Over the past couple of months, two major international organizations—and the government of the world’s largest democracy—have made spectacularly different forecasts of job prospects in Asia’s apparel textile and apparel industries.
In April, the World Bank forecast millions of new apparel and textile jobs over the next few years in South and Southeast Asia as “rising costs of apparel manufacturing in China provides a window of opportunity for India to focus on apparel in productively employing its huge working-age population.”
In June, the Indian government seemed to agree, forecasting 10 million new jobs over the next three years from a newly announced strategy of $900 million of government investments in apparel and textiles and changes in the country’s labor laws. The government sees those jobs coming from China.
In July, the International Labour Organization (ILO) cast doubt on the likelihood of apparel jobs leaving China for other Asian countries. It predicted that over the next 20 years more than 50 percent of Asian apparel workers will lose their jobs as mass customization and robotics sweep the industry.
None of these predictions are altogether convincing. But the difference between them demonstrates the complexities, uncertainties and limitations of government-sponsored predictions in this industry.
The World Bank: Dubious understanding of the garment industry
The World Bank implies China’s apparel manufacturing prices are rising faster than at its Asian rivals. But China’s apparel prices keep falling because growing competition and falling raw material, energy, freight and interest costs outweigh its wage growth. Every year since 2011, American importers have paid less for Chinese apparel imports than the year before. European and Japanese importers haven’t—but only because their currencies have depreciated against the Chinese yuan. The World Bank is also mistaken when it says:
- “China is looking to shift production to higher value-added industries like electronics.” Some Chinese economists did once look for that. But with job losses in more glamorous industries, China now wants full employment in stable industries like garments. So its government invested about as much in 2015 to increase cotton-growing, spinning, weaving and garment-making in its Far Western provinces alone as India’s government claims it will invest nationally over the next three years.
- “Buyers plan to decrease their share of apparel sourcing from China between 2012 and 2016.” That comes from research McKinsey did in 2013. Foreign buyers actually bought 3 million square meters more clothes from China in 2015 than in 2012—four times their growth in procurement from India.
China’s garment makers have coped with the problems of the past decade better than most foreign competitors.
India: Government claims straining belief
India’s forecasts in its late June Textiles Strategy are hard to take seriously.
The country is making extraordinary assumptions about limited changes. India claims it will increase its apparel exports from the $17 billion dollars annually they’ve been stuck at for the past three years to $43 billion by 2018, about 50 percent per year growth. The country also believes it will add 10 million jobs to the current 45 million by then.
The plan to do this is by providing $900 million of subsidies (which it expects will attract $11 billion of extra capital investment), by making it easier to hire temporary staff and by allowing more flexible overtime working. There is no record anywhere of a country tripling its apparel exports in three years, or creating manufacturing jobs by investing just $1,200 per new job.
Accountants at Ernst & Young believe annual sales growth of 9 percent is the most that’s likely, and it might create an extra three million jobs.
It’s not clear the government will deliver the changes it has promised on time anyway. Unions oppose the new labor laws, and since 2008 there has not been a single year the Indian government has delivered its promises of investment subsidies to the textile industry. Though it claims it will implement its side of the plan within three months, the Indian government has no record of delivering on such claims: its spokespeople have been claiming this textiles strategy is “imminent” for the past 18 months.
The International Labour Organization: Contradicting both India and the World Bank.
The ILO has two fundamental objections to those believing jobs will soon pour out of China to the rest of Asia.
Automation threatens to revolutionize the world’s apparel manufacturing. The ILO is concerned about the combined impact of 3-D printing, body scanning technology, computer-aided design (CAD), wearable technology, nanotechnology, environmentally friendly manufacturing techniques and robotic automation.
It recognizes that most of these technologies are still embryonic, but it also believes that within 20 years, there is a real probability automated manufacturing in or close to European, U.S. or Chinese markets will make better economic sense than labour-intensive manufacturing in low-income countries.
Meanwhile, nowhere else matches China.
Low-cost labor elsewhere in Asia, according to the ILO, “is not only offset by inferior infrastructure, but also lower worker productivity. Chinese workers are higher skilled and more experienced. Moreover, ramping up operations to Chinese levels is difficult to achieve quickly.”
The net effect of these two pressures, in the ILO’s view, is that apparel and textile manufacturing will migrate from China very slowly—and by the time it does, it will be to automated factories close to the major markets.
The ILO calculates extraordinary effects. Among the nine million people currently working in Southeast Asian textile, clothing and footwear factories, it believes 64 percent of Indonesian workers have a high risk of losing their jobs to automation by 2035. So do 86 percent of Vietnamese workers and 88 percent of Cambodians.
Such precise estimates are spurious: the speed with which innovations take over industries varies massively—and is far more unpredictable than enthusiasts ever allow for.
Twenty years after the launch of Amazon, e-commerce has nowhere yet achieved more than 20 percent of the apparel market, and no Internet apparel retailer is yet making respectable profits even from that low share.
By comparison, self-service got to 75 percent of Britain’s grocery market within 15 years of the country’s first supermarket, and virtually all of those stores were making healthy profits.
But there’s a lot of support for the ILO’s concern with the speed non-Chinese manufacturing centers can be ramped up. Among the producer countries most often touted as rising stars, for example, doubts over TPP mean Vietnam’s apparel and textile industry has received no new foreign investments this year, Burma accounted for just 0.6% of rich country apparel imports in the first three months of 2016, and Saygin Dima, one of the earliest Turkish investments in Ethiopia’s textile potential, is about to collapse.
Someday, each of these potential major players may well reach their critical mass. For all the ILO’s apparent precision, we have no way of knowing when, or whether full manufacturing automation will become viable by then. But there seems little doubt they’re going to take a lot longer to come good than people thought five years ago.
Mike Flanagan, CEO Clothesource. Clothesource offers consultancy on the world garment industry using the wide resources of The Clothesource Knowledge Base – the most comprehensive collection of information anywhere about sourcing for the apparel industry. He can be contacted at Flanagan@clothesource.net.