Garment industry expected to get smaller next year

On industry estimates, the garment sector has already shrunk from about 800 factories during the quota era, to around 300 factories by now. The sector is expected shrink further within 2009, due to industry “consolidation,” to survive increasing financial difficulties.

 

“There is a lot of consolidation happening in the industry and the small and mediums are struggling. So by the end of next year, the number of factories may reduce to around 200,” said the head of the JAAF Ajith Dias, speaking at the Apparel Asia Conference, organised by the Sri Lanka Apparel Institute and Lanka Exhibitions and Conference Services, on Wednesday.

 

At this point, according to JAAF estimates, about 105 factories account for 87% of total garment exports. The remaining factories account for the balance 15% of exports. Industry ‘consolidation,’ is expected to see many smaller factories exiting the sector. But it is also expected to strengthen the industry by expanding scale operations of larger factories and by providing support for remaining smaller factories.

 

“The smaller ones will tie up with larger ones or will be bought over by bigger factories. This will strengthen the industry,” said Mr Dias.

 

Price of ethics

Meanwhile, buyers say that investments in ethical manufacturing will not generate better prices for Sri Lankan garments, particularly at times of economic downturn. Compliance with various standards set by buyers, is a mandatory requirement to do business. But buyers and international clothing brands are not willing to pay higher prices for ethically made clothes that observe better labour or environmental standards.

 

“People will not do business with you if you do not comply (with buyer standards) but the cost of compliance must be borne by you,” said Ms Deepika Rana, the executive vice president of Li and Fung, India. Li and Fung is one of the largest garment buying houses in the world that buys manufactured garments from all over the world on behalf of international garment brands.

 

“Originally there was a 20% price difference between an organic cotton shirt and an ordinary one, but now they want it at the same price. They are not willing to pay extra for ‘green’ or ‘organic’ or ‘ethical’,” said Ms Rana.

 

Local garment factories point out that many garment factories in Asia are able to manufacture at lower costs only by violating domestic labour laws and other laws. However, many international garment brands, despite their claims of ethical sourcing, continue to place orders purely on the basis of lower prices.

 

Local and international trade unions, although pressuring local manufacturers for more benefits for workers, have not been able to significantly influence international clothing brands to change their buying habits.

 

Ethical buying

The JAAF says it is trying to initiate “ethical buying” to leverage Sri Lanka’s better manufacturing standards. “Buyers today just want the lowest price. This is a serious problem because people are asking why we bother with better worker welfare or ethical manufacturing. So we are challenging the buyers to initiate ethical buying,” said Mr Dias.

 

The JAAF says it is also helping garment factories to look at emerging markets as alternative export destinations and is investing in upgrading technology and knowledge, to survive competition over the next few years.