviewed: Number

- Government officials (including Secretary, Special / Joint Secretaries


of the Ministry of Commerce, Joint Secretary of Ministry of Industry,
Director Generals of Department of Industry and Department of Labour), etc. 8
- Garment industrialists (including senior officials of Garment Association of Nepal
such as President, ex-presidents, vice-presidents and general secretary) 13
- Workers and union leaders 9
- Expert(s) 2

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

Annex A4.1: Export performance of garment industry in Nepal

Fiscal year Export value Growth Export volume Growth


(NC in million) (Percentage) (Pieces in million) (Percentage)

1991/92 3112. 0 25.3


1992/93 3723.4 19.4 22.8 9.9
1993/94 5756.5 54.6 40.1 75.9
1994/95 5357.0 -6.9 33.5 -16.5
1995/96 5414.7 1.1 28.0 -16.4
1996/97 5617.5 3.7 30.0 7.1
1997/98 6783.0 20.7 34.9 16.3
1998/99 8368.2 23.3 37.7 8.0
1999/00 11500.2 37.4 42.5* 12.7
2000/01 11030.7 -4.1 40.7* -4.2
Source: Trade Promotion Center, Lalitpur, Nepal
* Excluding export volumes for towel items and countries other than the US.

Annex A4.2: Country-wise export performance of garment industry in Nepal

Fiscal year Export value Export volume


(in million rupees) (in million pieces)
USA Growth Others Growth USA Growth Others Growth

1991/92 2897.9 214.1 23.4 1.9


1992/93 3258.3 12.4 465.1 117.2 19.2 -17.9 3.6 89.5
1993/94 5216.4 60.1 540.1 16.1 36.0 87.5 5.0 38.9
1994/95 4636.6 -11.1 720.4 33.4 26.9 -25.3 6.6 32.0
1995/96 4671.1 0.7 743.6 3.2 22.5 -16.4 5.5 -16.7
1996/97 4692.7 0.5 924.8 24.4 22.3 -0.9 7.7 40.0
1997/98 5626.0 19.9 1157.0 25.1 24.9 11.7 10.1 31.2
1998/99 6425.6 14.2 1942.6 67.9 27.2 9.2 10.5 4.0
1999/00 10646.3 65.7 853.9 -56.0 42.5* 56.2 NA NA
2000/01 9595.4 -9.9 1435.3 68.1 35.8 -15.8 4.9 NA
Source: Trade Promotion Center, Lalitpur, Nepal
* Excluding export volume of towel items
NEPAL 139

Annex A4.3: Present niche market of sample industries


(in terms of types of products)
Sample industries Quota categories / Product types

GarmIna* 347/348, 340


GarmSin* Shirts, trousers, skirts
GarmPun* Ladies shirts, trousers, dress
GarmLog Ladies wears
GarmRaf All mixed categories
GarmCot Shirts, trousers, children wears
GarmMom* 341, 338/389, 351, 342, 336, 347/348
GarmPra 347, 340, 348 and 336
GramMal 340, 347, 348
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.

Annex A4.4: Employment: growth and present patterns

Sample Employment size Employment patterns


Starting Now Male Female Skilled Unskilled Local Foreign

GramIna* 250 600 95% 5% 60% 40% 80% 20%


GramSin* 125 225 75% 25% 95% 5% 50% 50%
GramPun* 125 2000 80% 20% NA NA 80% 20%
GramLog 66 200 100% - NA NA NA Some
GramRaf 80 200 80% 20% 70% 30% 50% 50%
GramCot 280 700 80% 20% 80% 20% 50% 50%
GramMom* 1800 2500-3000 15% 85% 60% 40% 99% Below 1%
GramPra 80 450 99% Bel.1% 60% 40% 99% Below 1%
GramMal 125 900 87% 13% 94% 6% 25% 75%
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.

Annex A4.5: Capacity utilization in industries (in terms of installed machines)

Sample industries Level of capacity utilization


(Percentage)
GramEna* 70
GramSin* 75
GramPun* 60-70
GramLog 66
GramRaf 80-100
GramCot 100
GramMom* 70-80
GramPra 100
GramMal 75
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.
140 GARMENT INDUSTRY IN SOUTH ASIA

Annex A4.6: Indicative labour cost

Sample industries Labour cost (in percentage of


total cost of production)

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.

Annex A4.7: Share of garment exports in total national exports

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

Annex A4.8: Structure and performance of garment industries in Nepal

Name Year of Technology Market Export value


of industry establishment Early years Present
(1999-2000)
GramIna* 1985 Assembly U.S.A $900,000 $2.7 million
GramSin* 1989 Semi-Assembly (new machines) U.SA $790,000 $1.6 million
GramPun* 1984 Piece-rate to Assembly (90%) USA $120,000 $1.5 million
GramLog 1995 Assembly Germany $1million $2.4 million
GramRaf 1983 Piece-rate USA $400,000 $850,000
GramCot 1986/87 Piece-rate to Assembly USA $700,000 $4 million
GramMom* 1994 Assembly USA $1.8 m $13 million
GramPra 1992 Piece-rate to Assembly USA $400,000 $1.1 million
GramMal 1984 Piece to Assembly USA (Canada, $200,000 $4.6 million
Spain in 1996)
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.

Annex A4.9: Laour productivity index of Nepal

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

Annex A4.10: Salary and allowances

Sample Salary range Mean salary Allowances


industries (in Rs.) (of majority) Overtime Food Incentive for
efficiency

GramIna* 2116-14000 3000 150% Rs.30 No


GramSin* 3000-10000 6500 150% Rs.45 NA
GramPun* 2116-15000 5000 Yes Yes No
GramLog 2500-9000 6500 150% (+shift) No No
GramRaf 2150-16000 4500 Yes Yes Yes
GramCot 1800-25000 4500 Yes Yes Yes
GramMom* 2400-20000 3500 150% Yes Yes
GramPra 1800-60000 6500 150% Yes Yes
GramMal 2000-16000 4500 150% Rs.20-30 No
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.

Annex A4.11: Safety at work place

Sample industries Safety provisions Buyers’ standards

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.

Annex A4.12: Job security level

Sample Nature of service Issuance of appointment Existence of


industries Permanent Temporary letters contractors

GramEna* 25% 75% For both services No


GramSin* 50% 50% (+daily wage) For both services No
GramPun* 10% 90% For permanent In a few cases
GramLog Few 99% No (renewable contract papers) Yes (for some jobs)
GramRaf 14% 86% 85% Yes
GramCot 50% 50% Mostly (No foreign) Yes (for ironing job)
GramMom* 75% 25% For both services In a few cases
GramPra 8% 92% 8% No
GramMal 4% 96% 8% Yes (for female)

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

Annex A4.13: Industrial relations situation

Sample industries Existence of Strike history General


labour union scenario

GramEna* No (joint committee) Once (not serious) O.K


GramSin* No No Deteriorating
GramPun* No Once (2days closed) O.K
GramLog No No O.K
GramRaf Yes (two unions) No O.K
GramCot Yes Once ( half a day closed) Peaceful
GramMom* Yes Once (not serious) Peaceful
GramPra No No Peaceful
GramMal Yes No Peaceful
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.
144 GARMENT INDUSTRY IN SOUTH ASIA

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146 GARMENT INDUSTRY IN SOUTH ASIA
147

5 Garment industry in Pakistan*

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

2.1 Product mix of imports


In terms of values of the global imports the share of both the knit and woven garments
at a broader level is almost equal (Figure 5.2). At a product level the woven garments for
men and women apparel categories enjoy a 50 percent share in the global imports, which
also include a major part of the hosiery category because mostly imports are in the women’s
under garments and night wear in the form of woven garments. The knit garments segment
comprising mainly t-shirts and knitwear have a share of 38 percent in the total world
imports. Due to unavailability of disaggregated data of knit garment in men and women’s
categories, it is not possible to come up with exact market size. Over a period of five years,
the knit garments have grown at a faster pace than the woven garments; the share of woven
garments has been reduced by almost 5 percent during this period.
Analysis of gender split of the apparel import market shows that the women’s garment
(knit and woven) segment is the single largest product category with a share of 31 percent
in the import markets. Products such as sports-wear and baby-wear have a very small share
of 3 percent each respectively in the total imports.
PAKISTAN 149

Figure 5.2: World imports of apparel – product split

Product split of world imports 1999 World imports of apparel1995


Hoisery Woven Men Hoisery Woven Men
9% 23% 9% 25%
T-Shirts T-Shirts
25% 22%

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%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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.

Figure 5.3: Trend of world imports of apparel

World imports of apparel 1995-1999 World imports of apparel 1995-1999

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

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


150 GARMENT INDUSTRY IN SOUTH ASIA

2.2 Asian countries and global market


Asian countries dominate the apparel markets of the world. Almost 45 percent of the
total exports in the apparel markets originate from the Asian countries which include key
players like China, Hong Kong, Thailand, Turkey, Bangladesh, India and Pakistan. Their
total share in apparel markets increased at an annual average growth rate of 5 percent over
a period of five years from 1995-99 (Figure 5.4). In absolute terms, the exports from Asia
have increased from US $ 52 billion to US $ 63 billion.

Figure 5.4: Global imports from Asia


in billion dollars
30

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

w South Asian n China ~ Hong Kong w Turkey


n Thailand l Indonesia ~ Korea Rep. Japan

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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.

