South Asia Economic Journal http://sae.sagepub.

com/
Book Review: Garment Industry in South AsiaRags or Riches? Competitiveness, Productivity and Job Quality in the Post-MFA environment
Beena Pandey South Asia Economic Journal 2004 5: 348 DOI: 10.1177/139156140400500212 The online version of this article can be found at: http://sae.sagepub.com/content/5/2/348.citation

Published by:
http://www.sagepublications.com

Additional services and information for South Asia Economic Journal can be found at: Email Alerts: http://sae.sagepub.com/cgi/alerts Subscriptions: http://sae.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav

>> Version of Record - Feb 7, 2005 What is This?

Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

348 / South Asia Economic Journal 5:2 (2004)

budgets could undermine these gains. The non-formal system has thus far proved to be ineffective and for the state to achieve genuine literacy, it is the formal sector that needs enhanced investment. This reviewer is particularly pleased with the assertion on the links between primary education and literacy.4 The volume is loaded with excellent analysis of every conceivable subject of policy relevance to AP politicians, bureaucrats, civil society and all other stakeholders. One hopes that the concerned higher-ups would read this volume, at least via a series of briefings from the authors. Bhanoji Rao GITAM Institute of Foreign Trade Visakhapatnam

Gopal Joshi (ed.) Garment Industry in South AsiaRags or Riches? Competitiveness, Productivity and Job Quality in the Post-MFA environment . South Asia Multidisciplinary Advisory Team, ILO, New Delhi, 2002, 246 pp. ISBN: 92-2-111910-6.

During the past two decades, South Asian countries have witnessed rapid expansion of employment opportunities and export earnings in the garment industry due to quota arrangements under the MFA. As a result, for the first time, an unprecedented number of female workforce have joined the garment manufacturing activities in some of these countries. However, the expected termination of the quota arrangement under the MFA by the year ending 2004 is likely to adversely affect the employment opportunities and job qualities in these countries. This book mainly provides a broad overview of the adverse consequences of potential loss of employment opportunities and its sustainability in the long run, which is an outcome of a sub-regional workshop, organized by ILO to formulate future strategies for the garment industry to survive in the liberalized and globalized post-MFA environment. The book contains edited country papers presented in the workshop from five select South Asian countries, viz., Bangladesh, India, Nepal, Pakistan and Sri Lanka. It basically describes the state of employment, job quality and competitiveness in the respective garment industry. The first chapter presents a comprehensive overview of competitiveness, productivity and status of jobs in the South Asian garment industry. It reveals that South Asian countries, despite the phenomenal expansion in employment
4 Several years ago based on a cross-country regression, I found, not unexpectedly, that in populations with an average education of seven years, literacy rate is over 90 per cent. It is perhaps a waste of time to go on speaking about literacy campaigns and so on, when there is an unfinished agenda in terms of ensuring quality schooling for all eligible children. Here the greatest challenge is for government schools to match the private schools in terms of physical infrastructure and quality teachers.

Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

Book Reviews / 349

opportunities and export earnings due to the growth of the export-oriented garment industry, have a marginal share in garment exports in the total world garment trade. It has been aptly stated that the items exported by these countries still remain quite narrow and limited, while other Asian countries have far more diversified and high-value-added export items. Various factors accounting for the substantial increase in garment exports have been discussed in detail. For example, Chinas share of garment exports increased to 15 per cent in 1995 from mere 4 per cent in 1980, enabling it to become one of the leading exporters. Due to its comparative advantage in as many as 32 categories of export items, compared to similar exporting countries such as India and Indonesia, it moved up significantly from its eighth rank. During the nineties, Bangladesh attained the largest annual growth rate of almost 17 per cent in garment exports, owing mainly to a very low wage rate among all the South Asian countries in the region, apart from technological upgradation and a union-free EPZ. With regards to the input material for the garment industry, the book clearly indicates that India and Pakistan have a comparative advantage and are endowed with ample sunlight for the production of cotton as compared to Bangladesh, Nepal and Sri Lanka which are at a disadvantage in terms of natural resource endowments. Government policies in Pakistan for allocating quotas only to existing exporters have deprived the new entrepreneurs for entering in the exports business. In India, a large percentage of cotton component in apparel has held back growth that could be otherwise utilized for high-value-added garments with inputs of various fabrics. Sri Lanka is the only country in the region which has moved up in the value chain. The book also says that most South Asian countries are commodities exporters responsible for assembling low-cost discount clothing, not independent exporters of branded merchandise or even commercial sub-contractors or component suppliers. As a result, garment exporters from South Asian countries are basically confined to buyer-driven commodity chains (BCC) rather than producer-driven commodity chains (PCC). The author aptly highlights that the confinement of exports at mass merchandising and discount chain outlets on a commodity basis, which has resulted in low receipts in terms of unit price of the garments exported. Except Sri Lanka, very few garment export items from South Asian region fetch higher prices. The second chapter discusses the current status and future prospects of the RMG industry in Bangladesh in terms of its growth, employment and exports. It reveals that the dynamic performance of the industry has transformed Bangladesh from a jute exporting country to garment exporting country. The RMG industrys total export earnings has increased to 76 per cent from the mere 4 per cent in 198384. It has also been stated that two most important factors for the success of RMG industry are the availability of cheap labour and the preferential treatment received from the European Union (EU) under the GSP scheme. Gender discrepancies in jobs and wage rates as most women work as either operators or as helpers rather than as production managers, or supervisors
Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

