the challenge of adjustment in the textile and garments industries of the philippines
TRANSCRIPT
The challenge of adjustment The challenge of adjustment in the textile and garments in the textile and garments
industries of the Philippinesindustries of the Philippines
By Raymund B. HabaradasBy Raymund B. HabaradasDe La Salle University-ManilaDe La Salle University-Manila
Outline of presentationOutline of presentation State of the industryState of the industry Challenges faced by the Challenges faced by the
industry industry Prospects under the post-Prospects under the post-
quota regimequota regime Adjustment efforts Adjustment efforts
undertaken by firms – undertaken by firms – results of surveyresults of survey
Case – Leader GarmentsCase – Leader Garments ConclusionsConclusions RecommendationsRecommendations
MethodologyMethodology Secondary data Secondary data
collection and analysiscollection and analysis Survey of firmsSurvey of firms Literature reviewLiterature review Case study methodCase study method Key informants from Key informants from
industryindustry
State of the industryState of the industry
State of the industryState of the industry Textile and garments accounted for about 6% of Textile and garments accounted for about 6% of
total manufacturing value added by the end of total manufacturing value added by the end of the 1990s, down from about 13% in 1989the 1990s, down from about 13% in 1989
According to official statistics, total number of According to official statistics, total number of workers constitute about 14% of total workers constitute about 14% of total employment in the manufacturing sector, down employment in the manufacturing sector, down from as much as 30% during the late 1980sfrom as much as 30% during the late 1980s
Estimates put the total number of workers in the Estimates put the total number of workers in the industry at 400,000industry at 400,000
State of the industryState of the industry Out of the top 20 textile firms in the country, Out of the top 20 textile firms in the country,
five registered losses in 2002, and 13 five registered losses in 2002, and 13 experienced a decrease in profitability over the experienced a decrease in profitability over the previous year. previous year.
Among the top 20 garments firms, only four Among the top 20 garments firms, only four registered a loss in 2002, but ten suffered a registered a loss in 2002, but ten suffered a decrease in profits as compared to the previous decrease in profits as compared to the previous year. year.
State of the industryState of the industry Textiles and garments accounted for about 7.5 Textiles and garments accounted for about 7.5
percent of the country’s foreign exchange percent of the country’s foreign exchange earnings in 2002, down from as much as 22 earnings in 2002, down from as much as 22 percent about a decade earlier. percent about a decade earlier.
Articles of apparel and clothing accessories Articles of apparel and clothing accessories continue to rank second to electronic products continue to rank second to electronic products in terms of total value of exports of the in terms of total value of exports of the Philippines.Philippines.
0
500
1000
1500
2000
2500
3000
FOB
in U
S$ m
illio
n
Textile exports Garments exports
Total textile and garments exports Total textile and garments exports of the Philippines, 1984-2002of the Philippines, 1984-2002
Growth rate of textile exports Growth rate of textile exports of the Philippines, 1985-2002of the Philippines, 1985-2002
-30-20-10
0102030405060
Perc
ent g
row
th
Growth rate of garments exports Growth rate of garments exports of the Philippines, 1985-2002of the Philippines, 1985-2002
-10
0
10
20
30
40
50
Perc
ent g
row
th
Product code Product description
5-year total export
value (US$)
620443 Women’s/girls’ dresses, of synthetic fibres, not knitted 305,798
610520 Men’s/boys’ shirts, of man-made fibres, knitted 291,516
620433 Women’s/girls’ jackets, of synthetic fibres, not knitted 262,484
620630 Women’s/girls’ blouses and shirts, of cotton, not knitted 241,094
620343 Men’s/boys’ trousers and shorts, of synthetic fibres, not knitted 235,330
611120 Babies’ garments and clothing accessories of cotton, knitted 234,293
610510 Men’s/boys’ shirts, of cotton, knitted 225,825
620462 Women’s/girls’ trousers and shorts, of cotton, not knitted 214,321
610610 Women’s/girls’ blouses and shirts, of cotton, knitted 213,962
611020 Pullovers, cardigans and similar articles of cotton, knitted 213,018
