Question

The readymade garment trade sector faces huge challenges and losses as a result of the Corona pandemic that has swept the world.

As Chairman of Center Point Readymade Garments Market, he presented an integrated vision to deal with the repercussions of this problem (spoken at length).

Answer 1

Answer :

Overview of impact on the garment sector :

The pandemic is affecting both supply and demand. The novel coronavirus (COVID-19) has presented the world with an unprecedented global health emergency. As of April 13, the global pandemic has infected more than 1,773,084 people, resulting in more than 111,652 deaths (WHO, 2020a). The crisis has shocked markets around the world and will likely have a growing and potentially long-lasting impact on the world economy. In Asia, garment manufacturers in multiple countries have been forced to stop production or reduce capacity due to the major disruption of end-to-end global supply chains and the emerging health crisis, which has resulted in national restrictions on people as well as economic activity. What makes this current situation particularly challenging - and extraordinary - is that both the demand and supply side of operations are being affected. As China halted upstream garment and textiles production after the Lunar New Year and transportation restrictions were put in to place to avoid any further spread of the virus, a chain-reaction resulted in raw material shortages in Asian garment-exporting countries, many of which source material inputs from China. In 2018, as much as 53.7 percent and 60.6 percent of East Asian and Southeast Asian countries’ textile imports came from China, demonstrating how highly integrated Chinese manufactures are in global supply chains (WTO, 2019). In addition, many countries source trims and accessories from the country. While the COVID-19 outbreak was basically curbed in China by end of February, it has been estimated that it will take time before Chinese factories are able to increase their manufacturing capacity so that supply levels return to normal. Lack of workers – caused by travel restrictions, cost increases and lack of raw materials – is the reason cited by manufacturers as hindering them from fully resuming operations (Lu, 2020). Further, strict transportation restrictions are still in place hindering raw materials exports from reaching other garment-producing countries in the region. On the demand side, many Asian garment factories are also facing considerable difficulties. In March, COVID-19 outbreak turned into a global pandemic, significantly disrupting the global economy. With consumers staying at home and many physical stores being closed, European and US-based buyers began cancelling and suspending orders from suppliers. Asian garment manufacturers outside of China, who initially may have considered COVID-19 an opportunity in terms of increasing orders, as buyers were looking for alternative sourcing destinations, also started to face the negative economic impact of the virus. The economic impact of COVID-19, in addition to the tragic human consequences, is expected to be significant. Working hours could decline by 6.7 percent in the second quarter of 2020, equivalent to 195 million full-time workers, according to recent estimates (ILO, 2020a). According to UNCTAD, the uncertainty caused by the pandemic is likely to cost the global economy $1 trillion in 2020. Further, the organization has predicted that the COVID-19 outbreak could cost global value chains $50 billion in exports (UNCTAD, 2020).

This is no longer only a global health crisis, it is also a major labour market and economic crisis that is having a huge impact on people.Reports from garment-producing countries in the region have emphasized the gravity of the situation, for garment factories as well as for workers. The following section outlines the situation in some major garment-exporting countries in Asia.

India : In India, the Clothing Manufacturers Association of India (CMAI) is predicting that garment manufacturers in the country could face a 30 percent drop in sales, ultimately resulting in the industry’s unemployment level rising to 10-15 percent (Fibre2Fashion, 2020). As of March 25, the entire country, including factories, is in a nationwide lockdown for 21 days (Saini, 2020).

Indonesia: In Indonesia, as of April 14, 45 factories that are part of the Better Work Indonesia program have a stoppage, temporary closure, or have. significantly decreased operations. 14 factories have adapted their production lines since March to produce PPE for prevention and handling of COVID-19. There are currently issues with factories that are applying a “’no work-no pay” scheme. In certain districts, trade unions have engaged in collective bargaining to set up a minimum threshold on wages during stoppages. (Better Work, 2020).

Vietnam: In Vietnam, it was estimated in early March that the sector could lose as much as US$ 2 billion if materials from China were further delayed (The Star, 2020). Since then, garment manufacturers have also started to face cancelled or suspended orders from Western buyers. According to the Ministry of Labour, Invalids and Social Affairs, many garment manufacturers are having to reduce shifts and overtime (Buckley, 2020). The government has implemented strict social distancing rules nationwide from 1-15 April to curb the spread of COVID-19 (Better Work, 2020).

Sri Lanka: In Sri Lanka, apparel suppliers are claiming they have lost orders worth $US 5 billion, as reported by the Clean Clothes Campaign on April 8. This hinders them from paying wages to workers during the month of May and forces them to retrench at least 30 percent of their workforce. According to the Sri Lanka Apparel Exporters’ Association, at least 50 factories were being threatened with temporary closure as early as March . In some regions, factories have shut down under government directives.