350 / South Asia Economic Journal 5:2 (2004)

have also been reviewed. Once their quota is removed, Bangladesh is expected to suffer from its lack of textile industries and poorly developed infrastructure. Although Bangladesh seems to enjoy the low-wage cost advantage, it also suffers from low productivity and poor job quality. Chapter 3 analyses the employment prospects in the Indian garment industry and the consequent challenges that confront Indian policy makers. It provides a broad overview of the changes that took place in the composition of garment exports in India since the late sixties. There has been steady increase in the share of cotton knitwear products whereas share of handloom garments have declined substantially. With regard to the fabric base, cotton garments continue to dominate the Indian export basket followed by synthetic and woollen garments. A very clear picture has been given regarding the gradual change in destination of Indian exports, from USSR and Eastern Europe to US and European markets. It suggests that the successful case study of Tiruppur Knitwear industry can be easily extended to other centres of garment production in India. It has been recognized that the removal of quota restrictions would lead to an expansion of export markets for Indian garment producers. However, the lower labour productivity as compared to China, Indonesia, and Bangladesh may threaten Indias competitiveness and thereby decline in exports. The status of the garment industry in Nepal has been shown as a new entrant with a mixed picture in the next chapter. Surprisingly, the total export performance of the Nepalese garment industry has been showing the rising trend as its export earnings have increased three times (increase by 254 per cent) while the total volume has increased only by 61 per cent. This substantial hike have been attributed to the US market which accounted for almost 87 per cent of total export earnings and 88 per cent of total export volume in financial year 200001. However, the cost of labour and cost of production consisting of transportation of goods for both imports and exports of products for Nepalese garments continues to be relatively high as compared to India and Bangladesh because the industry has been largely based on imported raw materials. Likewise, the cost of credit from banks is relatively high ranging between 14 to 16 per cent as against 8 to 10 per cent in Bangladesh. With the expected removal of quota restrictions, the garment industry in Nepal needs to prepare itself to meet the challenges of globalization under the WTO regime. As there are some special provisions under the Uruguay Agreement for the developing countries which can guarantee freedom of transit, access to permanent international markets and inflow of foreign investment in the country, countries like Nepal can utilize this to improve its competitive edge to survive and prosper in the world market. Various indicators have also been discussed in the chapter regarding the competitiveness and productivity performance of Nepals garment exports which allow comparative analysis among the SAARC region.
Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