2.3 South Asia and apparel exports


South Asian countries export apparel products worth US $ 12.5 billion and have a
combined share of 20 percent in Asian exports (Figure 5.5). Within the South Asian region,
Bangladesh dominates the exports by constituting almost 8 percent towards the net exports
of Asia. India follows Bangladesh with a 7 percent share, and Pakistan has a meagre
share of 2 percent in the total Asian exports. The apparel sector of Bangladesh has
experienced tremendous growth, its exports were limited to less than US $ 2 billion in 1995
and increased to almost US $ 5 billion in 1999 that translates into an overall increase of 140
PAKISTAN 151

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

l Pakistan n India w Bangladesh

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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

1,400 1,238 1,305 1,321


1,274
1,200 1,090

1,000

600

400

200

-
1995 1996 1997 1998 1999

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


152 GARMENT INDUSTRY IN SOUTH ASIA

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.

Figure 5.7: Split of Pakistan’s exports 1999

Other countries
8%

EU
USA
35%
57%

Source: PC-Trade Analysis System database of International Trade


Centre (ITC)-Geneva

3.1 Product mix of exports

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.

Figure 5.8: Share of knit and woven garments in


Pakistan’s exports

100%

80% 486 645 655 605 576

60%

40%
333 365 366 489 537
20%

0
1995 1996 1997 1998 1999
Knit Woven

Source: PC-Trade Analysis System database of International


Trade Centre (ITC)-Geneva

3.1.1 Men and women’s garments

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.

Figure 5.9: Trend in Pakistan’s apparel export

Split of Pakistan’s apparel exports 1999 Split of Pakistan’s exports 1995

Sports Baby Sports T-Shirts


Baby T-Shirts Wear Wear
Wear Hosiery 8% Hosiery
Wear 5% 2% 2%
1% 8% 13%
Woven Men
2% Knit
34%
Knit Women
Women 5%
6%

Knit
Men
Woven
Knit Men Woven 25% Woven Men
35% Women Women 32%
9% 13%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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

Figure 5.10: Pakistan’s exports to EU


in million dollars
464.4 462.6
500.0 406.7 417.1 428.2

400.0

300.0

200.0

100.0

-
1995 1996 1997 1998 1999

Source: PC-Trade Analysis System database of International Trade


Centre (ITC)-Geneva

3.2.1 Product mix of exports


In the European market, 60 percent of the Pakistan’s exports are of men’s wear whereas
women’s wear exports total up to 16 percent of the exports (Figure 5.11). The market size
of the women’s wear is larger than the men’s wear in EU, and the exports of Pakistan are
in favour of men’s wear. The reason for not increasing the share of women garments is that
the women’s garments require sophisticated processing procedures and fine fabric due to
which the conversion cost of the garments is higher than the men’s wear.
Pakistan’s exports in the woven category are the highest with a share of 54 percent.
Between 1995 and 1999, export has increased in this category from US $ 204.7 million to
US $ 245.7 million with an annual average growth rate of 4.67 percent. The men’s garments
and women’s garment exports were US $ 194.7 million and US $ 50.99 million respectively
in 1999. The average annual growth rate of 6.67 percent was realised in the men’s garments
and the women’s garments shrunk at the rate of 1.58 percent from 1994 to 1999. This also
shows that the percentage decline in the women garments is taken up by the more reliance
on the men’s garment exports to EU market.
The exports of knit garments have a share of 22 percent and the exports of this
category increased from US $ 70 million to US $ 104 million. Representing an average
annual growth rate of 10.29 percent. The women’s garments exports were US $ 23 million
and that of men’s garments were US $ 81 million. In this category the exports of men’s
garments increased at an average annual growth rate of 12.40 percent.
The exports of Pakistan in smaller categories show a similar pattern to the exports to
world. It was in the baby wear category that there was some increase in exports while the
exports of sports wear, T-shirts and hosiery have realised a negative growth rate. This
reflects that the Pakistan’s exports are being concentrated on men’s garments and thus
shrinking the share of other categories, while the trend should have been focused on adding
up on new product categories in the product mix or catering the women garments market
and moving towards higher value added products.
156 GARMENT INDUSTRY IN SOUTH ASIA

Figure 5.11: Split of exports to EU

Split of exports to EU 1995 Split of exports to EU 1999

Hosiery Woven Men Hosiery Woven Men


T-Shirts 21% T-Shirts
37% 4% 14% 43%
5% Sports
Sports Wear
Wear 2%
4% Baby
Wear
Baby
4%
Wear
3% Knit
Knit Woven Women
Women Knit Men Women 5%
5% 12% 13% Knit Men Woven
17% Women
11%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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.

3.3.2 Product mix of exports


In the American market, the share of the men’s wear is 76 percent and a small share
of 14 percent is of women wear (Figure 5.13). The main reason for the exports inclined
towards men’s wear is that the volume of exports is higher for men’s wear and the benefits
of mass production are more attractive than going for higher value. In the USA market too,
the size of the women’s wear is larger than the men’s wear.
Pakistan’s exports in the knit garments category are the highest for USA with a share
of 53 percent. The exports increased in this category from US $ 232.4 million to US $ 400.7
PAKISTAN 157

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.

Figure 5.12: Pakistan’s exports to USA


in million dollars
751
721
800
648 654
700
529
600

500

400

300

200

100

0
1995 1996 1997 1998 1999

Source: PC-Trade Analysis System database of International Trade Centre


(ITC)-Geneva

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.

Figure 5.13: Split of exports to US

Split of exports to USA 1995 Split of exports to USA 1999

T-Shirts Sports Wear T-Shirts


Hosiery
Sports Woven Men 1% 5% Hosiery
10.0% 6.9%
Wear 26.4% 3% Woven Men
Baby Wear
1.3% 30%
1%

Baby Knit Women


Wear 7%
0.2%

Knit
Women
6.4% Woven Woven Women
Knit Men Women Knit Men
37.6% 7%
11.2% 46%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


158 GARMENT INDUSTRY IN SOUTH ASIA

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.

4. Unit price realization


The unit price realization of product categories is an excellent indicator to determine
the sustainability of the export growth and to develop an understanding about the
competitiveness in various product segments. It also gives a fair idea about the positioning
of the apparel products in different tiers of the market, i.e. high-end and low-end
product segments.

4.1 Men’s wear unit price realization

4.1.1 Woven garments


In the men’s woven wear category, the major exports by Pakistan are trousers and
shirts. On the per piece basis trousers are exported at US $ 3.67, while the cotton shirts and
shirts of other textile material are exported at the rate of US $ 3.74 and US $ 2.89 respectively.
These prices are the lowest in comparison to all other countries under review (Table 5.1).
Sri Lanka has been able to get the highest price per piece of US $ 6.44 for trousers, Thailand
in cotton shirts for US $ 7.51 and India in shirts of other textile material for US $ 6.16. This
gives a decent idea that Pakistan’s presence in the woven garment segment is limited to the
low-end market comprising discount stores.
PAKISTAN 159

Table 5.1: Comparative unit price realization of men’s wovenwear exports


$/Piece
SITC Product Pakistan Bangladesh India Sri Lanka China Thailand
code description

8414 Trousers, etc. 3.67 4.21 3.91 6.44 5.74 6.35


84151 Cotton shirts 3.74 4.82 5.59 6.15 4.02 7.51
84159 Shirts of other 2.89 4.17 6.16 5.72 5.28 4.85
textile material
Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

4.1.2 Knit garments


In the men’s knit wear exports, the major categories of Pakistan exports are trousers
and shirts. On the per piece basis trousers are exported at US $ 3.21, while the cotton shirts
and shirts of other textile material are exported at the rate of US $ 4.06 and US $ 3.81. These
prices are better than prices of Bangladesh (Table 5.2). Also in the trousers category Pakistan
is able to fetch higher prices than India and China reflecting that the Pakistan’s exports are
much more competitive in the men’s knit wear. Sri Lanka has been able to get the highest
price per piece for trousers i.e., US $ 3.90, Thailand in cotton shirts for US $ 7.48 and China
in shirts of other textile material for US $ 8.14 on per piece basis.

Table 5.2: Comparative unit price realization of men’s knitwear exports


$/Piece
SITC Product Pakistan Bangladesh India Sri Lanka China Thailand
code description

84324 Trousers etc. 3.21 3.17 2.80 3.90 2.04 3.29


84371 Cotton shirts 4.06 2.97 4.53 7.44 5.49 7.48
84379 Shirts, other 3.81 3.45 4.62 6.08 8.14 3.34
textile material
Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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.

4.2 Women’s wear unit price realization

4.2.1 Woven garments

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

4.2.2 Knit garments

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

4.2.3 T-shirts & pullovers


T-shirts are imported in large volumes in the USA. In Pakistan’s apparel export portfolio,
the t-shirts category has a pivotal position, as it is the third largest apparel product exported
from the country.
The unit price realization comparison among the selected Asian countries shows that
the Pakistani exporters are not able to attain the higher price for their product. The exporters
are relying on mass production and gain the profits in this manner. This clearly indicates that
Pakistan’s exports are directed mainly towards the bottom tier of apparel market and the
exporters mainly deal with buyers like discount chain stores, with the exception of few
exporters that deal with established brand names and labels. Again the volume of exports
is not very high, as a result, the average unit price realization of the overall apparel industry
is very low.

