INTERNATIONAL COMPARISON OF
THE HOURLY LABOR COST
IN THE PRIMARY TEXTILE INDUSTRY
2007

The average labor costs shown in this report, might not always check with the official statistics of the respective countries for the textile industry. They are based on data collected and made available to Werner International and are a realistic representation of the actual labor costs. This service Werner International provides to its clients since 1968 and is based on data supplied by a panel of Werner clients in each of the participating countries.

GENERAL OBSERVATIONS

The global competitive landscape in textiles and clothing has undergone a major shift with the implementation of WTO agreements on textiles & clothing in 2005 and the introduction, since then, of a large number of regional trade agreements.

Within this post-MFA era characterized by open competition, all successful volume strategies are fundamentally driven by cost leadership. Cost advantages can be achieved in manufacturing through effective global sourcing and by taking advantage of the considerable wave of new investments in the Industry.

What appears clear is that competitiveness in the textile industry is affected by many external and internal factors and that most low-cost, developing countries are now under heavy competitive pressure from the two textile and apparel giants: China and India which continue to gain market share thanks to their unique scale and scope. The rapid commoditization of the lower segments of the global market and the strong price competition, which this situation has fuelled, are indeed already eroding the positioning of many companies and countries.

It is within this perspective that the new labor cost comparison has to be seen.
The Werner International 2007 Labor Cost Comparison in the primary textile industry is the first study comparing the hourly labor cost in 44 countries since the phasing out of the MFA agreement. We believe that this study fairly represents the situation for the vast majority of textile producers in the world.

As we already did for previous editions, we would like to stress that the hourly labor cost is but one of the many factors which impact the competitiveness of the textile industry.

A factor for labor productivity has to be introduced in each case to arrive at a more meaningful unit labor cost. But even then, it can only give a limited view of the total competitiveness of the primary textile industry since total competitiveness depends on a wide range of other cost and non cost, external or internal factors such as exchange rates, raw material and energy costs, interest costs, inventory turnover, throughput time, quality, value adding capabilities, etc.

Werner Labor Cost Comparison covers all primary textile industry sectors, consisting of spinning, weaving and dyeing & finishing. Cut & sewing operations are not part of these comparisons. Labor cost in the clothing industry is in fact much more difficult to compare since the industry is highly fragmented, with large fluctuations within same geographical regions and size of company. In many countries the informal sector is still occupying a significant position.

At Werner we are particularly proud to once again offer this survey to the global industry, fully aware that labor cost remains a dominant factor in driving the relocation dynamics of this Industry.

We are also pleased to see the overall rise of labor costs across all developing countries, proof of the capability of this industry, within the globalization revolution, to act as a strong wealth distributor playing a fundamental role in the development path of developing countries.



Constantine Raptis
President


COMMENTS

Switzerland is still in first place with the highest hourly labor cost in the textile industry, a position it has held almost continuously since 1987. Amongst the top ten most expensive labor cost countries, European Union countries take seven positions, with only Spain, Greece and Portugal having a somewhat lower hourly cost. Japan has dropped from the first place in 2000 to the sixth place in 2007. Several of the positions have changed, most of this is due to changes in the exchange rate to the United States Dollar. The USA itself is occupying the 11th place. While in 2000 the USA ranked higher than Italy, France and the UK, the actual strong Euro has altered the classification.

There is not much movement in the lower part of the ranking: the lowest labor costs are noted in Asia, with Bangladesh, Pakistan, Vietnam, China Inland and Indonesia. Remarkably however is the continuous increase in labor costs in the coastal region of China, approaching rapidly the one dollar per operator hour threshold.

Labor cost textile industry 2007

Within Eastern Europe, overall labor cost has been catching up fast, with most countries now between 3 and 5 US$ per hour. Only Bulgaria and Romania have substantially lower labor costs, these are however forecasted to increase substantially with the entry into the European Union.

Hong Kong, S-Korea and Taiwan are between 15th and 20th position with around 7 US$ per operator hour.

The effect of rising labor costs in Eastern Europe as a consequence of joining the European Union is obvious: since 2002, the cost in local currency increased almost 30%, while in Western Europe this was not even 13%. The following graph is showing the increase in labor cost in the textile industry since 2002, by region in the world, in local currency and US$.

Change in labour cost  2007 vs 2002

Latin American countries have seen the second highest increases in cost since 2002 measured in local currency. In US$ terms, they are at about the same level as many Mediterranean countries (Turkey, Morocco, Tunisia) and S-Africa.

It should also be noted that in some countries, there is a substantial difference in hourly labor cost from company to company, from region to region, from spinning to finishing, from large to smaller company, etc.

As in the past, the variation in exchange rate of U.S. dollar is having a bigger impact, in many cases, than the actual increases in local currency.

