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Laos Worker Turnover Threatens Growth Rate

Laos has set an ambitious goal of doubling clothing exports by 2015. Growth on the front end is strong – order books are full and demand is on the rise. But firms are struggling with one critical aspect – finding and keeping workers.

Laos has benefited from the same factors that have driven expansion in Bangladesh – a low cost labor force and GSP access to EU markets. The country is landlocked and does not have native textile making facilities, but it still has around 100 garment exporting companies.

Unfortunately, a chronic shortage of labor and a very poorly trained labor force might hinder the country’s goal of increasing clothing exports from approximately $183 million in 2012 to $500 million in 2015.

The Association of Lao Garment Industry (ALGI) and the Garment Skills Development Center (GSP) is launching a major publicity campaign to try and double the workforce in the sector to match the growth in exports. The campaign aims to expand the number of workers to around 60,000.

Companies are struggling to meet customer expectations in the face of the labor shortages, and many are unable to take on new business until more workers are available.

According to a World Bank study released last July, large and medium sized Lao garment firms lose around 3.5% of their workers every month, translating into a total turnover of 40% – 60% per year. Small firms lose as much as 6% per month.

The legal minimum wage in Laos was raised in January 2012 to $77 per month, which is comparable to the minimum wages in Vietnam, Cambodia, Bangladesh, and Myanmar. Factories also offer overtime and bonuses, meaning garment workers can make as much as $100 – $250 per month when food and accommodation are included.

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Despite this, firms have struggled to retain employees.  The garment sector is the largest area of manufacturing employment for the tiny nation, with roughly 30,000 workers. According to the ALGI, it offers the fastest route to poverty alleviation, and employes mostly low-skilled female workers.

The Laoition government supports the efforts to expand the sector, but is also seeking to transition the country from a Least Developed Country to a Medium Developed Country. This could imperil the nation’s GPT status in Canada, as well as duty free treatment on materials sourced from CHina, Hong Kong, and Indonesia, which will soon lose their GPT eligibility. Almost all of Lao raw materials come from China. An upgrade to Medium Developed Country status would mean losing EU trade benefits as well, though the government does not expect this to happen before 2020.

Many workers and citizens are dissatisfied and have emigrated to Thailand, something garment sector leaders have petitioned the government to halt.

High turnover is driven by worker dissatisfaction with harsh supervision, poor working conditions, substandard accommodations, and excessive overtime. Sector leaders understand that these factors negatively impact profitability and long-term growth, and are working to improve conditions.

The government sees its main role as encouraging geographic diversification of the factories. This strategy involves putting the factories close to population centers, to minimize worker dislocation and increase satisfaction and motivation.

One company, Trio Lao Export, has tried to improve working conditions by offering a kindergarten, a school for worker’s children, and other amenities. It has low turnover for the sector. Other firms have added air-conditioning and perks such as free clothing for workers.

The most successful example, however, involves giving workers training that allows them to engage in more challenging work and rise in recognition and responsibility. This is happening at the Garment Skills Development Center, which is driven by the German expert Wilma Driessler and Laotian director Borivon Phafong.

Workers pay $50 out of their pocket for 18 days of sewing machine training on free Saturdays or Sundays, and they are also trained in quality control, supervision, and management. GSC also trains teachers, to expand recruiting efforts.

The project is funded by the TDF Trade Development Facility Fund, which is internationally financed to promote worker training, and workers completing the training receive a certificate once they complete the ASEAN Common Competency Program approved course which can be used in all ten ASEAN countries.