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

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

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.

5. Apparel industry structure


The textile exports of Pakistan are US $ 5.615 million whereas the apparel exports
constitute a total of US $ 1.658 million. This represents only 14 percent of the total textile
exports. Whereas globally the trend is that the share of the exports of the apparel products
is nearly 70 percent. This reveals that the Pakistan’s exports are basically concentrated on
the low value added products like exports of cotton/textile fabric, cotton yarn/thread and
other items (Figure 5.14). Apparel products being the highest value added category in the
textile exports does not have a large share.
If the secondary data sources are consulted in order to determine the size of the apparel
sector in Pakistan, these sources are highly under-reported. The Census of Manufacturing
Industries (CMI 1995-96) gives the total number of registered apparel manufacturing units
as one hundred and 30 only (130) and the number of persons engaged in these units is
around fourteen thousand (14,000). Similarly, according to the Survey of Household and
Manufacturing Industries (SHMI 1996-97) the number of total apparel stitching units in the
162 GARMENT INDUSTRY IN SOUTH ASIA

informal sector is around four thousand (3,839 precisely). The total number of persons
engaged is highly underestimated at seven thousand.

Figure 5.14: Split of textile products, 1999-2000

Apparel,
14%

Cotton Yarn,
9%

Cotton Fabric,
Others, 68% 9%

Source: Export Commodities of Pakistan during 1999-2000, Export


Promotion Bureau of Pakistan

High tendency of under-reporting the number of employees exists in the business


community to circumvent the labour levy contributions on behalf of employees. Also the
numbers represent direct employment, whereas contract employees and piece rate employees
are not captured by the secondary data sources.

5.1 Imports of stitching machines and size of apparel sector


Imported stitching (sewing) machines are used mostly for industrial purposes, whereas
domestically manufactured machines are used for household purposes. The volume of imports
of sewing machines in Pakistan gives a fair idea of the total size of the apparel sector.
Table 5.6 reveals that the total number of sewing machines in the country is around
400,000. Considering the fact that stitching units either of knit garments or woven garments
require other human resource as well such as helpers, cutters and trimmers, etc the total
employment in the sector is more than 700,000 individuals. Out of this workforce, the total
number of skilled workers is probably half the size of total employment.

5.2 Knit and woven apparel segment


At a broader level, the industry can further be classified in two broad categories i.e.
the knit garments segment and the woven garments segment. The knitting industry in Pakistan
has traditionally focussed on integrated units. An estimated number of 700 vertically integrated
units constitute the knitwear sector of Pakistan. These units perform in-house knitting,
dyeing and processing and stitching of garments. An estimated number of 15,000 knitting
machines are installed in this segment, mostly these units cater to the export markets
with limited presence in the domestic markets; almost 80 percent of the production
is exported.
PAKISTAN 163

Table 5.6: Number of stitching machines installed

Year Machines installed


1991 - 1992 62,400
1992 - 1993 61,599
1993 - 1994 44,948
1994 - 1995 28,402
1995 - 1996 18,513
1996 - 1997 25,408
1997 - 1998 47,435
1998 - 1999 37,709
1999 - 2000 20,377
Total 346,791
Stitching Machines Imports (Machines imported prior to 1990 can be
considered as scrapped)
Source: Federal Bureau of Statistics

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.

5.3 Gender split in employment


The apparel manufacturing industry in Pakistan is the single largest industrial
employment provider in the country. The male workers who comprise almost 90 percent of
the total labour force dominate the employment in the sector.
The industry prefers to hire male workers as stitchers whereas, female workers are only
hired as helpers in the trimming and packing sections. Key factors given by the industry
includes the following:
q Labour laws in the country impose restriction on women employment after 7 P.M.
Due to the cyclic nature of the apparel industry and depending upon orders obtained
by a specific unit, it becomes difficult for female workers to work extra time.
q The entrepreneurs also avoid hiring female workers because of the maternity
benefits that are to be provided to a female employee. The maternity benefits
include paid leave for fixed period of time.
q The apparel industry heavily relies on ‘Ustaad-Shagird’ tradition (apprenticeship
on the job training). Mostly the stitching masters are male, and they tend to have
a gender bias against training of women workers.
Although generally the women workers are considered to be more productive by the
apparel industry as compared to male workers, male workers are given a preferential treatment
by the apparel sector on the basis of the above mentioned factors.
164 GARMENT INDUSTRY IN SOUTH ASIA

5.4 Production efficiency and losses

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

Cut to Shipment Rejection 2-3 %


Knitting losses 2%
Dyeing & Finishing Losses 4-7 %
Cutting & Stitching Losses 15-18%
Source: Textile Vision 2005, SMEDA

The level of wastage at various stages in knitwear industry by no standards can be


compared to international benchmarks that consider any process to be commercially unviable
if the extent of losses is more than 4 percent.

5.5 Skill development in apparel sector

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.

5.6 Competitiveness of apparel manufacturing in Pakistan

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

5.7 Wages and salaries in the apparel industry in Pakistan

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

Cost of goods /garment (Rs) Denim % of PK polo % of Woven pants % of


Jeans total cost t-shirt total cost cotton total
cost

Fabric (RS) 132.61 70.92 % 72.12 65.64 % 141.40 71.67 %


Pocket Lining fabric (RS) 6.50 3.48 % 0.00 0.00 % 6.50 3.29 %
Accessories (Rs) 21.15 11.31 % 11.76 10.70 % 18.70 9.48 %
Packing cost/garment (Rs) 5.00 2.67 % 5.00 4.55 % 5.00 2.53 %
Electricity charges per garment (Rs) 1.81 0.97 % 1.66 1.51 % 1.91 0.97 %
Maintenance Costs (Rs) 0.30 0.16 % 0.47 0.43 % 0.65 0.33 %
Labour (Rs) 14.00 7.49 % 12.00 10.92 % 16.00 8.11 %
Total CGS Rs 181.37 103.01 190.16
Total CGS $ 2.83 1.61 2.97
Financial Charges 2.80 1.50 % 2.16 1.97 % 2.50 1.27 %
Admin/Overheads 2.82 1.51 % 4.70 4.28 % 4.64 2.35 %
Cost/garment including Admin &
Financial Charges 186.99 109.87 197.30
Total Cost including admin &
Financial Charges $ 2.92 1.72 3.08
Note: * One US $ equal to PKR 65
Source: SMEDA Textile Sector Research

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)

Supervisory Level (Cutting, Stitching


and Finishing Supervisor) 8,000 127
Skilled Worker (Stitching Machine
Operator, Clipping incharge, etc) 5,000 to 6,000 79 to 95
Semi-Skilled and Unskilled Workers
(clippers, stain removers, packers and helpers) 2,000 to 3,000 32 to 48
Source: SMEDA Textile Sector Research

5.8 Comparative wages and productivity


Despite consistent inflationary pressures, Pakistan is still highly competitive in labour
costs as compared to developed countries. The average hourly wage in the apparel industry
is within the range of US $ 0.22 to 0.30 (Table 5.10). This makes it competitive with the
developed countries even if the productivity of the labour force is only 50 percent to that
of the USA. In developing countries like India and Bangladesh, the average wages are even
lower than that of Pakistan. The competition with these economies is only possible by
enhancing productivity and curtailing process wastage.
Table 5.10: Apparel industry average hourly wages

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

5.9 Working conditions in the apparel industry


Almost all the apparel manufacturing units, which deal with institutional buyers with
brand names or labels or even with chain stores, have to comply with the ‘Standards of
Engagement (SOE)’ imposed by the buyers. These standards lay down specific conditions
in which the workers can be employed including the ventilating requirements, water facility,
hygienic working conditions, etc. Certain buyers also require that these standards are also
displayed in the manufacturing premises to create awareness amongst the workers about
PAKISTAN 167

their rights. However at the same time, labour welfare schemes providing social cover and
other benefits are only implemented in the formal sector.

5.10 How would globalization affect quality of employment?


With the process of globalization, a new regime of standards will be put in place by
the developed countries to source goods from developing countries. Although some of the
standards such as ISO 9,000 and 14,000 deal with product quality and process improvement
and documentation and have a direct effect on the productivity of the workforce, certain
other standards strictly deal with working conditions of the labour force. Case in point is the
SA-8,000 (Social Accountability) standard, which the European market can impose on the
suppliers. These standards have been formulated to take into account the social dimension
thereby meaning that the welfare of workers is the responsibility of the entrepreneur.
With the swift movement towards implementation of similar standards, the quality of
employment in apparel industry is likely to improve. An interesting feature is that compliance
with these standards is not limited to a certain manufacturing facility, whereas the standards
are imposed on production of a product across numerous stages. If such standards are
implemented properly, this would definitely lead to improvement in job quality in the
apparel sector particularly where small process vendors perform specific processes and their
workforce neither enjoys the benefits of social security nor is provided with the right kind
of environment. The MFA phase-out in 2005 is likely to trigger competition among the
developing countries to retain the market shares and thus are likely to be forced to comply
with international standards as mentioned above.

5.11 Impediments in diversification


Despite the fact that the production process of stitching is fairly flexible to switch
between different product categories. The major constraint is the quota policy that favours
the production of a specific product category without having any negative implications on
the cost structures. The cost structure of garments given above does include quota costs. If
an enterprise wishes to enter in a new product category, it has to buy quota from the open
market. Consequently, the cost incurred only to acquire quotas would inflate the cost of one
garment by almost US$ 2.5, thus leaving the enterprise un-competitive in the international
markets. Without any provision of quota allocation for potential investors and new entrants,
the quota policy serves as a major deterrent towards widening of the apparel industry’s
product base.