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APTMA APPOINTS WERNER TO CONDUCT EXTENSIVE PERFORMANCE EVALUATION OF PRIMARY PAKISTAN TEXTILE MILLS

Pakistan is the fifth largest producer of cotton in the world, the third largest exporter of raw cotton, the fourth largest consumer of cotton, and the largest exporter of cotton yarn. 1.3 million farmers (out of a total of 5 million) cultivate cotton over 15 per cent of the cultivable area in the country. Cotton and cotton products contribute about 10 per cent to GDP and 55 per cent to the foreign exchange earnings of the country.
Taken as a whole, between 30 and 40 per cent of the cotton ends up as domestic consumption of final products. The remaining is exported as raw cotton, yarn, cloth, and garments. Cotton production supports Pakistan’s largest industrial sector, comprising some 400 textile mills, 7 million spindles, 27,000 looms in the mill sector (including 15,000 shuttleless looms), over 250,000 looms in the non-mill sector, 700 knitwear units, 4,000 garment units (with 200,000 sewing machines), 650 dyeing and finishing units.
Textiles is the premier industry & backbone of Pakistan’s Economy as it generates more than 65 % of exports. The textile and apparel industry in Pakistan constitutes 46 % of Manufacturing Industry and employs almost 40 % of country’s working population. Over USD 4 billion of textile and garment machinery has been imported in Pakistan in the last few years that has significantly improved the quality and productivity of the Pakistan textile and apparel sectors.

In order to contribute and support the competitiveness of its textile and garment industry in the now globalized marketplace, the APTMA (All Pakistan Textile Mills Association) and the Ministry of Textiles have requested Werner International to conduct a thoroughly investigation and assessment exercise on the actual performance of a selected number of textile and clothing companies across the country.

The World Textile and Apparel industry is undergoing a tremendous era of changes characterized by the rapid relocation of the majority of productions out of western countries and the increasing level of competition among new supplying countries with China and India expected to rapidly gain hegemony over global textile and apparel trade. While capacity build-up in anticipation of quota removal has created the optimal conditions for large Western buyers and retailers to exercise their increased negotiating power, commodities prices are reaching for unheard lows. In this context national governments of new leading textile countries are constantly intervening playing a relevant role in determining the overall competitiveness of their commodity textile industry. Within this context this initiative’s objective is twofold. On one side assess and evaluate the level of internal competitiveness of participating companies through the execution of an deep and detailed analysis and auditing. On the other provide companies with e benchmarking comparison of their performance to those achieved by best similar competitors all over the world and therefore specifically outline gaps and improvements potentials.

In order to effectively compete in the challenging global stage, both textile leaders and policy makers must fully grasp the challenges and opportunity of this new era in order to successfully develop coherent strategies at both company and sector level. Awareness about its current strengths and weaknesses and visibility over global best practices no doubt represent the necessary platform for proper strategy and policy making. Werner International is honored to have provided his assistance in the execution of this comprehensive exercise including on site audits, management workshops and data analysis and benchmarking.
At Werner International we felt uniquely qualified to carry out this project, having provided management and strategic consulting services exclusively to fiber, textile and fashion clients on a global basis for over 60 years. We are confident and committed to make this important initiative into the first step of a long term collaboration with the Pakistani government and entrepreneurs with the shared goal to contribute to the future success of their textile industry in the global market.

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NEW CENTER OFFERS DOMINICAN APPAREL WORKERS PREPRODUCTION TRAINING

In a new garment preproduction training center in the Santiago Industrial Free Zone, 12 Dominican apparel workers have learned how to design patterns and make samples and markers so the firms they work for can meet heightened competition. Another 50 workers will be trained by the end of 2006.

Textile and apparel exports make up more than a third of the Dominican Republic’s exports and are the source of livelihood for many Dominicans. But when U.S. and European textile import quotas were lifted in 2005, apparel exporters from Asia began competing directly with exporters that had benefited from the quota system. Deep reductions in textile exports from the Dominican Republic’s free zones are likely if the country’s textile and apparel industry does not change tactics and find new market niches.

In the post-quota environment, the Dominican Republic’s simple cut and sew operations will find it difficult to compete by reducing costs alone. The alternative is to increase product value by offering the preproduction services that many apparel buyers demand. A full range of preproduction services includes sourcing fabric and trim and developing patterns, samples, and markers.

Recognizing that few small and medium-sized Dominican producers are in a position to provide such value-added services, USAID helped fund a center to train apparel industry employees in preproduction. To establish the center, Nathan Associates and partner Werner International formed a partnership with two Dominican industry groups and a government–supported technical
training institute.

