COMPETITIVENESS, PRODUCTIVITY, AND JOB QUALITY

Presented at the South Asian Subregional Meeting on Competitiveness, Productivity, and Job Quality in the Garment Industry, organized by ILO, in Kathmandu, Nepal,
September 25-26, 2001

PRELUDE:
The Asian countries have been a formidable source of mass-scale and affordable apparel for the North American and European markets. The reliance on the Asian garment producers resulted into a scenario where the international trade in textiles and garments intertwined the interests of various economies of the world, whether the developed ones or those that are categorized as developing nations. The textile trade became the focal point for development of a system that would regulate world business. All thru the past many decades, the global trade in textiles and clothing was governed by a multiplicity of restrictive measures and quotas that were intensely negotiated under specific agreements. Under General Agreement on Trade and Tariff, the Short Term Arrangement was established to cover cotton trade from September 1961 to August 1962. However, the developed countries continued to impose their fiat and this led to the introduction of a Long Term Arrangement to regulate cotton textile trade upto 1973.

The impact of the Asian countries on world textile trade was instrumental in the development of a mechanism that laid emphasis on quantitative restrictions on textiles and clothing. These restrictions were governed under the first Multi-Fiber Arrangement (MFA) that commenced in 1974 while three more such arrangements extended the MFA till the last day of 1994. The Agreement on Textiles and Clothing (ATC) replaced the MFA in 1995 and aims towards phasing out textile quotas over a ten-year period that would end on January 01, 2005. Under the ATC, the system of quotas would be eliminated and importers would not discriminate between sellers.

The global trade in textiles and garments under the WTO would bring about a fundamental change in the manner in which business would be conducted. The elimination of quantitative restrictions would compel exporters to do some pragmatic re-engineering in their approach towards international trade as dependence on their quota-profile would no more be an advantage over new competitors, whether domestic or whether from other countries. The real challenge would be to assimilate into the global marketplace and carve out a functional role as enthusiastic players rather than wallflowers waiting for a suitor to come and hold their hands. The challenges would also bring into fore substantial opportunities that would ensure that the determination to establish a niche would be rewarding and lucrative.



WTO, established on January 01, 1995, is the legal and institutional foundation of the multilateral trading system, is the embodiment of Uruguay Round results, and is the successor to the General Agreement on Tariffs and Trade (GATT). It provides the principal contractual obligations determining how governments should frame and implement domestic trade legislation and regulations. Trade relations between countries evolve through collective debate, negotiation, and adjudication in this forum. Its basic principles are:
• Non-discriminatory Trade: The famous "Most Favored Nation" (MFN) clause requires countries to conduct their trade without discriminating among countries from whom goods are imported or to whom goods are exported. An important exception to this rule is the case of regional preferential arrangements.
• Normal and Increased Access to Markets: This rule provides for the reduction and elimination of tariffs and other barriers to trade through multilateral negotiations. The reduced tariffs are listed on a tariff line basis in each country’s schedule of concessions and are known as bound rates.
• Creating Equitable Competition: It is known as the national treatment rule and requires countries not to impose on an imported product, after it has entered their domestic markets on paying customs duties at the border, any internal taxes, such as sales or value-added tax, at rates higher than those levied on a similar domestic product.
• Encouraging Growth and Economic Improvement: It stipulates that member countries should follow open and liberal policies although it allows them to protect domestic production from foreign competition, provided that such protection is extended only through tariffs and is kept at low levels.

There are two types of trade barriers in vogue:
• Tariff barriers: When a tariff, such as import duties, surcharges, excise, and sales tax, etc, is levied on imported products. Governments usually charge import tariffs in order to increase the cost of the imported product to protect and promote local producers against foreign competition or even to discourage the import of luxury items.
• Non-tariff barriers: When the government of the importing country has taken certain measures to restrict imports. Examples of non-tariff barriers are the requirement for import permits, the imposition of quotas or prohibitions, rules of origin, establishing labor standards, and defining environmental standards, etc.