5.12 Availability of inputs

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.

5.13 Marketing of products


Marketing in the apparel segment is driven by three main elements. Firstly, it is the
capability of an enterprise to produce a particular product; secondly, it is the buyer that
requires the product; and thirdly, it is the capability of the manufacture/exporter to meet the
orders and deliver on time. Unfortunately, due to quota restrictions, the first consideration
even for buyers is the availability of a specific product quota with the supplier; as only this
can ensure timely delivery of the product. This attribute of the industry has constrained the
ability of the apparel manufacturers to market their products and even diversify.
The apparel industry of Pakistan has positioned itself as a mass producer of garments,
particularly in the knitted garments segment. Due to which majority of the industry exports
to the low end markets whereas high-end markets are rarely targeted by the industry. This
also results in low unit price realization in the international markets.

5.14 Global apparel market segmentation


The pyramid in Figure 5.15 shows the structure of the apparel market. The tip of the
pyramid, although very small in size, is a high price segment primarily dominated by the
apparel designers such as Georgio Armani and Versace, etc. These products can be classified
as high value-added products. The base of the pyramid depicts the low-end discount stores
such as K-mart and Walmart, etc, where the need of the international buyers is quantity with
limited consideration given to quality of the product. These buyers in the apparel market
segment can be classified as commodity buyers. The movement from top to bottom of the
pyramid results in increased volumes and decrease in unit price realization.
Exhibit 5.1 below represents buyers’ preference in different apparel market segments.
The low-end buyers, as represented by the base of the pyramid, give top priority to price
while negotiating with the suppliers and apparel manufacturers. The second most important
factors considered by this segment is delivery according to commitment, whereas the element
PAKISTAN 169

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.

Figure 5.15: Apparel market segments

Haute Couture ▲
Designer Shops

Department Stores

Mass Market

Discount Low-end
Chain Stores

Exhibit 5.1: Buyers preference in apparel market segments

Commodity products High value added products

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.

6. Quotas in textile trade


The textile trade is governed by quota restrictions imposed by the developed countries
including the USA, EU and Canada. The basic objective was to protect the domestic industry
from competitive imports from the developing countries. All the quota restrictions in numerous
sub-sectors of textiles were governed by the Multi Fiber Arrangement (MFA). With the
170 GARMENT INDUSTRY IN SOUTH ASIA

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.

6.1 Quota for textiles and apparel in Pakistan


The USA and the EU comprise vital textile markets particularly for the apparel products.
More than 90 percent of the Pakistan’s exports of garments are directed towards these two
regions of the world. Trade in both these markets is governed by quantitative restrictions.
Every year Pakistan is allowed to export a fixed number of garments based on the quota
allocated by the countries/region. In this particular section, the performance of the domestic
apparel industry will be evaluated on the basis of its utilizations of quota in various
garments categories. This will be helpful in developing an understanding about the level of
preparedness that the country has so far achieved in order to meet the challenges of the post
MFA scenario.

6.1.1 Quota utilizations of Pakistan in the US


The USA is Pakistan’s largest export market for textile apparel. Almost 50 percent of
the apparel trade is directed towards the USA. The overall average quota utilization of
Pakistan in the American market is slightly above 75 percent (Table 5.11). This is not a very
encouraging figure as other competitors like China and India have overall average quota
utilizations of more than 90 percent in the American market. The main reason is limited
product base of Pakistan textile apparel.
One thing is evident from the quota utilization figures of Pakistan in various apparel
categories. Pakistan’s presence in the American market is dominated by the male garment
segment and that too heavily dependent upon the cotton knit segment. High quota utilizations
in knitted product categories speak volumes of the inclination of the domestic apparel
industry towards men and knit garments.
The female garment segment in the USA driven by the quickly changing fashion
scenarios makes it difficult for the apparel sector of Pakistan to cope with the changing
trends. Limited use of man-made fibres in the spinning and weaving sector also hampers the
domestic availability of fashion fabrics to meet the requirements of this dynamic market.
PAKISTAN 171

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

331/631 Gloves and Mittens 77.5 81.9 67.8


334/634 Men and Boy Coats 88.1 58.2 78.0
335/635 Women and Girl Coats 67.7 56.4 38.3
336/636 Dresses 61.7 73.1 51.6
338 Men and Boy Knit Shirts 93.5 77.1 88.0
339 Women and Girl Knit Shirts and Blouses 77.4 72.9 83.9
340/640 Men and Boy Shirts (not knitted) 90.0 61.0 69.8
341/641 Women and Girl Shirts and Blouses (not knitted) 27.3 77.9 24.6
342/642 Skirts 18.4 55.7 38.0
347/348 Men and Boy Trousers, Breaches and Shorts 81.9 73.2 92.7
351/651 Nightwear and Pyjamas 85.1 84.3 74.9
352/652 Underwear 69.2 76.4 52.0
359/659 Other Cotton Apparel 89.5 74.2 84.7
638/639 Men and Boy Knit Shirts 36.0 19.9 75.4
647/648 Women and Girl Trousers, Breaches and Shorts 73.8 69.8 65.7
Source: US Department of Customs

6.1.2 Export product mix and apparel quotas in the USA


Despite a highly regulated apparel sector imports in the USA, a significantly high
proportion of products is free from the quota regime. These products are referred to as non-
quota items. There are a total of 78 MFA categories (quota categories) that constitute the

Figure 5.16: Composition of apparel trade with US

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%

Source: Textile Vision 2005, SMEDA


172 GARMENT INDUSTRY IN SOUTH ASIA

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.

6.1.3 Quota utilizations of Pakistan in the European Union (EU)

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

4 Shirts, T-shirts 91.0 91.0 90.8


5 Jerseys, pullovers, waistcoats 91.3 89.5 92.1
6 Woven trousers, shorts of wool, cotton 90.9 90.4 88.9
7 Women’s blouses, shirts 66.4 69.4 25.5
8 Men’s shirts of wool, cotton, MMF 55.2 46.9 31.3
18 Briefs, nightshirts, pyjamas &similar 40.1 39.8 40.7
26 Women’s dresses of wool, MMF 37.0 19.3 16.0
Source: Textile Vision 2005, SMEDA
PAKISTAN 173

6.1.4 Apparel quota utilization of Pakistan in EU


The categorisation of products within the EU to allocate quotas is fairly simple as
compared to that of the USA. A large majority of products are lumped for simplification
purposes. If the quota utitilisations of Pakistan are observed closely it becomes evident that
Pakistan’s utilization is very high in cotton based knit and woven garments segments. In
product categories like t-shirts, pullovers and jerseys and woven trousers and shorts the
utilization is to the extent of 90 percent and in certain cases exceeds 90 percent.
Due to focus of the industry on cotton textile products the utilizations in man-made
fibre and blended fabric based apparel is very limited. This can also be viewed in the table
where the quota utilizations in products such shirts of MMF and blended fabric for men is
as low as 30 percent. It is for the same reason that Pakistan’s utilization in other products
like lingerie and undergarments is also very low.
Similarly for women apparel categories, the utilizations of quota are very low. A major
reason is the high dependence of the industry on the silver fiber. Due to limited usage of
the man-made fiber in the upstream industry the production of blended fabrics is very
limited which makes it convenient for the apparel industry to compete in international
markets with a limited range of apparel products, primarily based on cotton.
In both the USA and EU markets the quota utilizations reveal that the Pakistan apparel
sector is highly dependent upon firstly on cotton products and secondly on male garments.
Another attribute relates to the presence in the knit garments segment and a weak woven
garment segment. In the woven garments Paksitan’s exports are predominantly in low count
fabrics (twills) where as fine count high density and blended fabrics are used in a very small
proportion. This significantly restricts the capability to develop a niche in high value garment
segments such as women tops and blouses, undergarments (bras and pantyhose) and nightwear.
The quota markets (EU and USA) are of vital importance to the apparel sector of
Pakistan for the very reason that more than 90 percent of apparel exports are targeted
towards these markets. This makes Pakistan highly vulnerable in the post MFA trade scenario.
The emerging exporters particularly countries like Mexico and other South American states
will offer stiff competition in products like knit garments where they are developing strong
industrial presence.

6.2 Quota policy of Pakistan


A large number of products ranging from cotton yarn to ready-made garments are
under quota restraint. Pakistan has bilateral textile trade agreements with USA, EU and
Canada regarding its exports of textiles. The USA has imposed quotas on 39 items (Cotton
and MMF). In EU, there are 15 categories of cotton and MMF products, which fall under
quota restraints, whereas a large number of categories falling under apparel group are still
outside quota restraint. The Canadian market has 10 textile categories under quantitative
restrictions.
174 GARMENT INDUSTRY IN SOUTH ASIA

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.