Largest garments exports Largest garments exports of the Philippines, 1997-2001of the Philippines, 1997-2001
Most competitive garments exports Most competitive garments exports of the Philippines, 2001of the Philippines, 2001
Product code Product description
RCA figures(2001)
6209 Babies’ garment and clothing accessories, not knitted 17.7346
6105 Men’s / boys’ shirts, knitted 11.0155
6208Women’s / girls’ slips and petticoats; night dresses and pyjamas;
panties, bathrobes, etc., not knitted 6.5130
6111 Babies’ garments and clothing accessories, knitted 6.2483
6116 Gloves, mittens and mitts, knitted 5.6226
6106 Women’s / girls’ blouses and skirts, knitted 5.0793
6205 Men’s / boys’ shirts, not knitted 4.2157
6204Women’s / girls’ suits, ensembles, jackets, dresses, skirts,
trousers and shorts, not knitted 4.1045
6212Brassieres and parts; girdles, panty girdles and parts; corselettes,
corsets, braces, etc. 3.8074
6207Men’s / boys’ underpants and briefs; nightshirts and pyjamas;
bathrobes, dressing gowns, etc., not knitted 3.7254
RP’s export performance, 2004RP’s export performance, 2004 According to GTEB, textile and garments exports in According to GTEB, textile and garments exports in
2004 reached a total value of $2.692 billion compared 2004 reached a total value of $2.692 billion compared to only $2.615 billion in 2003. to only $2.615 billion in 2003.
Textile exports decreased by about 8% from $136 Textile exports decreased by about 8% from $136 million in 2003 to only $125 million in 2004. million in 2003 to only $125 million in 2004.
Apparel exports increased by 3% from $2.290 billion Apparel exports increased by 3% from $2.290 billion in 2003 to $2.371 billion in 2004. in 2003 to $2.371 billion in 2004.
Non-apparel exports increased by about 4% from Non-apparel exports increased by about 4% from $188 million in 2003 to $195 million in 2004.$188 million in 2003 to $195 million in 2004.
Major export markets of RP textile Major export markets of RP textile and garments, 2004and garments, 2004
CND3%
$0.07B
NQ12%
$0.31B
EU15%
$O.41B
US70%
$1.90B
Source: An Update on the Garments and Textile Export Industry and the Garments & Textile Export An Update on the Garments and Textile Export Industry and the Garments & Textile Export Board (GTEB) TURNING POINT, Winding Down Team Conference, March 29, 2005Board (GTEB) TURNING POINT, Winding Down Team Conference, March 29, 2005
Exports to the US, 2004Exports to the US, 2004 The Philippines registered a 20% increase in volume The Philippines registered a 20% increase in volume
and a 34.41% increase in value of its garments and a 34.41% increase in value of its garments exports in December 2004. exports in December 2004.
On a year-to-year basis, however, the Philippines On a year-to-year basis, however, the Philippines suffered a 5.88% decline in volume and a 3.67% drop suffered a 5.88% decline in volume and a 3.67% drop in total value of its exports in 2004 compared to those in total value of its exports in 2004 compared to those of the previous year. of the previous year.
The major gainers in 2004 (in terms of export value) The major gainers in 2004 (in terms of export value) are China (22.97%), Cambodia (15.27%), Macau are China (22.97%), Cambodia (15.27%), Macau (12.03%), Indonesia (11.33%), Pakistan (11.30%), (12.03%), Indonesia (11.33%), Pakistan (11.30%), India (10.66%), and Guatemala (10.49%). India (10.66%), and Guatemala (10.49%).
Challenges faced by the industryChallenges faced by the industry
Challenges faced by the industryChallenges faced by the industry High shipping costsHigh shipping costs High power ratesHigh power rates Dependence on Dependence on
imported raw materialsimported raw materials
Challenges faced by the industryChallenges faced by the industry High labor costsHigh labor costs Low labor Low labor
productivityproductivity Political and social Political and social
unrestunrest
Prospects in the Prospects in the post-quota regimepost-quota regime
RP’s export performance, RP’s export performance, 11stst quarter of 2005 quarter of 2005
Exports for the first quarter of 2005 reached a total Exports for the first quarter of 2005 reached a total value of $587.170 million (preliminary figures), a value of $587.170 million (preliminary figures), a 1.08-percent increase over the $580.888 million 1.08-percent increase over the $580.888 million registered over the same period the previous year. registered over the same period the previous year.