Impact on garment manufacturers :

Garment factories are negatively affected by the COVID-19 situation and will continue to be so in the near future in several ways:

Lack of supply: Considering how closely China is integrated in global supply chains, it is likely that the initial outbreak in China will continue to affect garment factories in the short-term (Barrie, 2020c). Finding alternative sources for textile and accessories inputs will take time and could delay production further. Further, restrictions when it comes to transportation by sea, road or air will continue to limit the availability of raw materials.

Lack of demand: The economic impact of the COVID-19 virus is already resulting in a decline in consumer spending and consumption (Craven et al., 2020). Consumers’ loss of income, social distancing, and fear of spending money in a time of recession will result in a reduction in global demand for products, including apparel. At this point in time, it is not clear how long it will take for the global economy to recover.

Labour shortages: Garment factories may find themselves in a situation where they will lack workers. In some countries, where it is common for factories to employ migrant workers, they may find that workers have gone back to their countries of origin. Workers could be unavailable as they are unwell, out of fear or because they need to take care of family. The latter may be especially likely for women garment workers who are often left with the disproportionate share of care and domestic responsibilities.

Compulsory temporary closures: Governments’ measures to curb the virus may include temporary lockdowns. This has been the case in several countries already, including Bangladesh, India and Jordan (Al Jazeera, 2020).

Job cuts and reduced work hours: From a labour perspective, the consequences of the COVID-19 are severe. The ILO has estimated that the pandemic could result in a decline in working hours globally equivalent to 195 million full-time workers, in the second quarter of 2020 (ILO, 2020a). Further, the decline in economic activity is also estimated to result in working poverty increasing significantly. Those who will be most affected by the situation are those already vulnerable. Indeed, the garment sector in Asia is likely to face widespread job cuts or see a reduction in working hours and overtime. The highly labour intensive sector currently provides employment opportunities for more than 43 million workers in Asia (ILO, 2017).

Recommendations for garment manufacturers:

In this current situation, it is important for garment manufacturers to stay resilient and to prepare for the possibility that the COVID-19 pandemic will have a long-lasting impact on their businesses. For factories that have previously developed a Business Continuity or Business Resiliency plan, they should make sure to use the information available and the measures outlined, adjusting based on the specific nature of the pandemic. The following section will outline six broader key measures for factories responding to the COVID-19 situation.

Factories should stay informed: Factories should also make sure to stay updated regarding the COVID-19 situation. This will enable them to make sound decisions based on how the virus may affect their business. Currently, the situation is evolving rapidly so management must update themselves frequently. When analysing information available, they should consider how it will potentially affect factory operations and to what extent. Important information includes the spread of the COVID-19 virus and what different countries are doing to manage the situation. This will give them an indication of how it may affect e.g. supply of raw materials, customer orders, availability of workers etc.

Factories should secure their cash flow :The lack of financial liquidity or cash flow difficulties is often what forces enterprises to close down operations, especially in difficult times. It is likely that factories, even those that before the virus outbreak were in a good financial condition, will be forced to take action to ensure a sufficient cash flow as the situation progresses, depending on how long it will take for global supply chains to return to normal. Managing the cash flow therefore needs to be a key priority for factories so that they can continue with factory operations despite the disruptions in the global supply chains.

Factories should take care of workers : As an employer, a factory’s number one priority should be to protect the health of its employees. If it remains open, factory management should make sure that they involve all employees, including women and migrant workers, who tend to be underrepresented in decision-making within the factory, in preventing the further spread of COVID-19. This will ensure a safer, healthier and more productive workplace.

Factories should communicate with their key stakeholders: In a time of crisis, communication is key. No factory acts alone, each depends on internal and external stakeholders to operate successfully. During the COVID-19 outbreak, factories should stay in touch with stakeholders and ensure that they maintain a good relationship with them. Factories’ employees are their most important stakeholder group. They should not take them for granted as workers have an important role to play for the factory in the coming months. Factories should make sure that they are transparent and convey all the information that workers need in order to understand the crisis and what it means for the factory – and therefore for the workers themselves. Factories should also actively involve a diverse group of workers and their representatives in the discussion and encourage them to come up with ideas on how to keep the factory operational and productive until business returns to normal.

Factories should use available hours to upgrade their workforce :The COVID-19 pandemic has resulted in factories being temporarily closed or operating with reduced capacity. The excess time could be used to enhance the skills of workers, as this is normally something that is neglected under the pressures of day-to-day operations. Considering the labour-intensive nature of the sector, upskilling the workforce can substantially reduce costs while increasing efficiency, in turn leading to increased profits over time.Thus, focusing available time on upgrading the factory’s workforce, in an inclusive manner, can help factories become more competitive over time as demand returns and markets stabilize.

Factories should set out their objective(s) and develop a business resilience plan: While the situation may seem unclear at this point in time, it is important that factories try to determine what will be the key objective(s) during the coming months. Are they determined to keep the factory operational or are they considering potentially suspending operations while waiting for the situation to improve and they can return to normal operations? No matter what the ultimate decision may be, factories need to work out a plan for the near future. This plan will assist with how to deal with the situation and how to stay resilient.