The non-tariff barriers, especially concerning labor, would also be deciding factors in the way work orders are received by the exporters. The call by the developed countries to adopt core labor standards is catching on all over. The developing countries do not agree to the idea that labor standards be a purview of WTO and insist that these should be the domain of ILO. The wages in developing countries are lower than the standards of the developed countries, while at the same time the latter have a marked advantage in high technology.





There is a growing demand that the exporters, especially in the least developed countries, be asked to focus on ISO-9000, ISO-14000, and SA-8000, if they want to be global players. This approach is harsh on the exporters and it would be extremely difficult in the short term to achieve these certifications. There has to be an extension in the time allowed for institutionalizing these standards in the units. A predominant number of Pakistany exporters need atleast ten years for them to be ISO-14000 certified and it would be also a gigantic task to get SA-4000 certification in such a short period. Most of the garment exporters lack the financial and human resources to attain immediate certification. It is imperative that easy financing or outright grants are made available to complete the certification procedures.

The garment manufacturers of Pakistan have to seriously ponder over their position as global players. The challenges of the new world trade system would unleash all external forces that could become overwhelming factors in becoming obstacles to a smooth trading scenario. What would be the response of the Pakistany exporters in the world clothing trade? How would the Pakistany garment exporters perform in meeting these challenges? How would the Pakistany apparel exporters undertake strategic decisions to ensure their survival by formulating policies that would reflect their commitment towards competitiveness, productivity, and job quality. What are the plus points and the pitfalls for the Pakistany garment exporters in developing the key ingredients of competitiveness, productivity, and job quality to meet the challenges? These should be the items on the exporters’ agenda for getting ready for the post-January 01, 2005 scene. The stakes are high, crucial, and significant.

Pakistan has an opportunity to survive and compete in the quota-free environment. The three important factors that the exporters must adhere to and must religiously subscribe to are Compatibility, Competitiveness, and Credibility. The exporters, on an individual level, and the employers’ and workers’ associations and government, on a collective level, must initiate programs and strategies to focus on the achievements of the 3Cs which are:

 Compatibility: Pakistany exporters have to mold their thinking from the present reliance on catering to the established markets rather than going with full vigor and a resolute outlook towards seeking new horizons. It is imperative that the concentration of the apparel manufacturers should be based on product and market diversification. This can take many forms. The biggest market for garments is the United States. The post quota-free era would necessitate that this traditional market be further penetrated with the introduction of value-added textile products. A strong upper-market has been ignored by a large majority of Pakistany exporters. Efforts should be initiated to develop merchandise for this upscale segment of garment buyers. The European Union is also a major market. The high cost of production in many EU countries has led to outsourcing for school uniforms, for example. This is a major sector to enter and control as it promises mass demand in the coming years.

Pakistany exporters can develop relations with businessmen in Africa, and even Burma, to explore possibilities of joint ventures. As it is, 68% of Pakistan’s exports are limited to just ten countries. Pakistan’s share of the global export market of nearly US$ seven trillion is only 0.15%. Pakistan exports 57% to the developed countries while only 3% to the other SAARC countries. Pakistany policy makers must play a strong role in removing obstacles that have impeded trade among SAARC countries. The seven SAARC countries with more than 22% of the world population have just slightly more than 1% share of the total world exports. The exporters must evolve compatible connections with their counterparts in other SAARC countries so that forward and backward linkage industries could be set up to boost joint trade activities. For example, these could be in the form of cloth, accessories, or manufacturing processes. Presently, total fabric requirement of Bangladesh is about 3 billion meters, of which about 85% - 90% is imported. Fabric requirement is increasing at 20% per year. This offers a tremendous opportunity for further industrialization. It is envisaged that a large number of new spinning, weaving, dyeing and finishing industries would have to be set up on priority basis so that actual demand could be fulfilled.

Pakistan has finally crossed the barrier of US$ nine billion in exports and the target set for 2001-2002 is to reach the coveted double figures. The various measures devised by the policymakers have not propped up the export base. However, the exporters are gradually preparing for the era when they would be more susceptible to buyer’s discernment and when non-trade issues could determine buyer’s preferences for products from other countries. The process of gearing up before the full effects of WTO conditionalities set in is slow and wobbly. This lethargic approach must change on a war-footing basis for the lead-time is getting shorter and seeming to be more ominous for the domestic exporters.