Garments exports accounted for 90.34% of the total Garments exports accounted for 90.34% of the total amount, while textile exports accounted for the amount, while textile exports accounted for the balance.balance.
Total exports for March 2005, however, decreased by Total exports for March 2005, however, decreased by 17.26% from $202,522 million to only $167,575 17.26% from $202,522 million to only $167,575 million. million.
RP’s garments exports to the USA, RP’s garments exports to the USA, 11stst quarter of 2005 quarter of 2005
Table 23. Volume Change and Volume Share of RP exports to the US (selected items) Volume in dozen; First Quarter, 2004 and 2005 Selected Items: Category
1st Q 04 Volume
1st Q 05 Volume
1st Q 04 Volume
Share
1st Q 05 Volume
Share Cotton / MMF Woven Shirt (M&B): 340/640 292,046 309,799 2.81% 2.44% Cotton Trouser: 347/348 1,015,995 1,215,642 2.48% 2.54% MMF Knit Shirt: 638/639 631,642 515,355 3.32% 2.58% Cotton and MMF Brassiere: 349/649 529,558 467,397 4.59% 3.64% Cotton and MMF Dressing Gown: 350/650 49,818 66,154 1.94% 2.29% MMF Trouser: 647/648 467,818 427,299 3.03% 2.67% Source: EmergingTextiles.com (1998-2005), based on compiled data from the US Department of Commerce / OTEXA
RP’s garments exports to the USA, RP’s garments exports to the USA, 11stst quarter of 2005 quarter of 2005
Table 24. Percentage volume change of garments exports of selected countries to the US for selected items (First Quarter of 2005 compared to First Quarter of 2004) Selected Items: Category
China %
Bangla %
India %
Indon %
Phils %
Thai %
Viet %
Cotton Knit Shirt: 338/339 1,257.87 Na 129.44 na na na -28.26 Cotton / MMF Woven Shirt (M&B): 340/640
284.12 28.18 28.47 39.50 6.08 -17.72 29.71
Cotton Trouser: 347/348 1,521.04 75.93 na 56.46 19.65 na 11.39 Underwear: 352/652 308.07 11.12 56.16 -1.81 na 38.79 na MMF Knit Shirt: 638/639 331.19 -20.29 na -22.39 -18.41 -7.34 na Cotton and MMF Brassiere: 349/649 34.53 -45.86 64.91 5.51 -11.74 25.55 Na Cotton and MMF Dressing Gown: 350/650
36.86 80.05 -44.15 54.60 32.79 161.86 -11.67
MMF Trouser: 647/648 269.16 24.09 -16.23 9.81 -8.66 14.38 1.12 Source: EmergingTextiles.com (1998-2005), based on compiled data from the US Department of Commerce / OTEXA na- figures not available
Prospects for the PhilippinesProspects for the Philippines Net investments of new companies reached Net investments of new companies reached
P1.04 billion from 2001 up to the end of the P1.04 billion from 2001 up to the end of the first semester of 2004first semester of 2004
388 new manufacturing facilities started 388 new manufacturing facilities started operations compared to 269 factory shut-operations compared to 269 factory shut-downs. Net gain: 119 manufacturing facilitiesdowns. Net gain: 119 manufacturing facilities
44,031 new workers were hired compared to 44,031 new workers were hired compared to 42,128 layoffs. Net gain: 1,903 workers. 42,128 layoffs. Net gain: 1,903 workers.
Prospects for the PhilippinesProspects for the Philippines RP is losing out to low-cost countries like China, but RP is losing out to low-cost countries like China, but
is able to keep its market in certain product is able to keep its market in certain product categories, particularly in the mid-range and the high-categories, particularly in the mid-range and the high-end niche marketsend niche markets
Some Philippine exporters are able to increase their Some Philippine exporters are able to increase their volume of exports but at lower pricesvolume of exports but at lower prices
Because of the safeguards against China, RP can be a Because of the safeguards against China, RP can be a “second-tier” supplier to U.S. apparel companies and “second-tier” supplier to U.S. apparel companies and retailers for niche goods or servicesretailers for niche goods or services
Philippine-based firms that have a track record of Philippine-based firms that have a track record of efficiency, flexibility, and quality are in a position to efficiency, flexibility, and quality are in a position to keep the confidence of their U.S. customers. keep the confidence of their U.S. customers.