6.3 Previous quota policies of the Government


The Government of Pakistan has tried repeatedly varied strategies to implement a
quota policy that ensures sustainability in textile sector growth but to no avail. This is
reflected in the review of the past quota policies.
6.3.1 Inconsistency in quota policies
During the past decade the Government has revised the quota policy a number of times.
An interesting feature of these policies is that no quota policy was able to complete its
tenure. This phenomenon of radical changes in quota policies overlaps with the changes in
the Government itself. The new Government used to scrap previous Government’s policy
because of corruption and nepotism.
6.3.2 Lack of long term strategy
The sudden revision in quota policies both at the macro level as well as the micro level
raises apprehensions amongst the stakeholders about the future of prevalent quota regimes
and the exporters face a difficult time in planning and devising future strategies.
6.3.3 Competitiveness of firms
The changes in quota policy play havoc with the cost structures of the exporting firms.
In case quota is allocated on past performance the entrepreneurs are provided an incentive
to accumulate stocks in terms of greater exports, making them eligible for greater quota
Exhibit 5.2: Key features of textile quota policy in Pakistan – I

Attributes 1992-93 1994 1995 1996 1997-98 1999-2000


Defined Time Jan.92-Dec.96 1994-Dec.96 1995-Dec.96 Jan.96-Dec.96 Jan.97-Dec.99 For the year 1999
Period & Year 2000
separately.
Newcomer No provision -10% of growth -10% of growth -10% of growth All discretionary No Provision
quota for new units quota for new units quota for new units quotas abolished
-25% of growth -25% of growth -25% of growth including new units
quota for rural quota for rural quota for rural and rural areas.
areas and areas and areas and
transferable transferable transferable
Allocation Basis Performance Only on Quantity Only on Quantity Only on Quantity 1st Year: 75%Q:25%V
Holders: based based based 2nd Year:65%Q:35%V
50% Q:50% V 3rd Year onward:
50%Q:50%V Based on Quantity
“Q” represent Quantity and “V “represents Value
Source: Quota Supervisory Council of Pakistan

Exhibit 5.3: Key features of textile quota policy in Pakistan – II

Attributes 1992-93 1994 1995 1996 1997-98 1999-2000


Defined Time
Period Jan.92-Dec.96 1994-Dec.96 1995-Dec.96 Jan.96-Dec.96 Jan.97-Dec.99 For the year 1999 &
Year 2000 separately.
Residual Quota Through auction Through auction Through auction Through auction Growth and residual Growth and residual
and non-transferable and transferable and non-transferable quota both through quota both through
auction and non- auction and non-
transferable transferable
Quota Transfer Transferable -For performance -For performance -performance and -performance and -performance and
holders transferable holders open market open market open market transfer
-non performance transferable transferable transferable able
holders, not -auction quota -auction quota -auction quota

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.

6.3.4 Quality vs. quantity


As mentioned earlier that the existing quota allocation is entirely on the basis of past
performance. The greater the volumes of exports, the greater are the chances of increasing
exports in the future. The particular aspect of the quota policy encourages to invest heavily
in quotas and undermines the diversification capability of the industry.
An example in this regard makes it easier to understand. Category 338 in the USA is
for knitted shirts. Pakistan has a very high quota allocation in this category due to the
strength of local cotton. The exporters of knit garment try to focus on this particular product
while exporting and tend to build high volumes in order to get additional quota in future.
It is for this reason that occasionally the cost per dozen of quota in this particular category
rises to Rs 2200 (US $ 2.5/piece), if the quota is purchased from open market.
For a firm not having past performance it becomes difficult to export in 338 category.
This specific feature of the quota policy makes it convenient for firms to concentrate on
simply one apparel product category, resulting in an overall narrow product line in international
export markets.
The benefits of having a mix of value and volume in quota allocation are much higher
than simply having the quota allocation on past performance. It not only enables the exporters
to maintain their export performance in existing product categories but also provides an
incentive for further value addition. The feature of value addition also enables the exporting
firms to diversify their product lines as well as markets, as they no longer enjoy the benefit
of allocation primarily based on mass production.

6.4 Importance of quota policies in post-MFA scenario


Quota policy in any country can serve the purpose of an effective tool to prepare the
apparel sector so as to make it globally competitive in the post MFA scenario. A well
designed policy can determine the future direction of the apparel sector exports by balancing
different variables, i.e. through encouragement of value addition and diversification, otherwise
it is likely to play a catalytic role in the deterioration of future export earnings by focussing
only on limited products. 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 terms of large investments required in quota procurement.

6.4.1 Quota policy, employment and skill levels


It has been established that the sole dependency of quota allocation on only performance
(quantity) restricts the industry’s capability to diversify and innovate. This in turn hampers
PAKISTAN 177

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.

7 Issues, concerns and suggested strategy thrust for apparel sector


development in Pakistan
7.1 Limited market exposure

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.

7.2 Limited product base

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.

7.3 High dependence on cotton


The apparel industry in Pakistan relies heavily on cotton based garments. Being an
indigenous input cotton provides greater competitive advantage to the domestic industry. At
the same time, the industry has to realign and reposition according to the international
demand patterns. When the international trends in consumption of manmade fibres are
observed, they clearly indicate that the global consumption as well as production of manmade
fibers and filaments is greater than that of cotton, the international production of which is
stagnant at the same level for the past ten years (Figure 5.17). This can also be observed in
the figure. On the contrary the mill consumption of manmade fibres is very limited in
Pakistan, the spinning and weaving segments of the textile value chain have also contributed
to this end by not realising the importance of realignment in accordance with the global
patterns. Due to lack of availability of inputs the apparel industry has not been able to
develop its capacities in switching or at least balancing the ratio of cotton and manmade
fibres in the product mix. This particular feature also impedes the industry’s access in the
women’s garment segment, where the market is highly dynamic and demands a variety of
fabric textures and blends.
Figure 5.17: Global consumption of fibres
in million bales
140

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

~ Cotton w MMF n Polyester

Source: Textile Vision 2005, SMEDA.


PAKISTAN 179

7.4 Regional trade blocs


The regional trade blocs are likely to play an important role in the post MFA scenario.
During the transition period of quota liberalization, the developed countries have sucessfully
formed effective trade blocs. More than 60% of the total trade within the EU is intra-
regional. In North American Free Trade Area (NAFTA), a similar situation prevails; and this
will certainly increase with the complete implementation of WTO. Mexico being a member
of NAFTA has over the past ten years successfully developed a diverse and a well balanced
apparel manufacturing base. An ideal example is the knitwear sector where the exports of
Mexico to the US have experienced an unprecedented increase. Figure 5.18 provides the
trend in US import of men’s knit garments from Mexico.
Figure 5.18: US import of men’s knit garments from Mexico
500

400 w
300 w
w
200
w
100
w
0
1995 1996 1997 1998 1999
US $ million 75 153 239 296 400

Source: PC-Trade Analysis System database of International Trade Centre


(ITC)-Geneva

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.

7.5 Preferential treatments


A few regional blocs also offer preferential treatments to their trading partners based
on the economic conditions of a particular country. The European Union provides such an
incentive for textile products to Bangladesh under its Generalised System of Preferences
180 GARMENT INDUSTRY IN SOUTH ASIA

(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.

7.6 Upstream industry and linkages


The upstream industry in case of woven garments is heavily dependent on the weaving
and spinning sector. The major portion of fabric, almost 65 percent, is still produced on
power looms in Pakistan. The use of this obsolete technology only permits the sector to
weave low-density fabrics of coarse cotton yarn. These machines are not equipped to
manufacture high-density fabrics of finer yarn counts. If the production of spinning industry
is evaluated, almost fifty percent of the total yarn produced in the country falls in the coarse
count categories. Similarly, the spinning industry’s production of blended yarns is also not
in line with the global production trends. The polyester-cotton (PC) and polyester-viscose
(PV) yarns comprise only twenty-five percent of the total yarn production.
On the other hand, the knitting industry, although not dependent on other sub-sectors
due to large presence of integrated units but due to huge investments in specific quota
categories, has been unable to diversify its product base.
Such factors prevalent in the upstream industry do not provide the apparel sector with
the requisite inputs necessary to meet the diverse needs of a global apparel markets. If
similar conditions and trends continue to prevail in the country then it would become very
difficult for the small apparel sector of Pakistan to compete in the value added products
internationally.

7.7 Reactive vs. proactive selling


The apparel exporters in Pakistan do not pursue any proactive marketing techniques,
with the exception of few progressive exporters. Mostly the exporters produce according to
buyers’ specification. It is very rare that exporters develop and design garments in-house and
then try to market them. This specific feature has resulted in the lopsided development of
the apparel sector, which is restricted to a limited number of products.
Participation of exporters in international trade events and fairs is also not very
encouraging. Although a large majority of exporters have developed their websites but do
not consider it to be a very reliable source of marketing. Most believe that their long-term
PAKISTAN 181

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.

7.8 New product development


Reliance on the foreign buyers in production of garments has not allowed the industry
to develop itself as an innovative sector of the economy. There are very rare cases in
Pakistan apparel sector where an exclusive designing facility exists. Due to lack of demand
of such skills in the industry, the human resource development in this critical area has also
not taken place. With the liberalization of quantitative restrictions, the requirement for this
skill is likely to enhance. However, currently the industry is not geared up to meet the
requirements of international markets based on indigenous designing and product development.

7.9 Mobility of inputs


A strong apparel manufacturing base guarantees the development of a solid up-stream
textile industry. In order to make the apparel manufacturing the engine of exports growth,
a liberal import regime needs to put in place. This would ensure the availability of inputs
such as diverse range of fabrics required by the woven garments sector and accessories
including zippers, buttons, etc. The current facilitating mechanisms including temporary
import schemes have failed to achieve the results of growth in the apparel segment. The
apparel industry in Pakistan mainly comprises small and medium sized units, which due to
capacity constraints are unable to utilise these facilitating mechanisms. These facilitating
mechanisms need to be revised and simplified, wherever possible, to bring about an increase
in their usage.