 Competitiveness: The dependence on textile quotas gave a meaningful start to the Pakistany exporters to enter the American and European markets. They received vital support from buyers who came and bought garments from Pakistan. Of course, this gave an edge because the demand for products that came under the purview of quotas was generally assured. Buyers also accepted Pakistany quality because repeat orders and practical prices were received. Pakistan being a cotton growing country has a distinctive advantage over many countries. However, Pakistan must increasingly think in terms of competitive rather than comparative advantages. Comparative advantages traditionally relate to natural resources but these could be dependent on climatic conditions too. Competitive advantages are based on more qualitative factors and can thus be influenced to a large degree by the exporter’s strategies and by government policies. Pakistan must develop the wherewithal to innovate new products, processes, and concepts.

The trade associations, as well as the government, must make a paradigm shift to ensure that Pakistany exporters achieve a competitive edge. This can be done thru certain pragmatic measures, such as:
► Assisting the exporters to understand and adapt to the competitive conditionalities of the global marketplace.
► Assisting the exporters to capitalize on the competitive advantages garnered thru product information, thru technical know-how, and thru market research.
► Assisting the exporters to profit from a sustainable improvement in infrastructure for industries.
► Assisting the exporters to develop a system to minimize the time involved in production, documentation, and adjustments.

The Pakistany exporters must make efforts to streamline the cost structure of their products. Complacency and lethargy can play havoc with the cost parameters. Incompetent management and lax supervisory system are recipes for disaster in the new global scenario. Delays, defects, and deficiencies would deter the buyers from reordering and staying on as customers in the future. Notwithstanding the effects of devaluation on the input costs, notwithstanding the dependence on imported raw material and other details, and notwithstanding the influx of imported second-hand or reconditioned machinery to produce export items, it is sufficient to state that even these factors should not become paramount features of high product costs. Expenses are controlled and checked thru various modes. Efficient use of raw material, profitable sourcing of inputs, maximum utilization of capital equipment, higher worker productivity, better working environment, and good quality control, are imperative to achieve positive cost rationalization.

 Credibility: A principal feature of being a successful exporter is the establishment of goodwill as a reliable supplier, as a manufacturer of high quality, and as one who would be prompt in delivering the goods. More often than not, these characteristics have fallen short of expectations and there has been a lot of heart burning. The advent of the new globalization era where every aspect of business would be in accordance with the agreed upon conditions, the exporters would be left lurching in the world market with products but no buyers. The exporters have to maintain their presence in the market by adhering to the approved standards of quality, by following the directions of the buyers regarding the packaging and presentation, and by ensuring that the desired goods are available in the marketplace within the designated timeframe.

Another factor that is important is the government’s role in formulating consistent and export-oriented policies. It has been observed over the years that fundamental policy changes in midstream have made negative impressions in the minds of importers of Pakistany goods. These have also resulted in order cancellations, late shipments, and unnecessary documentation. Moreover, this has also impacted the credibility of the domestic exporters who, more often than not, have to bear the brunt of the ramifications of these types of policy changes. The government thru the Export Promotion Bureau must be responsible for creating a positive trading environment for exporters. This entails dealing pragmatically with some of the factors that could enhance the ability of the exporters to compete internationally. These include government policies towards international trade, tax regulations, provision of infrastructure, and even bilateral negotiation of favorable trade agreements with selected countries. The country must be universally acclaimed as a place where there is a profitable manufacturing base. The proper adherence to this primary role of the government assures credibility for the country in the international market.