Adjustment efforts Adjustment efforts undertaken by firmsundertaken by firms
Survey of firmsSurvey of firms Of the 1,043 registered garments and textile exporters Of the 1,043 registered garments and textile exporters
listed in the GTEB directory, only firms with main listed in the GTEB directory, only firms with main offices in Metro Manila, Cavite, Rizal, Laguna, and offices in Metro Manila, Cavite, Rizal, Laguna, and Batangas were initially considered for the survey, Batangas were initially considered for the survey, yielding a total of 809 firmsyielding a total of 809 firms
Of the 809 firms, 565 maintained garments as their Of the 809 firms, 565 maintained garments as their main product line; the 565 firms served as survey main product line; the 565 firms served as survey populationpopulation
Sample size (90% confidence level, and margin of Sample size (90% confidence level, and margin of error of 0.10): 61 firmserror of 0.10): 61 firms
Total responses: only 27 firmsTotal responses: only 27 firms
Profile of respondentsProfile of respondents Capitalization Capitalization
Ranged from P2 million to P26 million Ranged from P2 million to P26 million (based on 10 firms that revealed their (based on 10 firms that revealed their capitalization)capitalization)
Years of operationYears of operation Ranged from 2 to 34 yearsRanged from 2 to 34 years 7 have operated for more than 20 years7 have operated for more than 20 years 6 have operated for more than 10 years 6 have operated for more than 10 years
but less than 20 yearsbut less than 20 years Number of employeesNumber of employees
7 have 100 or less employees7 have 100 or less employees 7 have 101 to 200 employees7 have 101 to 200 employees 3 have more than 200 employees3 have more than 200 employees 3 did not respond3 did not respond
Profile of respondentsProfile of respondents Product linesProduct lines
Men’s and boys’ pants, shorts, vests, Men’s and boys’ pants, shorts, vests, and jacketsand jackets
Men’s wind shirtsMen’s wind shirts Ladies’ and girls’ pants, jackets, skirts, Ladies’ and girls’ pants, jackets, skirts,
and blousesand blouses Knitted t-shirts; knitted sweatshirtsKnitted t-shirts; knitted sweatshirts Polo shirtsPolo shirts Denim wearDenim wear SportswearSportswear Hospital wearHospital wear Children’s clothingChildren’s clothing Infant wearInfant wear Ladies’ lingerieLadies’ lingerie
Profile of respondentsProfile of respondents Sources of raw materialsSources of raw materials
Mostly abroad, particularly Hong Kong, China, Taiwan, Mostly abroad, particularly Hong Kong, China, Taiwan, South Korea, and JapanSouth Korea, and Japan
Other suppliers include Indonesia and PakistanOther suppliers include Indonesia and Pakistan Reasons cited for sourcing abroadReasons cited for sourcing abroad
Imported fabrics are cheaper and are of better qualityImported fabrics are cheaper and are of better quality Unavailability of fabrics and other raw materials in the Unavailability of fabrics and other raw materials in the
PhilippinesPhilippines Buyers usually nominate suppliers from abroadBuyers usually nominate suppliers from abroad One company “requires that raw materials be imported from One company “requires that raw materials be imported from
Japan”Japan” One company receives from its buyer raw materials that are One company receives from its buyer raw materials that are
already cut and ready for sewingalready cut and ready for sewing
Profile of respondentsProfile of respondents Sales volume in 2003 compared to 2002Sales volume in 2003 compared to 2002
12 firms reported an increase in volume12 firms reported an increase in volume 10 firms reported a decrease in volume10 firms reported a decrease in volume 3 firms said volume was the same3 firms said volume was the same 2 firms did not respond2 firms did not respond
Profitability in 2003 compared to 2002Profitability in 2003 compared to 2002 13 firms reported a profit13 firms reported a profit 6 firms claimed to have incurred a loss6 firms claimed to have incurred a loss 6 firms said they broke even6 firms said they broke even 2 firms did not respond2 firms did not respond
Upgrading efforts of firmsUpgrading efforts of firms 13 firms invested in newer and faster machines, 13 firms invested in newer and faster machines,
including some state-of-the-art machineryincluding some state-of-the-art machinery Several firms bought specialized machines to be Several firms bought specialized machines to be
able to satisfy their buyers’ specific able to satisfy their buyers’ specific requirementsrequirements
Some companies also invested in the training of Some companies also invested in the training of their workers: technical consultants, in-house their workers: technical consultants, in-house training, scholarship programs / subsidized training, scholarship programs / subsidized training offered by GTEB; hiring only of training offered by GTEB; hiring only of computer literate staff for office workcomputer literate staff for office work
Upgrading efforts of firmsUpgrading efforts of firms What triggered upgrading?What triggered upgrading?