7.10 Technical barriers to trade and apparel industry


The complete implementation of the Agreement on Textiles and Clothing (ATC) will
result in strict enforcement of quality standards by importing countries particularly the
developed countries. These include standards like ISO 9002, SA 8000 (social accountability),
Eco labels and environment standards (ISO 1400), etc. These standards are not likely to
affect the existing direct exporters/manufacturers. Underlying factors include the
implementation of Standards of Engagement (SOEs) imposed by foreign buyers. Most of the
integrated knit garment manufacturers in Pakistan are already ISO certified and also comply
with SOEs of buyers. The integration within the knitwear sector will keep it protected from
the technical barriers to trade due to their inherent compliance capacity.
In the woven garment segment, the specialised garment manufacturing dominates the
industry structure. Sub-contracting and out-sourcing is a key feature within this segment.
The sub-contractors in the woven garment segment (manufacturers of labels, small washing
units, embroidery units, etc.), due to lack of capacity to implement standards, will accentuate
182 GARMENT INDUSTRY IN SOUTH ASIA

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.

7.11 Quota policy and diversification


Quota policy of Pakistan has been discussed at length in the quota section of the report.
The existing quota policy does not provide any incentive for diversification. However, it can
be used effectively to achieve the desired level of both market and product diversification.
The ideal strategy in this regard would be to allocate a certain portion of quotas to new and
potential investors in categories where the quota utilization of Pakistan is low. Similarly, an
incentive can also be provided to exporters in non-quota countries through allocation of
quotas in selected product categories. Such measures would lower the barriers to entry in
the apparel export markets and would also be helpful in enhancing the exports to non-quota
countries, where the current level of exports is minimal.

7.12 Effect on employment in the post-MFA scenario


The analysis of the exporting firms of Pakistan clearly indicates that the development
of the apparel industry, particularly the knitwear sector was triggered by high quota allocation
to Pakistan. Even in the woven garments segment, Pakistan relies on the quota markets. The
phasing out of quotas in the year 2004 will make the environment highly competitive for
the domestic apparel industry. Such a stiff competition will play a catalytic role in stagnating
the exports growth if timely requisite measures such as market and product diversification
are not adopted. A narrow product base can also lead to significant decline in overall exports
level, both in terms of value and volume, which would in turn negatively affect the
employment within the apparel sector. Estimation of exact labour force reduction is beyond
the scope of the paper but if the industry maintains its existing product portfolio, it would
negatively affect the employment in the sector.
PAKISTAN 183

ANNEXURE I

Composition and nature of US market


1. The US market
The American market is the second largest import market for apparel products. The
current size of the American market is around US $ 51 billion. The USA has a 32 percent
share of the global imports of apparel products. Due to high consumption patterns in the
American markets, the imports of apparel products have increased at an annual average rate
of 10 percent during the period of five years from 1995 through 1999 (Figure A 5.1).
Figure A5.1: US import of apparels
In billion dollars

60 49 51

43
50
35 37

40

30

20

10

0
1995 1996 1997 1998 1999

Source: PC-Trade Analysis System database of International Trade Centre


(ITC)-Geneva

1.1 Product mix of imports


The market composition of imports in apparel products is almost the same as that of
the world. The woven garment segment both for men and women has a total share of 46
percent in the overall apparel imports (Figure A 5.2). The knit garments including t-shirts
and knitwear constitute another 39 percent of the imports. A major chunk of imports in the
hosiery category constitutes woven under-garments and nightwear with high presence of
women’s garments. On the basis of this the share of woven garments in the total imports can
be safely estimated to be more than 50 percent.
As mentioned earlier, the trends in the American market are similar to the global
market. A closer look at the USA’s import shows that the share of the women’s garment is
more than the men’s garment. The women’s garment represents 30 percent of the total
imports of USA, while the men’s garments have a share of 28 percent. It becomes virtually
impossible to comment on the share of men and women’s garments in the t-shirts category
as these are only reported as knit shirts.
184 GARMENT INDUSTRY IN SOUTH ASIA

The imports of the woven garments have increased from US $ 19 billion to US $ 30


billion in 1995-99 and showing an average growth rate of 6.7 percent. In the woven garments
category, imports for the women’s garments stand at US $ 12.5 billion with share of 24
percent; and for men’s garments it is US $ 11.5 billion having a share of 22 percent in 1999.
The contributing factor in increasing the share of this category is the women’s wear which
increased at an average annual growth rate of 7 percent, whereas the men’s wear showed
an annual growth rate of 6.3 percent during 1995-99.
Figure A5.2: Types of US imports

USA’s imports breakup 1995 USA’s imports breakup 1999


Hosiery
Hosiery
T-Shirts 8%
Woven Men T-Shirts 9%
20% 25% Woven Men
27%
22%
Sports
Wear
4%

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%

Source: PC-TradeAnalysis System database of International Trade Centre (ITC)-Geneva

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.

1.2 Asian countries and US market


Asian countries are exporting apparel products worth US $ 21 billion to the USA
market and with a share of almost 41 percent of USA’s apparel imports. The women’s
garments, having a share of 37 percent, dominates the exports from the Asian countries
(Figure A 5.3). The share of men’s garments that currently stands at 25 percent is fairly
small as compared to the women’s garments exports by Asian countries.
The woven garments including tops and bottoms of all types of woven fabrics dominate
the American market with a share of 52 percent in the overall imports followed by the T-
shirts category, which has acquired a share of 25 percent in the total exports of the Asian
countries. These exporting countries have consistently maintained pace with the growth in
apparel demand of the woven and knit garments in the USA. The exports of Asian countries
PAKISTAN 185

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.

Figure A5.3: Split of Asian exports to US, 1999

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%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


186 GARMENT INDUSTRY IN SOUTH ASIA

ANNEXURE II

Composition and nature of EU market


1. The European Union market
The European Union market comprises of fourteen countries namely Germany, United
Kingdom, Netherlands, Austria, Belgium, Denmark, Finland, France, Greece, Italy, Portugal,
Spain, Ireland and Sweden. The European market is the world’s largest market for the
imports of apparel products. The size of the European market is US $ 66 billion. The imports
of EU are around 41 percent of the global imports of the apparel products. The imports of
apparel products have increased from US $ 61 billion to US $ 66 billion in 1995-99
representing an average annual growth rate of 2 percent (Figure A 5.4).
Figure A5.4: EU imports of apparel
In billion dollars

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

1.1 Product mix of imports


The imports of EU have a prominent bias towards the woven garments, the estimated
share of which is around 55 percent (Figure A 5.5). Although the woven men and women’s
garments combined together constitute 47 percent of EU’s imports; but due to the fact that the
hosiery segment comprises mainly of women garments including under-garments and nightwear,
etc. manufactured from woven fabric, the estimated share of woven garments is high.
In the woven garment category, the women’s wear imports were US $ 16 billion; and
the imports of the men’s wear were US $ 15 billion. The women’s wear showed an average
annual growth rate of 0.5 percent, whereas the imports of men’s wear declined at annual
average rate of 0.6 percent during 1995-99. This basically reflects that the market for the
women’s wear is very well developed in EU as compared to men’s wear. In the T-shirts
category, the imports have increased from US $ 13 billion to US $ 16 billion with an average
PAKISTAN 187

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

EU’s imports breakup 1995 EU’s imports breakup 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%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva

1.2 Asian exports to EU market

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

Figure A5.6: Breakup of Asian exports to EU, 1999

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%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


188 GARMENT INDUSTRY IN SOUTH ASIA

from US $ 19 billion to US $ 22 billion. The women’s garments, having a share of 29


percent, dominate the exports of the Asian countries followed by men’s garment with a
share of 25 percent. The combined share of these two is 54 percent.
The analysis of the product mix of Asian exports to EU reveals that the trends in
exports are very balanced and compatible to the import trends in the EU market. The woven
garments are the biggest category with a share of 42 percent and the second largest category
is T-shirts with a share of 26 percent in the EU’s imports. The imports of the woven
garments increased from US $ 9.15 billion to US $ 9.18 billion through 1995-99. In the
woven category the share of the women’s wear and men’s wear is US $ 4.81 billion and US
$ 4.37 billion respectively. The overall share of women’s wear is high as compared to
men’s wear.
In the T-shirts category Asian exports increased from US $ 3.9 billion to US $ 6.0
billion in the same period representing an average annual growth rate of 11 percent. The knit
garment category involves exports of US $ 2.65 billion and the share is 12 percent. The
imports of the knit garments increased at an average annual growth rate of 6.6 percent. In
the knit garment category the imports of women wear are around US $ 1.62 billion and in
the men’s wear it is US $ 1.03 billion. The share of knit garments is obtained by adding the
exports of both t-shirts and the knitwear, which combined together, constitutes almost 41
percent of the total EU apparel exports.
Key players in the EU apparel market includes China with a share of 21 percent in the
total Asian exports to the EU. China also has the benefit of having a very well balanced and
diverse product portfolio that enables it to maintain its share in the EU market. Whereas its
South Asian rival including Pakistan and India try to retain their market share through a
fixed number of products mainly the knitted garments. Similarly, Bangladesh relies on the
strength of woven garment industry to maintain and even increase its penetration in the EU
market. Another advantage that Bangladesh enjoys in the EU is the preferential treatment.
Bangladesh is allowed to export duty products to EU as a part of the Generalized System
of Preferences (GSP), which allows its products to be on an average 12 percent competitive
than its other South Asian rivals.
PAKISTAN 189