A strong responsibility lies on the employers’ associations as well as the government agencies to inculcate in the exporters that the most important aspect of developing export markets is for them to establish long-term stability, with the accent on regular orders. The employers’ organizations should lobby with the government to encourage the development of more appropriate export-support programs. A strong representation would portray to the external buyers that the government is serious in its endeavors. These programs should be pro-active and should either adapt, modify, or replace existing programs that are largely viewed as having an anti-exporters bias. Such programs include export finance schemes, substantial exhibition facilities, proliferation of export trading houses, availability of export-guarantee schemes, an informative export marketing assistance project, and distinctive training efforts. These steps enable the exporters to maintain the norms of successful international trading and result in significant orders as well as boosting up foreign exchange earnings. At the same time, when trying to build an export base, the exporter must be able to provide the customers the service they require, whether in pre-shipment fashion or even in after-sales. A captured market must be sustained otherwise there would be a large number of other credible and well-entrenched exporters ready to pounce on and poach at the market share.

COMPETITIVENESS:
The Pakistany exporters have to understand that the protection enjoyed under various concessions would gradually be eliminated and that the past dependence on governmental help thru subsidies, thru rebates, and thru intervention measures would not be available. They must realize that they have to achieve global competitiveness in open and cutthroat markets, both domestic as well as outside Pakistan. Although, it is also the responsibility of the policy makers to provide the exporters with an enabling environment to work in and to develop within the widespread international standards, the responsibility for survival in the global competition primarily lies with the exporters. The Pakistany exporters should take into account the inherent edge they have in textiles. Pakistan is a cotton producing country and the availability of prime cotton is a plus point. The textile processing industry, i.e., dyeing, printing, and finishing, is technically on a sound footing. Pakistan’s textile spinning is at par with world standards and is being continuously upgraded with the addition of state-of-the-art machinery. Pakistan has become a major exporter of denim projects both in the shape of fabric as well as in made-ups. Pakistan’s printed cloth has been widely hailed as world-class quality.

Notwithstanding the positive factors, Pakistany exporters would face hard competition and major hurdles from three formidable exporting countries, China, India, and Bangladesh. It should be noted that China is on the verge of becoming member number 142 of WTO at the November meeting in Doha, Qatar, and that it has always maintained supremacy in providing products at pocketbook-friendly prices. It is pertinent to point out that even at present, only about 20% of China’s textile and garment exports are subject to quota limitations. Thus, quota-free regime might not bring about a profound change in the benefits accruing to China. India also has an added advantage of economy of scale and at the same time, it is, like China, a major beneficiary of foreign investment in export-based industries. Bangladesh has transformed into a country where the garment industry is the mainstay of the country’s economic structure. One statistics shows that 70% of the export earnings come from the garments sector. This, undoubtedly, indicates a great potentiality of this sector. Bangladesh has also taken a lead in elimination of child labor from the garment industries. Pakistan, like other nations, would also not face the economic sanctions, as these are not condoned by the WTO rules. Meantime, Pakistany exporters must consciously develop the concepts of improvement in quality thru stringent total quality management, and in striving for a quantitative economy of scale.

PRODUCTIVITY:
The manufacturers of Pakistan have now realized that the productivity of workers plays a dominant role in the performance of the company and that the cost structure is also related to the output derived from enhancing the productivity levels of the workforce. Over the past decades, scant attention was paid to the concepts of productivity and it was generally relegated to a low priority within the organization. The Pakistany workers were known for their lower productivity and this was highly apparent in the public sector organizations. The effect of low productivity was one prime reason for missed deadlines, for product deficiency, and for cost over-runs. The influx of new production ideas, the introduction of quality standards, the need for cost saving exercises, the initiation of state-of-the-art machinery and equipment, the reliance on information technology, and the apparent pragmatism of the managers led to the induction of productivity enhancement programs in the organizations.

The future performance of an industry, especially an export-based one, would be surely reflected in its determination to achieve a higher rate of productivity. The motivational approach undertaken by the management towards the workers would augment the productivity syndrome in a positive mode and would ensure that the industry enjoys a cutting edge over its direct competitors. The fruit of the process would surely be tasty, as the modern product management system would work advantageously. There would be manageable inventory, there would be minimal wastage, there would be on-time production, there would be less absenteeism, and there would be extra money in the worker’s paycheck.