Stiff competition – increasing productivity of other Asian Stiff competition – increasing productivity of other Asian countriescountries
Impending quota phase outImpending quota phase out Need to comply with buyers’ standardsNeed to comply with buyers’ standards
What hindered upgrading?What hindered upgrading? 10 firms did not mention any factor that hindered upgrading10 firms did not mention any factor that hindered upgrading 4 firms mentioned financial constraints4 firms mentioned financial constraints 2 firms referred to the “uncertain future”2 firms referred to the “uncertain future” 5 firms did not respond5 firms did not respond
Upgrading efforts of firmsUpgrading efforts of firms For many firms, upgrading is limited to For many firms, upgrading is limited to
process upgrading, or efforts to improve the process upgrading, or efforts to improve the efficiency of their operationsefficiency of their operations
Some are engaged in product upgrading, or Some are engaged in product upgrading, or coming up with differentiated productscoming up with differentiated products
Functional upgrading, or moving into the Functional upgrading, or moving into the higher value activities of the chain, does not higher value activities of the chain, does not seem to be a common occurrence among seem to be a common occurrence among garments exportersgarments exporters
Institutional supportInstitutional support Support from governmentSupport from government
9 firms cited training programs offered by the GTEB-PTTC9 firms cited training programs offered by the GTEB-PTTC 3 firms mentioned financial support from SBGFC and 3 firms mentioned financial support from SBGFC and
TIDCORPTIDCORP Support from industry associationSupport from industry association
1 firm mentioned endorsement made by FOBAP1 firm mentioned endorsement made by FOBAP 2 firms mentioned the seminars and conventions / trade 2 firms mentioned the seminars and conventions / trade
expositions sponsored by CONGEPexpositions sponsored by CONGEP 1 firm credited GBAP for providing info on the industry and 1 firm credited GBAP for providing info on the industry and
GTEB rules and regulationsGTEB rules and regulations 1 firm cited the ITAP, which sent invitations to its 1 firm cited the ITAP, which sent invitations to its
expositions, and PCCI, which provides updates on new expositions, and PCCI, which provides updates on new business developmentsbusiness developments
Institutional supportInstitutional support Support from buyersSupport from buyers
Technical upgrading on sewing process and quality Technical upgrading on sewing process and quality managementmanagement
Seminars on safety and productionSeminars on safety and production Information updates on latest fashion trendsInformation updates on latest fashion trends Information on new specialized equipmentInformation on new specialized equipment Advanced payments or loans from buyersAdvanced payments or loans from buyers Procurement of raw materials and delivery to Philippine Procurement of raw materials and delivery to Philippine
suppliersupplier Investment in fabric inspection machineryInvestment in fabric inspection machinery
Membership in local cluster or Membership in local cluster or export consortiumexport consortium
Only 1 firm is a member of a local cluster; received Only 1 firm is a member of a local cluster; received support in terms of transport facilitationsupport in terms of transport facilitation
Not one firm is a member of an export consortiumNot one firm is a member of an export consortium
Evaluation of institutional supportEvaluation of institutional support
Few firms have availed of the support offered Few firms have availed of the support offered by the GTEB and the different industry by the GTEB and the different industry associationsassociations
Very few firms are members of local clusters Very few firms are members of local clusters or export consortiaor export consortia
Firms seem to be undertaking upgrading Firms seem to be undertaking upgrading efforts on their own, and are likely to be efforts on their own, and are likely to be supported by their mother companies or by supported by their mother companies or by their major buyers.their major buyers.