Book Reviews / 351

Further, it reports that though the garment industry is basically a womenoriented industry, in Nepal the number of male workers dominates female workers by a ratio of 85 per cent to 15 per cent. It has also shown that the Nepalese garment sector has experienced both a growth and a declining trend in its employment size mainly due to its increasing shift in technology and manufacturing systems from a piece-rate system to an assembly-line system by using imported sophisticated machines. The author clearly admits the limitations of lack of authentic data for the analysis on employment pattern in the garment industry. Within the South Asian region, Bangladesh dominates exports which constitute almost 8 per cent towards the net exports of Asia followed by Indias 7 per cent share, whereas Pakistan has a meager share of 2 per cent in the total Asian exports as revealed in the fifth chapter. It further states that despite the higher market share of womens wear as compared to mens wear globally, Pakistan has a strong bias towards mens wear because its exporters have the benefit of mass production and stable profits in this category. However, in 1999, the export of woven and knit garments for women was US$ 116 million and US$ 80 as compared to US$ 460 and US$ 457 million for mens garments. Several other important reasons have been given for the non-preference for the womens wear as it requires sophisticated processing procedures and fine fabrics which directly affects the conversion cost of the garments. But at the same time when the exports of 1999 are compared with 1995, it is evident that the share of knit garments in the Pakistans exports have increased from 30 per cent to 41 per cent over 199599. More than 90 per cent of the Pakistans exports of garments are directed towards mainly the USA and the EU. The categorization of products within the EU to allocate quotas are fairly simple as compared to that of the USA. Though in these two countries the quota utilization reveals that Pakistans apparel sector is mainly dependent on cotton products and on mens wear. It has been clearly and comprehensively stated that the existing quota policy in Pakistan not only discourages the diversification of products but has hampered the entry of new exporters through the imposition of high entry barriers in terms of large investments required in quota procurement. As far as the employment pattern in the garment industry in Pakistan is concerned, industry prefers to hire male workers as stitchers rather than female workers as helpers and, above all, the labour laws impose restrictions on womens employment after 7 p.m. Interestingly, the majority of the female work force are only employed to perform semi-skilled operations particularly in the clipping and packaging sections and are thereby paid the lowest wages. Apart from this, the implications of imposing standards such as ISO 9000 and 14000, another standard SA-8000 (Social Accountability) standard which the European country can impose on suppliers, has been taken care of in great detail. According to the author, if such standards are implemented properly, this would definitely lead to an improvement in job qualities in the garment industry in South Asian countries.
Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

352 / South Asia Economic Journal 5:2 (2004)

The status and the major issues faced by the Sri Lankan garment industry has been presented in the sixth chapter. After the late seventies, the Sri Lankan garment industry experienced phenomenal growth and it continues to be the largest manufacturing sub-sector in terms of its contribution to the GDP, total exports, foreign exchange earnings and employment generation. In 1992, with the dual objective of fuelling industrial growth and the problem of rural employment, the 200 Garment Factory Programme was initiated. Under that programme investors were offered quotas and several concessions including tax holidays, free importation and access to off-shore finances. After discussing the geographical distribution of garment establishments in Sri Lanka and the total number of employees employed in the different provinces, it also presents the gender composition of the labour force by occupational categories in the garment industry. Furthermore, it provides a useful source of information regarding its major guaranteed export markets for garments through bilateral agreements with the USA, the EU, Canada, Norway, Sweden, and Finland. Sixty per cent of Sri Lankas garments are exported to US followed by 30 per cent of its exports to the EU. Following this, though, two new market opportunities have emerged during 2000 for its expansion. The first, the Indo-Sri Lanka Bilateral Free Trade Agreement, which permitted 8 million pieces of garments at 50 per cent duty concession to the Indian market, however, proved ineffective in offering any benefits. The second, the Trade and Development Act which facilitated dutyfree entry to the US from the Caribbean and sub-Saharan African countries provided an opportunity for the Sri Lankan garment industrialists to relocate in sub-Saharan Africa and target the US market. It has been stated that the composition of Sri Lankas category-wise garment exports mainly dominated by womens outerwear and mens outerwear accounted for approximately 45 and 15 per cent respectively of the total garment exports. However, the Sri Lankan garment industry has also been affected by various problems such as poor working conditions, poor incentive structures, high labour turnover and absenteeism, inadequate training, strained employeremployee relations, restrictive labour regulations, low investment in technology, slow turnaround time and lack of professionalism in the industry. Given these obstacles the garment industry is now faced with pressures of globalization and phasing out the quota system. The final chapter summarizes the conclusions from the viewpoint of different concerned representatives like employers, workers and the respective governments in the South Asian countries. On the whole the book gives an indepth account of the garment industry in South Asian countries, highlighting different aspects of the working of these industries which has contributed a great deal in terms of increased employment opportunities particularly for the civil workers and women workforce which has also increased its exports volume and foreign exchange earnings.
Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013

Book Reviews / 353

With the removal of MFA in 2004, these countries have to formulate national strategies to improve their productivity, service quality and expand market opportunities. Stress is also to be laid on specific measures for improving job qualities and conditions of work. Attention is also required to be paid in implementing international labour standards emphasizing on fundamental human rights. Besides, measures are also to be initiated to enhance constructive labour management relations for promoting social dialogue to resolve conflicts. Beena Pandey Research Assistant RIS, New Delhi India

Downloaded from sae.sagepub.com at Bahir Dar University Library on February 1, 2013