The Financial Crisis and the Garment Industry

Based on news reports from across the globe, the current financial crisis has had a negative effect on the Asian garment industry.  Stories about falling exports and workers being laid off abound.  However, setting a floor wage in the garment industry, and paying workers fairly in other sectors, isn’t important only because it will raise the wages of those living on the smallest financial margins.  Paying a decent wage may actually help us out of the financial crisis.  A January 2009 Newsweek article makes the case that paying Asian workers better would increase Asian demand for goods and strengthen the global economy.  Richard Duncan calls this a “trickle up” strategy.

Garments around the Globe

The Maquila Solidarity Network, one of our Alliance members, recently published a short primer on how the global financial crisis might affect the garment industry and garment workers.  The report laid out six observable trends:

  1. US demand for apparel is declining
  2. Price is an increasingly important issue for consumers – Most retailers saw a large drop in sales, but low-end retailers like Wal-Mart and Target saw increases in sales at the end of 2008 and beginning of 2009.
  3. During pre-holiday sales, retailers had to slash prices considerably to attract consumers.  Consumers may expect huge markdowns to continue.
  4. Visible changes in import numbers have a lag time because apparel orders are placed months ahead of time.  However, December 2008 data appears to show decreased import volume.
  5. The trade patterns haven’t been consistent across the board.  For example, in 2008, Chinese exports to the US dropped by 3.05%, but Vietnam, Bangladesh, Honduras, Nicaragua, and Indonesia all increased their volume of exports to the US.
  6. The world supply of cotton is dropping, however demand for cotton is also declining.  Despite the decrease in supply, cotton prices are, in fact, declining.

The report identifies several trends to watch, but generally predicts downward pressures on the market.  Unfortunately for the Asia Floor Wage campaign, the report predicts that  increased wages or improvements that produce extra costs will be strongly resisted by manufacturers.  The industry will probably see an increase in the use of short-term contracting and flexibilization, not less.  On the other hand, in this time of economic crisis, the need for organized labor takes on even greater importance.   It is important to ensure that garment workers in the global south, already living on a precarious margin, are not forced to bear a disproportionate share of the burden inflicted by the financial crisis.  As the Maquila Solidarity Network report notes:

“The global financial crisis now underway is expected to have major impacts on North American and European workers and consumers, including massive job losses and reductions in spending power.  It will have even more serious consequences for works in the global South.”

While global economic indicators point generally downward, the extent of the economic effects on the garment industrygreatly depends on the country and region.  One country – Bangladesh – seems to be defying the downturn altogether and actually increasing exports.  Here is an overview of what the most recent news is saying from across Asia:

Bangladesh looks like it might actually benefit from the global financial crisis.  Because of its comparatively low wages and high product reliability, Bangladeshi suppliers may actual see an increase in sales volume as consumers shift to lower-priced retailers like Walmart that supply from Bangladesh.  Khalil Rahman Chowdury, the chairman of the medium-sized Khalil Group garment company told Chinese news service Xinhua that his  company is getting more orders but at lower prices.

The Voice of America also aired a report noting a shift in manufacturing to Bangladesh:

Cambodia, which once received 70 percent of its total annual export volume from garment industry exports, is expected to experience a six to nine month crisis in 2009, according to Van Sou Ieng speaking at the annual Assocation of Southeast Asian Nations’ Federation of Textiles and Apparel (AFTEX) meeting in January.  Cambodia is heavily reliant on the US for garment exports.  The country exports about 70 percent of its garment products to the US, four percent to Canada, and most of the rest to European countries.  According to a January 2009 article by Asia Pulse, more than 20 of the 400 Cambodian garment factories has had to close, leading to the unemployment of 25,000 workers.

China is the top apparel supplier for the US, but Chinese exports to the US dropped by 3.05 percent between 2008 and 2009.