What is a global What is a global value chain?value chain?
Simple value chainSimple value chain
Design and product development
Manufacturing
Marketing and sales
Disposal and recycling
The apparel The apparel value chainvalue chain
Case – Leader GarmentsCase – Leader Garments
Leader GarmentsLeader Garments Part of Makalot Industrial CompanyPart of Makalot Industrial Company Main products: ladies’ blouses, sleepwear, Main products: ladies’ blouses, sleepwear,
pants, shorts, and jogging pantspants, shorts, and jogging pants Capitalization: P100M to P160MCapitalization: P100M to P160M Has been operating for 14 yearsHas been operating for 14 years 1200 employees, 93% of which are female1200 employees, 93% of which are female In 2003, sales volume increased compared to In 2003, sales volume increased compared to
previous year; generated profitprevious year; generated profit
Leader GarmentsLeader Garments Buyers are all based in the United StatesBuyers are all based in the United States Major buyers include Wal-Mart, J.C. Penny, Major buyers include Wal-Mart, J.C. Penny,
Mervin’s Department Store, Target Department Mervin’s Department Store, Target Department Store, and Kohl’s Department StoreStore, and Kohl’s Department Store
Biggest client is Gap, Inc.Biggest client is Gap, Inc.
Buyer’s Head Office
United States
Buyer’s Trading Office
Hong Kong
Makalot IndustrialTaiwan
Leader GarmentsPhilippines
Raw Materials Suppliers
Hong Kong, China, Korea, Indonesia, Japan
In-house Subcontractor
Philippines
Other Subcontractor
Philippines
Other Subcontractor
Philippines
Other Subcontractor
Philippines
Order
Order / Pay FOB
P.O. / Pay CMTQ
Deliver
Consign
Assign
DistributeDistributeDistribute
Case study hypothesesCase study hypotheses Hypothesis 1: Hypothesis 1: In quasi-hierarchical chains (i.e., In quasi-hierarchical chains (i.e.,
captive value chains), developing country captive value chains), developing country producers experience fast product and process producers experience fast product and process upgrading but make little progress in functional upgrading but make little progress in functional upgradingupgrading
Hypothesis 2: Hypothesis 2: Network-based chains (i.e., Network-based chains (i.e., modular or relational value chains) support an modular or relational value chains) support an open-ended upgrading path but local producers in open-ended upgrading path but local producers in developing countries rarely find themselves in developing countries rarely find themselves in such chainssuch chains
Theoretical frameworkTheoretical framework
Value chain governanceValue chain governance
MarketsMarkets Modular value chainsModular value chains Relational value chainsRelational value chains Captive value chainsCaptive value chains HierarchyHierarchy
Paths for upgradingPaths for upgrading
Process upgradingProcess upgrading Product upgradingProduct upgrading Functional upgradingFunctional upgrading Chain upgradingChain upgrading
Arm’s Length Market
Relations
Network-based Value Chains
Quasi-hierarchical Value Chains
Hierarchies
CHAIN
FUNCTION
PROCESS
PRODUCT
HIERARCHY
CAPTIVE
RELATIONAL
MODULAR
MARKET
Integrated Firm
LeadFirm
Captive Suppliers
Component & Material Suppliers
LeadFirm
Relational Supplier
Component & Material Suppliers
LeadFirm
Turn-key Supplier
PriceSuppliers Customers
MATERIALS END-USEValue Chain
1
3
POSSIBLE UPGRADING
TRAJECTORIES
PROCESS
PRODUCT
FUNCTION
CHAIN
PROCESS
PRODUCT
FUNCTION
CHAIN
4
GEOGRAPHICAL SCALE / CONTEXT OF GLOBAL VALUE CHAINS
Figure 1. Conceptual Framework
ChainFunctionProcessProduct
ChainFunctionProcessProduct
ChainFunctionProcessProduct
Price
Determinants of value chain Determinants of value chain governancegovernance
DeterminantsDeterminants IndicatorsIndicators
Complexity of Complexity of transactionstransactions
Degree of dependenceDegree of dependenceLength of trading relationshipLength of trading relationshipOrdering procedureOrdering procedure
Ability to codify Ability to codify transactionstransactions
Price determinationPrice determinationCredit extendedCredit extendedContractual relationshipContractual relationshipInspectionInspection
Capabilities in the Capabilities in the supply basesupply base
Technical assistanceTechnical assistanceCommunicationCommunicationOutsourcing payment termsOutsourcing payment terms
Hybrid value chain: Hybrid value chain: modular and captivemodular and captive
Manufacturers, subcontractors,
and service providers
Leader’s buyers:Gap, Wal-Mart, JC
Penney, etc.
