INTERNATIONAL COMPARISON OF THE HOURLY LABOR COST
IN THE PRIMARY TEXTILE INDUSTRY 2008

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 1958 and is based on data supplied by a panel of Werner clients in each of the participating countries.
 

GENERAL OBSERVATIONS

The global competitive landscape for textile and clothing productions, so heavily impacted by the implementation of WTO agreements on textiles & clothing in 2005 and the introduction, since then, of a large number of regional trade agreements is now undergoing another relevant weave of transformations.
In a freer, logistically more efficient and increasingly competitive global textile market, cost competitiveness is today still heavily impacted by its labor component but while such pure direct cost factor becomes even more important than in the past for largest, cost driven mass market productions it appears to loose some of its relative shine for others: the divide of value adding activities playing its key role.

No doubt that global supply chain dynamics are becoming increasingly difficult both to predict in their evolutions and to design for their effectiveness.
Exchange rate volatility can quickly alter the global competitiveness arena, particularly for confection, thus diverting huge volumes of production to new shores and often demanding, as a consequence, the rapid redesign of their feeding textile supply chains. At the same time we also notice the sign of a new vitality of the “mid market” whom death was been predicted in the last years when mid to low market productions where rapidly fleeting proximity supplying countries such as in Northern Africa, Turkey and Mexico to the advantage of China and India.

The complex market scenario brought in by the current global economic downturn and the strictly correlated exchange rates and transportation costs volatility, on one side are pushing lowest cost productions to move even further than China and look at Bangladesh, Vietnam and Cambodia as the new low cost production Eldorado’s. On the other the imperative need to reduce logistic stocks and free-up cash flows while improving time to market and re-assortments is holding, or even calling back important productions to countries whose pure cost competitiveness may not rank among the best but whose positioning, stability and industrial scope offer a wide range of more than compensatory benefits.
Difficult to say if we are assisting to the early steps of what we could call a progressive global re-leveling of textile and apparel productions somehow limiting the much anticipated Chinese and Indian hegemony.

Once again, as every year since 1958, we are pleased to release the new Werner International 2008 Labor Cost Comparison in the primary textile industry which is the only study comparing the hourly labor cost in 44 countries since the phasing out of the MFA agreement. We believe that this study provides a fair representation of the situation for the vast majority of textile producers in the world. Our comparison covers all primary textile industry sectors, consisting of spinning, weaving and dyeing & finishing and has being build by combining the information confidentially collected from a large and diversified cluster of industrial players in each country.
Cut & sewing operations are traditionally excluded from this comparisons. Labor cost in the clothing industry is in fact much more difficult to compare due to the industry fragmentation and the limited industrial scale of most operations. With the necessary limitations it is however often adopted as the best proxy available also for the confection industry.

As we always did for previous editions, we would like to stress that the hourly labor cost is but one of the many factors impacting on the competitiveness of the textile industry.
Nevertheless it is the single most relevant driver in the continuous process of global relocation of productions which has characterized our industry in the last 20 years.
In an open global system less and less restricted but heavily impacted by external factors such as exchange rates, important production flows will continue to geographically reallocate in search of even temporary competitiveness.

Europe and Japan for their high and still rising costs can only aim at top niche productions although their sustainability, largely dependant on luxury productions, appears questionable also for its extremely high innovation costs. Eastern Europe is rapidly Europeanizing its costs with some interesting distinguishing factors. Several North African countries are doing better than expected containing their labor cost rise and leveraging on their proximity advantage. The same cannot be said for Turkey whose relative costs have considerably grown but whose integrated and versatile supply chain can possibly compensate for better productions. While still wondering if it was altogether wise for the US to practically give-up virtually all its manufacturing, we notice Brazil strengthening its relative competitiveness as well as Mexico, whose still untapped proximity potential appears as one on the wonders of our industry.
China’s labor cost spectacular surge, combined to the news of the undergoing fierce internal selection is no doubt the single most relevant happening in our survey for 2008. India’s slower than expected growth generated by its overall lack of product versatility and its inflationary price environment surely a second key driver with cost rising, though from a small base, in Vietnam, Indonesia and Pakistan as well.

At Werner we look forward to read these notes again early next year when preparing for the update of our 2009 comparison. We look forward at that moment when, we hope, we will have left behind most of the many doubts and worries which characterize this peculiar January 2008, with the whole world witnessing the most relevant global financial crisis ever and a troubling contraction of textile and apparel consumption staging worldwide.

We are confident that once the necessary painful adjustments will be over, our industry will go back on its path of rapid global growth, creating once again good business opportunities for a large number of wise, committed, open minded and creative players and entrepreneurs in all market segments and all over the world.

Constantine Raptis
President

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