The Indian garment industry is India’s second-largest industry, employing nearly 38 to 88 million workers (depending on whose figures you use) and accounting for 4 to 8 percent of India’s GDP.  India’s textile industry has a market size of $52 billion and accounts for 26 percent of the manufacturing sector, 20 percent of industrial production, and 18 percent of industrial employment.  More than 60 percent of India’s textile production is exported to the US, the EU, and Japan, all hit hard by the financial crisis.  The Confederation of Indian Textile Industry (CITI) claims that about 700,000 jobs had already been cut in the second-half of 2008 and the government estimates that the industry could lose another 500,000 jobs in the first five months of 2009.

A December 2008 article by the Asia Pulse noted:

“According to the CITI, global financial crisis has severely affected Indian garment exporters with 30-35 per cent dip in volumes in July-September quarter.

“[…]Observing the seriousness of the matter, the government has started a survey of about 800 companies to assess how many jobs would be lost in the industry due to the current crisis. The survey to ascertain the number of people who lost their jobs is crucial, as the textile industry is demanding sops from the government. A committee of union secretaries, set up by Prime Minister Manmohan Singh in the wake of the global financial crisis, is considering proposals to help the industry. As there is no authentic assessment about the extent of effect of global turmoil on the sector, the Textile Ministry has engaged a research firm – Technopak – to find medium and long term impact including job losses due to the current global economic slowdown, which will submit its report by end of January, 2009.”

Garment firms in Tamil Nadu have been particularly hard hit.  The decline in international demand combined with power shortages has cut Tamil Nadu’s textile industry’s capacity utilization by 72 percent.  According to an article from November 2008, about 50 percent of the Tamilian textile industry’s labour force had been cut.

The textile industry was “among the early victims of the global financial crisis in Indonesia,” according to an October 2008 article by Asia Pulse.   The article reported that six textile factories faced bankruptcy and were forced to suspend operations.  The factories were:  PT Inspirant Aditama, CV Ogivano Garment Industries, PT Indah Onindo Jaya Sepakat, PT Indothai Widya, PT Narida Utama, and PT Central Star Knitting.

The US is Nepal’s main garment buyer, importing as much as 85 percent of Nepal’s garment exports.  The Garment Industries Association said that the export of ready-made clothing to the US had fallen by 47 percent by October 2008.

Sri Lanka
The apparel export industry is the largest contributor to the Sri Lankan economy and accounts for 10 percent of Sri Lanka’s GDP.  However, Sri Lanka’s expected loss of duty free access to Europe and the declining US market are expected to have a rough impact.

Like Bangladesh, officials expected Thailand to be able to weather the financial crisis.  According to Dej Pathanasethpong, President of the Thai Garment Manufacturers Association, the Thai garment industry expects to be able to maintain its export growth momentum.  The October 2008 article by the Thai News Service noted:

“Growing exports in Asean and Japan are expected to help cushion [the impact from] lower exports in the giant markets like the United States and European Union where economies are expected to be hit by credit crunch.” The world’s garment industry is estimated to be worth about $700 billion this year, with the US and EU representing 55%. The global market has tended to drop by 10% when the two giant economies were weak, said Mr Dej.”

However, more recent articles paint a dimmer picture.  By late December, 2008, Nareerat Wiriyapong writing for the Bangkok Post reported that 10,000 workers had lost their jobs as 100 garment factories closed during the first 10 months of 2008.  The Executive Director of the Thailand Textile Institute, Virat Tandaechanurat was quoted in the article as saying:

“In 2009, more factories will be affected as major foreign trade partners have been facing financial problems. However, the number of job losses is unlikely to be so severe because there is still a demand for workers in some specific segments of the market,”

The article went on to note:

“According to the institute, the market share of Thai-made clothing in the US has been falling steadily and is now 3.4%, down from double digits several years ago, due to intensified price competition from products shipped from China, Vietnam, Cambodia and Bangladesh.”


One thought on “The Financial Crisis and the Garment Industry

  1. Thank you very much for sharing this information, I read this complete article and come to know about financial crisis and how this it show the negative effect on the Asian garment industry. overall its a good article.

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