Indra’s Drishtikona (Viewpoint)

 

Many years ago I went to Bangladesh, when I was with HM. Pragati Industries of Bangladesh was building Hindustan trucks (the derivative of Bedford of Vauxhall Motors, UK). We were supposed to advise how Pragati can localize the components using the industries in Bangladesh. Pakistan in its days had set up some big facilities that were lying almost unutilized. During the same visit, I saw some apparel manufacturing units also, as our dealers and agents own them. Even in those days, the Chinese provided the textiles, all equipment and designs. The Bangladeshi proprietor used the young girls in large number girls for stitching and finishing the garments. These girls were paid some 8-10 takas (taka about 0.8 of an Indian rupee) per day.

I am not surprised that apparel manufacturing constituted 60% of the exports from Bangladesh till last year. The garment industry employs literally millions of women drawing them out of villages into large cities in poor countries around the world. I may not agree with the report that the girls who leave their villages are seldom welcomed back. It is mainly with the consent of the family head that they take up the job and they give most of the earning to sustain the family. Certainly the textiles brought many families above the poverty level. For many, it has transformed a way of life unchanged for generations. Since the beginning of the 2005, MFA (Multi-fiber Agreement, popularly known as quota has gone. MFA had been an advantage for many poor countries. Taking advantages of MFA, the textile and apparel manufacturing facilities were built in these countries. Textiles and apparel exports comprise more than half of manufactured exports for a dozen of countries including Bangladesh, Mauritius, Honduras, and Sri Lanka. The industry also provides the largest number of manufacturing jobs too.

What happen to these countries and its population employed in this industry? And who becomes the gainer and who looses and that to what extent after MFA?

The International Monetary Fund warned that a quarter of Bangladesh’s exports and 2.3 million jobs here could evaporate next year, shaking the entire economy.

However, China has at least as reportedly committed to tax it clothing exports to stem excessive growth next year. And the Bush administration indicated to further limit Chinese imports. Wal-Mart assures to continue to source from where they have been sourcing. Will they do it? At least reports appearing in media don’t show this.

Bangladesh may remain very competitive because the labor cost in Bangladesh is only half of what China is, and maybe less than that. But what will happen to others?

MFA had almost forced most of the large retailers such as Wal-Mart, and others to find suppliers in more than 50 countries. With its aggressive manufacturing sector and price cut strategy, will China not get the whole of the pie? With quotas ended, retailers in the United States and Europe will certainly move to buy where it is cheapest.

As reported, Bangladesh’s market share in the good’s released from quota fell by nearly 90%, while China’s share more than tripled.

Central South America has an estimated 1,000 textile and apparel factories with some 500,000 people employed in them. The factories have started to sputter. Within the two months after the quota system, 18 plants in Guatemala, Honduras, Costa Rica and the Dominican Republic closed; some 10,000 jobs were lost. Some have just managed to maintain stability.

However, Nicaragua, with its worst poverty level and lowest wages, is the only country reporting an expansion in its young garment industry. But industry representatives expect orders to dry up at many factories by summer. El Salvador’s garment industry shrank 3 percent last year as three major and five smaller apparel manufacturers shut down operations. “Most factories are going to go. “We know we are going to be affected by China”, says the economy minister of El Salvador

It is the same sobering story being told farther away, in places like Mongolia, Cambodia and southern Africa. I wish China and US keep their commitments.

During my present US stay, I had been watching at the tags of different items for the source, whenever I happen to visit the shopping malls. My sons made a fun of this. I was very happy that at least in textiles and apparel, it was not a dominance of Chinese only. The tags confirmed the width of the sources- from South Korea, Vietnam, Jordan, El Salvador, Pakistan, Thailand, Malaysia, Mexico, and all the countries mentioned above. I thought that as the best part of free market.

But free market also asks for competition. And in that there is no handicap for weaker candidates- however weak it may be, and for whatsoever historical reasons or otherwise.

India may not be affected by the Chinese aggressiveness. However, Indian entrepreneurs must go for different business models to cut down their prices, to improve their quality, and to excel with customized and contemporary design but all must be done fast enough to remain in the game.

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