ANNEXURE III - World apparel trade

World imports in the apparel categories (in million US $)

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 42,174.5 44,598.4 46,419.8 46,676.3 45,299.4 1.80%

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%

Total 45,383.8 47,886.7 49,899.1 50,817.5 50,345.2 2.63%


190 GARMENT INDUSTRY IN SOUTH ASIA

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 3,188.2 3,446.0 3,687.5 4,163.8 4,232.0 7.34%

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%

Total 5,262.7 5,593.1 5,904.7 5,561.6 5,214.7 -0.23%

T-SHIRTS & PULLOVERS


Knit
8453 Jerseys, pullovers, etc. knit 21,432.9 22, 818.8 25,428.7 26,726.5 28,637.5 7.51%
8454 T-shirts, othr. vests knit 8,840.5 9,881.8 10,087.3 11,533.7 12,765.6 9.62%

Total 30,273.4 32,700.6 35,516.1 38,260.1 41,403.1 8.14%

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%

Total 12,120.6 12,751.1 14,679.2 14,162.1 13,725.9 3.16%

Grand Total 138,403.1 146,976.0 156,106.4 159,641.4 160,220.4 3.73%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


PAKISTAN 191

ANNEXURE IV - US apparel imports

US imports in the apparel categories (in million US $)

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 11,325.3 11,640.4 13,428.6 14,679.5 14,764.8 6.85%

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%

Total 11,868.0 12,498.7 14,141.1 15,371.4 15,741.6 7.32%


192 GARMENT INDUSTRY IN SOUTH ASIA

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 999.3 1,040.6 1,233.1 1,496.2 1,483.6 10.38%

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%

Total 1253.8 1253.2 1485.8 1448.0 1345.3 1.78%

T-SHIRTS & PULLOVERS


Knit
8453 Jerseys, pullovers, etc. knit 5,704.6 5,932.7 7,408.1 8,695.0 9,883.1 14.73%
8454 T-shirts, othr. vests knit 1,321.6 1,711.2 2,242.5 2,820.9 3,312.5 25.83%

Total 7,026.2 7,643.9 9,650.6 11,515.9 13,195.6 17.07%

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%

Total 2,947.7 3,064.5 3,551.9 4,025.6 4,702.9 12.39%

Grand Total 35,420.3 37,141.4 43,491.0 48,536.6 51,233.9 9.67%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva.


PAKISTAN 193

ANNEXURE V - EU apparel imports

European Union imports in the apparel categories (in million US $)

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 18,162.3 18,907.9 19,257.2 19,234.4 18,400.6 0.33%

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%

Total 19,361.9 20,001.5 20,740.6 20,910.5 20,122.1 0.97%


194 GARMENT INDUSTRY IN SOUTH ASIA

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 1,439.3 1,576.7 1,592.7 1,685.4 1,761.0 5.17%

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%

Total 2,589.2 2,808.0 3,052.0 2,834.6 2,496.5 -0.91%

T-SHIRTS & PULLOVERS


Knit
8453 Jerseys, pullovers, etc. knit 8,326.6 9,180.5 9,969.9 9,941.2 10,230.5 5.28%
8454 T-shirts, othr. vests knit 4,518.9 5,053.8 4,816.1 5,776.0 5,979.7 7.25%

Total 12,845.5 14,234.3 14,785.7 15,717.1 16,210.2 5.99%

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%

Total 6,344.3 6,610.0 6,635.1 6,706.7 6,616.6 1.06%

Grand Total 60,742.5 64,138.5 66,063.4 67,088.6 65,607.0 1.94%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


PAKISTAN 195

ANNEXURE VI - Pakistan apparel exports

Pakistan exports in the apparel categories (in million US $)

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 618.36 748.32 833.17 887.93 916.52 10.34%

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%

Total 200.48 261.76 187.48 206.25 196.65 -0.48%


196 GARMENT INDUSTRY IN SOUTH ASIA

SITC Product description 1995 1996 1997 1998 1999 Average


annual
growth

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%

Total 16.39 18.53 19.59 25.42 27.49 13.81%

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%

Total 24.68 26.10 22.54 25.30 15.11 -11.55%

T-SHIRTS & PULLOVERS


Knit
8453 Jerseys, pullovers, etc. knit 3.62 6.32 5.68 7.59 11.91 34.70%
8454 T-shirts, othr. vests knit 82.18 81.74 49.71 49.34 51.76 -10.91%

Total 85.80 88.06 55.39 56.93 63.67 -7.19%

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%

Total 144.28 130.96 119.54 103.53 101.27 -8.47%

Grand Total 1,089.99 1,273.72 1,237.71 1,305.36 1,320.71 4.92%

Source: PC-Trade Analysis System database of International Trade Centre (ITC)-Geneva


197

6 Garment industry in Sri Lanka

Saman Kelegama and Roshen Epaarachchi*

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

Source: SLAEA, various issues.

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

* Institute of Policy Studies of Sri Lanka


198 GARMENT INDUSTRY IN SOUTH ASIA

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

Figure 6.2. Value of garment exports (US $)

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

Source: SLAEA, various issues.

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

from a number of East-Asian producers whose country-quota allocations were exhausted.2


Given the fact that Sri Lanka is a labour-surplus economy, foreign investments in a labour-
intensive industry such as garments proved to be extremely fruitful.
In 1977, there were 5 garment factories in operation and earning US$ 10 million for
their exports and by 2000, export earnings were recorded at around US$ 2,710 million by
a total of 891 factories. Of these factories, approximately 80 percent are categorized as small
and medium scale enterprises employing up to 500 employees (Table 6.1). The garment
sector provided direct employment to approximately 280,000 employees in 1999. While
local industrialists own about 85 percent of garment factories, 25 garment manufacturers
produce 52 percent of total garment exports (SLAEA, various issues). Out of the 891
factories, 417 have received Board of Investment special status (commonly known as “BOI
status” where the enterprise is entitled to duty free importation of inputs, off-shore borrowing
facilities, ‘one-stop shop’ facilities, etc. – see BOI, 1995). The rest do not enjoy these
privileges but account for over 55, 000 employees in the garment sector (SLAEA, 2000a).
Table 6.1: Distribution of factories by size
Category Number of employees No. of factories Percentage
Small 0-100 282 32
Medium 101-500 445 50
Large 501-1000 131 14
Extra Large Over 1000 33 4
Total 891 100
Source: TVEC (1999).

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

Over 70 percent of garment manufacturers are concentrated in or around the Western


Province, as shown in Table 6.2, due to better infrastructure and close proximity to seaport
and airport facilities. Similarly, about 65 percent of total employment has been generated in
the region. Large employment generation has created congestion in the Western Province;
and yet the living standards, working environment and welfare facilities of the employees
have remained poor in quality as described in subsequent sections.
Table 6.2: Geographical distribution of garment establishments and numbers of employees, 1999

Province Establishment Employment


Number Percentage Number Percentage

Western 638 72 181329 65


Southern 51 6 19488 7
Central 54 6 17056 6
Eastern 8 1 3512 1
North Western 60 7 22398 8
North Central 21 2 10426 5
Uva 20 2 6559 2
Sabargamuwa 36 4 15419 6
Northern 3 - 634 -
Total 891 100 276821 100
Source: TVEC (1999).

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.

1.2 Sri Lanka’s major export markets


During the past two decades, Sri Lanka has enjoyed a relatively assured export market
for garments through bilateral agreements with the USA, the EU, Canada, Norway, Sweden,
and Finland. Sri Lanka’s largest market is the USA, with 60 percent of Sri Lanka’s garments
being exported to this destination, followed by 30 percent of exports to the EU. The buyers
of Sri Lanka’s garments within the EU are shown in Figure 6.3. Other importers of Sri
Lanka’s garments include Canada, Australia, Japan, South Korea and Switzerland.
SRI LANKA 201

Table 6.3: Garment industry gender composition in labour force by occupational categories, 1998

Grade Occupational category Total Male (%) Female(%)


Management Grade Senior Managers 2,120 84 16
Middle Level Managers 3,229 62 38
Front Line Managers 6,739 28 72
Technical Grade Quality Assurance Managers 454 52 48
Cutting Managers 391 90 10
Quality Controllers 2,950 28 72
Pattern Makers 645 50 50
Merchandisers 824 50 50
Work Study Officers 581 64 36
Designers 128 50 50
Operative Grade Mechanics 3,041 99 1
Operators 124,444 6 94
Helpers 69,255 9 91
Checkers 21,572 7 93
Line Leaders 3,207 11 89
Cutters 2,585 68 32
Ironers 6,919 30 70
Others 7,905 30 70
Grand Total 257,026 13 87
Source: TVEC (1999).

Figure 6.3: Sri Lanka garment exports to EU, 1999

France Belgium Netherlands


6% 7% 7%
Italy
Germany
3%
17%
Others
5%

United Kingdom
55%

Source: SLAEA, various issues.