Leader Garments and
Makalot Industries
Captive Modular
Leader’s upgrading practicesLeader’s upgrading practices Process upgradingProcess upgrading
206 units of new computerized machines 206 units of new computerized machines were delivered in 2004 for sewing and were delivered in 2004 for sewing and cuttingcutting
10% improvement in efficiency and quality 10% improvement in efficiency and quality of work and productsof work and products
Taiwan office approves and purchases the Taiwan office approves and purchases the machines upon approval of Leader’s machines upon approval of Leader’s General Manager in the PhilippinesGeneral Manager in the Philippines
Older machines are lent to the other Older machines are lent to the other subcontractors of Leader at no cost to themsubcontractors of Leader at no cost to them
Leader’s upgrading practicesLeader’s upgrading practices Process upgradingProcess upgrading
Use of online software to get information on Use of online software to get information on the order of its buyers; now orders go the order of its buyers; now orders go directly to the in-house manufacturerdirectly to the in-house manufacturer
Purchase of the Enterprise Resource Purchase of the Enterprise Resource Planning (ERP) from Oracle in 2002Planning (ERP) from Oracle in 2002
In-plant seminars for line managers and In-plant seminars for line managers and managerial staff, using trainers from managerial staff, using trainers from Meralco FoundationMeralco Foundation
Individual sewers are trained internally by Individual sewers are trained internally by the managerial staffthe managerial staff
Leader’s upgrading practicesLeader’s upgrading practices Product and functional upgradingProduct and functional upgrading
Higher value-added functions of product Higher value-added functions of product design / development and marketing are design / development and marketing are performed in Taiwanperformed in Taiwan
Minimal design activities performed in the Minimal design activities performed in the PhilippinesPhilippines
Philippine operations are mainly concerned Philippine operations are mainly concerned with counterchecking of patterns and with counterchecking of patterns and measurements of samples presentedmeasurements of samples presented
Lower value-added functions such as Lower value-added functions such as embroidery, washing, and packaging are embroidery, washing, and packaging are outsourced to local companies.outsourced to local companies.