Nathan, with its partner Werner International, designed the center, selected the building site, and oversaw construction of the additions; trained instructors and facility supervisors in preproduction skills such as design, pattern and marker making, and cutting; and prepared training materials and documentation on the proper use of equipment. Dominican partners provided
the land, equipment, supplies, operating expenses, and personnel.

The skills taught in the Santiago Training Center will enable the Dominican apparel industry—so vital to the country’s economy—not only to retain clients but penetrate new markets and acquire new clients as well.

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ADVANCED ORGANIZATIONAL APPROACHES IN FASHION PRODUCTION: CELLULAR MANUFACTURING

Werner International is currently pioneering in the application of advanced organizational models in apparel and fashion production.
We are all aware of the fact that competition in the fashion retail industry will increasingly be played on the capability to align marketing effectiveness and supply chain rationalization - manufacturing optimization. Volumes fragmentation and shorter lead times appear today as the key competition factors in the medium to high market segments.
The rapid evolution of market conditions are exposing the limits of traditional manufacturing models in their capability to respond to these new challenges which require the capability to reduce value-less complexity while developing more responsive manufacturing approaches.

Today the shift from traditional, rigid line/section apparel manufacturing to cellular is a must in all these countries where large volumes of standard items are not produced anymore because of the relatively high local labor cost. The strategic role of such manufacturing locations can only be that of flexible and responsive proximity suppliers. Complexity becomes the rule, creating the necessity for a strong effort in rationalization and management of complexity to preserve profitability.

The reduction of complexity in the design of ranges in the fashion industry can be achieved on one side by rationalizing the architecture of the range and on the other by “rationalizing” the product complexity and their “manufacturing flow”.
Generally, we are assisting to a relevant effort to expand the culture of production “postponement”, this to take better advantage of the now available continue flow of sell-out information and by the parallel development of industrial logics focused on the segmentation of products into “modules”.
The objective is to identify the commonalities of parts and components and in the search for differentiation activities in the latest possible stages of the production cycles. This to preserve and improve offerings’ depth, attractiveness and freshness, while at the same time compressing variety and therefore complexity which does not create value added for the consumer.

Apparel Cellular Manufacturing is a production system achieved with a specific layout which provides a much higher volume flexibility and the parallel improvement of a number of operational parameters such as those related to production buffers and work in process.

Apparel Cellular Manufacturing is obtained by re-engineering the layout (Cell Design) and the production system by creating “production islands” with the objective of streamlining and shortening the gaps between the different production phases. Cellular Manufacturing is a hybrid production system between the classic production by departments (every phase is carried out by a different departments and executed by lot) and the production line (lines of operators where each highly specialized operator carries out a small phase of the production cycle and where the single product is moved by conveyer belt).
This system provides a much higher degree of flexibility compared to the traditional line set-up (which is balanced by dividing the production cycle in elementary phases) and a shorter overall lead time in respect to the classic production by lots (by reducing the time of lot making-up and the time of product movements)

The guiding idea of this approach is the “transparency” of the process: the objective should be the creation of a “Visual Factory”, which is highly intuitive and where problems, deviations, abnormalities, waste can be easily spotted. The layout engineering should foster interpersonal communications as well as the use of visual signaling systems. Furthermore, all production support tolls need to have a clear location so that their status can be immediately identified.
Layouts need to be flexible so that new products, unforeseen volumes, new materials, new processes and new technologies can be quickly implemented. The key objective is in fact to allow a virtually constant process reallocation. In other words, the modification of a production line flows or the introduction of a new machine or technology should not be a lengthy and costly process.

The main characteristic of each cell must be its flexibility to mix and volumes dynamics, this obtained without compromising efficiency.
Cell Design therefore means engineering layouts that allow to rapidly:

• adjust the number of cell workers when the product volume changes with minor impacts on both the efficiency and effectiveness of the company

• Change productions without high set-up times

• Minimize transportation costs (and its indirect costs) within a cell

• Minimize inactive time of the operators

 

KEY OBJECTIVES OF FASHION CELLAR MANUFACTURING
OBJECTIVES AND ADVANTAGES	KEY SUCCESS FACTORS
Greatly improve versatility and responsiveness to market requirements in terms of timing, quality, volumes and service	Requires strong focus on training of personnel across all processes and work cycles
Leverages on the greater autonomy given to employees: Human Capital
Slim and simplify control systems	Requires strong analysis of Company specific product ranges structures and work cycles: there is no standard cell manufacturing
Provides better visibility over targets to wider audience in the organization
Reduce capital investment in intermediate stocks, buffers and work in progress	“internal marketing”: need to build a comprehensive modern manufacturing culture

A recent study on a sample of companies which have migrated to a cellular manufacturing organization has tried to outline the following benefits:
 

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