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

1.3 Quota and non-quota exports


More than 90 percent of Sri Lanka’s garment exports are ready-made garments (RMGs),
which are primarily concentrated in casual wear for women and men. Most garment
manufacturers are geared to produce standard, low value added garments for the major
markets under export quotas. In the context of the USA, Sri Lanka is subject to quotas under
30 categories, covering over 50 clothing items, including specific categories such as knitted
shirts and blouses, trousers, underwear, overalls, terry and other pile towels, etc. The non-
quota garment exports attempted are primarily higher value added garments, which cater to
niche markets and designer labels such as Victoria’s Secrets, Triumph International, British
Home Stores, Marks & Spencer, C & A., etc.
Exports to the EU are predominantly non-quota (Table 6.4). The government of Sri
Lanka signed an agreement with the EU in December 2000 to lift the quantitative restrictions
of Sri Lanka’s garment exports to the EU from March 2001. The agreement lifts all textile
quotas with Sri Lanka in exchange for tariff reductions by Sri Lanka and binding of all its
tariffs for the textile and clothing sector with ATC. Sri Lanka bounded its rates of duty for
the entire textile and clothing sector at zero percent for raw materials, 5 percent for fibres
and yarns, 10 percent for fabrics and 17.6 percent for clothing products. The EU will
suspend the application of four quantitative restrictions currently maintained on imports of
textiles and clothing products from Sri Lanka. These quotas relate to trousers (category 6),
cotton blouses (category 7), cotton shirt (category 8), and anoraks (category 21). Under the
agreement, all EU countries will no longer apply quotas on these garment products from
Sri Lanka.
Table 6.4: Quota and non quota exports4

Year USA EU CANADA


Total quota Total non Total quota Total non Total quota Total non
quota quota quota

1994 83.62 16.36 14.99 85.01 87.14 12.85


1995 77.60 22.39 15.87 84.13 89.14 10.85
1996 68.40 31.60 n.a. n.a. n.a. n.a.
1997 68.80 31.20 0.08 99.92 75.10 24.90
1998 63.70 36.30 24.67 75.33 87.70 12.30
1999 61.20 38.80 22.54 77.46 101.87 -1.87
2000 62.03 37.96 16.93 83.07 98.77 1.23
Source: SLAEA, Various issues.

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.

2. Major issues facing the industry


2.1 The phasing out of the Multi-Fibre Agreement
The Multi-Fibre Agreement (MFA) came into existence in 1974, whereby a mechanism
of quantitative restrictions was used to manage world trade in textiles and garments.
Restrictions in the form of quotas were placed on the importation of apparel into industrialized
countries as a form of protection for their domestic industries. Under the MFA, the developed
countries negotiated bilateral agreements with individual trading partners in order to restrict
the quantity of exports of specific product categories. The MFA, with around 100 bilateral
restraint agreements, is estimated to cover almost 80 percent of the world textile and
garment trade.

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

Sri Lanka 20.9 18.7 19.6


Bangladesh 14.2 21.6 20.3
Nepal 42.6 19.3 7.8
Pakistan 4.5 26.1 12.2
India -0.3 21.6 13.3
Total Export 6.1 14.8 11.2
Source: World Bank (1997).

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.

Table 6.7: Hourly labour costs including social & fringe


benefits (US $), 1996

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).

Looking at most developing nations, garment manufacture has been concentrated


primarily in low quality, low value-added, standard garments. As such, the cost based
strategy of lowering costs and improving productivity, in competing garment manufacturing
nations, can be seen in their shift from reliance on labour-intensive manufacture to advanced
technology. Improvements in technology (e.g., Korean textile industry) have been determinant
for improved productivity and competitiveness. As Table 6.8 shows, there are reasons to
believe that Sri Lanka’s productivity in the garment sector has not improved relative to some
of its competitors.
SRI LANKA 209

Table 6.8: Selected characteristics of the wearing apparel sector in selected South Asian
countries, (annual data), 1993/4

Country Value added Wages Percentage in output


per employee per employee Costs of input Costs of labour Operating
(1000 dollars) (1000 dollars) materials etc surplus

India 3.4 0.6 68.8 5.3 25.9


Nepal 1.6 0.5 59.7 11.4 28.9
Sri Lanka 1.9 0.7 55.4 15.5 29.1
Source: UNIDO (1998).

4. Contributing factors to low productivity


While these low levels of productivity are seriously affecting Sri Lanka’s ability to
remain competitive, it is essential to understand that productivity is affected by the quality
of jobs in the industry. Based on discussions with a range of garment manufacturers, according
to their labour cadres and capacity utilization, Exhibit 6.1 portrays the dependence of
competitiveness on improvement in productivity and job quality.9
Exhibit 6.1: Dependence of competitiveness on productivity and job quality
Low Level of International Competitiveness

Low Productivity

· Poor Working Conditions


· Poor Incentives for Workers
· High Labour Turnover and Absenteeism
· Inadequate Human Resource Development
· Strained Employer-Employee Dialogue
· Restrictive Labour Regulations
· Low Investment in Technology
· Slow Turn-Around Time
· No Garment Factory Standardization
· Lack of Professionalism in the Industry

4.1 Poor working conditions


One of the most important factors affecting the productivity of labour is poor working
conditions. In many of the factories, especially those belonging to the small and medium
category, hazardous factory layout with cramped workspace for the workers are not conducive

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.

4.2 Poor incentive structures


Another serious constraint to enhancing productivity is the poorly structured incentive
and pay systems that employers have set up. In most factories, allowances are not linked to
productivity; and in the cases where productivity payments are made, they are in fact only
flat-rate allowances rather than incentive systems.11 The Sri Lanka Apparel Exporters’
Association has suggested that wage increases should be linked to increase in productivity,
but the Wages Board for the Garments Manufacturing Trade has still not agreed to this

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.

4.4 Inadequate training


Inadequate training of managers and workers alike is an important factor constraining
productivity and competitiveness. There is little emphasis placed on the importance of
training and its role in improving productivity by factory owners/ managers. Often, managers
do not view training as an investment and are unwilling to incur expenditure on it. While
most workers are trained during recruitment, this initial training is not sufficient to ensure
consistently high levels of labour productivity and product quality.
Table 6.10: Mode of training in garment industry (percentage), 1999

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

Organization Training programme

Department of Textile Production Organization and Management of the Garment Industry


and Clothing Technology,
University of Moratuwa
Textile Training and Service Textile Technology for the Garment Industry
Centre Fabric Inspection for Textile & Garment
Knitting Machine Mechanics
Marketing Management for Textile & Garment
Quality Aspects of Fabrics
Clothing Industry Training Training Personnel in the Industry
Institution Advanced Pattern Cutting, Grading
Garment Design
Garment Technology and Management
Quality Control for the Sewing Industry
Sewing Machine Maintenance
Phoenix College of Clothing Clothing Technology and Management
Technology Pattern Technology and Grading
Clothing Production Technology
Vocational Training Authority Training of Sewing Machine Operator by 65 Training Centres of
Sri Lanka throughout the Country
National Apprentice and Sewing Machine Operator Training Programme
Industrial Training Authority
National Youth Services Council Sewing Machine Operator Training Programme
Source: CITI and other Institutions’ Reports, various issues.

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.

4.5 Strained employer-employee relations


The poor relationship between employers and their employees in the garment industry
is another constraint to improving productivity. Strained relationships are reflected in the
demands made by management upon workers in cases where unrealistic targets are set and
the workers are pressured to perform beyond their capacity. This can be attributed to
absenteeism, the lack of adequate training amongst middle and upper level managers as well
as to a lack of professionalism in the industry. Some employers tend to believe that the fact
that they create employment should absolve them from any obligations. Consequently, laws
ensuring statutory rights of the workers are evaded in a significant scale. For example,
according to the available data, only 35 percent of the registered employers comply with the
provision of the Employment Provident Fund Act (Gunatilake and Kelegama, 1996).
Some managers see no role for trade unions in bringing about productivity increases,
believing that they are an obstacle to the process. Most labour laws are evaded in most Free
Trade Zone factories using the “culture of attempting to contain any problem within its
boundaries” (Amerasinghe, 1999: 170). Trade Union formation is discouraged.17
The most common form of worker participation in management in the garment industry
within the Free Trade Zones is in the form of Joint Consultative Councils or Employees’
Councils which are, in principle, established to encourage the mutual cooperation of the
employer and employees, to promote employee welfare and to settle disputes.18 The Council
is purely a consultative body and its decisions are not binding on the management. They are
ineffective in influencing the management in regard to worker issues, and this has severely
strained the relationship between employers and employees.

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

4.6 Restrictive/stringent labour regulations

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.

4.7 Low investment in technology

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.

4.8 Slow turn-around time


Despite the fact that the Sri Lankan garment industry has achieved phenomenal growth
over the last two decades, the development of backward linkages has been poor. The industry
is heavily dependent on imported inputs, such as fabric and accessories, and over 90 percent
218 GARMENT INDUSTRY IN SOUTH ASIA

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

Source: Sri Lanka Customs.

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.

4.9 Low garment factory standardization


Under the current international competitive pressures, the standardization of garment
factories has become essential to conform to the required standards of major international
buyers. Although the Sri Lanka Apparel Exporters Association has ensured that the basic
minimum standards in regard to fire safety, etc. are maintained, there are a number of
shortcomings in most of t