Leader’s upgrading practicesLeader’s upgrading practices Chain upgradingChain upgrading
Plans to establish a distribution function to Plans to establish a distribution function to provide warehousing and direct delivery provide warehousing and direct delivery services to its buyersservices to its buyers
Makalot plans to establish offices either in Makalot plans to establish offices either in Los Angeles or New York, and deliver Los Angeles or New York, and deliver products at the buyers’ doorstepsproducts at the buyers’ doorsteps
Will enable Leader to quote orders with the Will enable Leader to quote orders with the distribution service already accounted fordistribution service already accounted for
Makalot has financial means to integrate Makalot has financial means to integrate distribution services into its operationdistribution services into its operation
ConclusionsConclusions
ConclusionsConclusions Upgrading is driven largely by the strategic intent of Upgrading is driven largely by the strategic intent of
individual firms, but is influenced by the firm’s position individual firms, but is influenced by the firm’s position in the value chainin the value chain
Companies that participate in a network value chain Companies that participate in a network value chain (e.g. Leader Garments) have the ability to engage (e.g. Leader Garments) have the ability to engage different types of upgrading activities, from process different types of upgrading activities, from process upgrading to functional upgradingupgrading to functional upgrading
Companies that belong to a captive value chain (e.g. Companies that belong to a captive value chain (e.g. subsidiaries and subcontractors of Leader Garments) subsidiaries and subcontractors of Leader Garments) undertake mostly process upgrading, largely through the undertake mostly process upgrading, largely through the initiative of the lead firminitiative of the lead firm
Government support is critical, particularly in the areas Government support is critical, particularly in the areas of infrastructure, peace and order, and social securityof infrastructure, peace and order, and social security
RecommendationsRecommendations
Big Brother
Buyers
Small Brother
Small Brother
Small Brother
Private sector must drive the change
Government must serve as enabler
Recommendations for governmentRecommendations for government
Provide adequate and reliable communication Provide adequate and reliable communication and transportation infrastructure to reduce the and transportation infrastructure to reduce the cost of doing business in the countrycost of doing business in the country
Lower inter-island shipping rates by Lower inter-island shipping rates by improving port facilities to speed up cargo improving port facilities to speed up cargo handling in portshandling in ports
Minimize red tape in dealing with the Bureau Minimize red tape in dealing with the Bureau of Customs so as to speed up lead times when of Customs so as to speed up lead times when importing raw materials from abroad; facilitate importing raw materials from abroad; facilitate export-import documentationexport-import documentation
Recommendations for governmentRecommendations for government
Lower power rates by encouraging more Lower power rates by encouraging more investments in the power sectorinvestments in the power sector
Provide easy access to low interest loans, Provide easy access to low interest loans, especially for working capital and capital especially for working capital and capital investmentsinvestments
Continue providing assistance, in terms of Continue providing assistance, in terms of finding new markets and providing finding new markets and providing information about developments in foreign information about developments in foreign marketsmarkets
Recommendations for governmentRecommendations for government
Continue providing support for displaced Continue providing support for displaced garments workers, in terms of livelihood garments workers, in terms of livelihood assistance, job placement assistance, loan and assistance, job placement assistance, loan and loan guarantees, retraining, and loan guarantees, retraining, and entrepreneurial skills trainingentrepreneurial skills training
Strictly enforce labor laws and standards Strictly enforce labor laws and standards among garments firms so as to secure the among garments firms so as to secure the support of labor in efforts to save the industrysupport of labor in efforts to save the industry
Recommendations for garments Recommendations for garments industry leadersindustry leaders
Invest in new machineries and productivity-Invest in new machineries and productivity-enhancing technologyenhancing technology
Engage the support of Filipino designers to Engage the support of Filipino designers to help local firms constantly come up with help local firms constantly come up with creative and innovative designscreative and innovative designs
Develop the management skills of managers Develop the management skills of managers and supervisors of garments firms, especially and supervisors of garments firms, especially in the areas of financial management and in the areas of financial management and human resource managementhuman resource management
Recommendations for garments Recommendations for garments industry leadersindustry leaders
Encourage close collaboration among firms, Encourage close collaboration among firms, especially in availing of common service especially in availing of common service facilities. This could serve to reduce the capital facilities. This could serve to reduce the capital investments made by individual firms.investments made by individual firms.
Encourage the Big Brother-Small Brother Encourage the Big Brother-Small Brother (lead firm-subcontractors) arrangement so as (lead firm-subcontractors) arrangement so as to achieve significant economies of scale and to achieve significant economies of scale and so as to enhance the technological capabilities so as to enhance the technological capabilities of the subcontractors through the help of the of the subcontractors through the help of the lead firm.lead firm.
Recommendations for garments Recommendations for garments industry leadersindustry leaders
Provide support for certain lead firms to move Provide support for certain lead firms to move up the value chain by adopting the “concept to up the value chain by adopting the “concept to store approach” / full production services store approach” / full production services strategies to cater to high-end segments of the strategies to cater to high-end segments of the market.market.
Consider investments in other countries so as Consider investments in other countries so as to take advantage of proximity to raw to take advantage of proximity to raw materials and abundant cheap labor, and plow materials and abundant cheap labor, and plow back profits into the Philippines through back profits into the Philippines through investments in other viable businesses.investments in other viable businesses.
Thank you.Thank you.