However, enhancing workers’ productivity levels is not a panacea to achieve superiority. There is a need for a fundamental change in the working environment of the industry. There must be substantial changes brought about in the production systems prevailing in the organization also. Furthermore, the exporters, with assistance and support of the employers’ organizations, could initiate training programs at plant level and even in designated institutions so that the entire culture is transformed on modern functional lines. The Skill Development Council, set up as a tripartite project, has been instrumental in applying this philosophy with missionary zeal. It has been observed that the prevalent company philosophy is designed in such a manner that any meaningful change is vehemently opposed and obstacles are created to bring about positive betterment in the working environment. Previously, it was usually the union leadership that thwarted efforts for change. However, it is worthwhile to note that the progressive worker leadership has religiously adopted the need for enhancement of the productivity of workers as this involves the very survival of the company. Worker/employer organizations such as Workers-Employer Bilateral Council of Pakistan (WEBCOP), an alliance of all Workers’ Federations and the Employers’ Federations, have started to focus on productivity among other items on their agenda for bilateral cooperation. Employers’ Federation of Pakistan has formed the Productivity Club that seeks to initiate programs to improve productivity. The Federal Commerce Minister, Abdul Razzak Dawood, has time and again advocated the concept of enhanced productivity to meet the global challenges and to retain earned market share.

JOB QUALITY:
The garment exporters in Pakistan are more abundant in the small and medium sector. One characteristic of these units is that most of their workforce is employed under a contract system. This means that a designated contractor is the primary employer and the units in which these workers produce goods are secondary employers. The result has been that though there has been more productivity thru contract workers, the toll on these workers’ lives has been considerable. Moreover, these workers normally resemble the posture of migrant workers, as there is a lot of mobility from one unit to another depending on the work available. Even though the remuneration of the contract workers is based on output, the fact of the matter is that these workers do not receive other fringe benefits, such as statutory bonus, gratuity, social security, EOBI, and job security.
The garment industry in Pakistan, especially export-based, is dependent on job orders and thus there is an aversion to employing workers on long-term basis. The exporters usually demand that the contractor must have trained and skilled workers on rolls so that the production is accelerated, there is better quality, and there is minimum hassle in training or orienting the workers to produce as per the requirements. The added edge to the exporter is that if the worker is unable to produce the desired quality, that worker could be immediately replaced by one who is more proficient. The exporters also save money on worker training expenses. The sweatshop scenario in many organizations is hazardous to the workers and this has affected productivity, increased health risks, and hurt the image of Pakistany industry in the global circles. The non-chalant attitude of the labor inspectors and officials has aggravated the situation and allowed this system to flourish unabated.

The female workers, especially under contractual obligations, are also deprived of such facilities as maternity leave benefits, child care, working time schedules, and gender equality. This is inspite of a large female workforce in the apparel industry in Pakistan. The female workers in Pakistan, especially those working in organized industries or in commercial ventures, are more educated. Moreover, due to the shortage of skilled male workers, there is a growing demand for skilled female workforce. There is also a trend towards on-job-training being imparted to female workers. The dependence on the contract system has, however, been detrimental to the interests of the female workers who have had lesser opportunities to work, and are subject to gender discrimination due to various socio-cultural restrictions prevalent in the Pakistany society.

The exporters must now look into the future and must take into account the new world trade order. The present reliance on a carefree and antiquated system must cease. There will be more emphasis on buyers’ dictates rather than the customers not knowing how and where the garment was crafted. The major apparel buyers have already instituted Codes of Conduct and there are company-certified inspections before orders are placed. The advent of modern production techniques and equipment also is a manifestation of the immense need to change the strategies of production. Improving job quality in the garment sector, especially in the small and medium organizations, requires a concerted effort of all three social partners. Pakistany garment manufacturers are also influenced by the prevalent socio-economic and religious-cultural norms. The tendency to postpone decision making, the tendency to refrain from bettering the working conditions, and the tendency to cut corners at every step, have proved disastrous and have affected the image of the industry.

Visionary entrepreneurs, enthusiastic workers’ leaders, and pro-active government functionaries, must join together to develop and promote a holistic strategy to achieve the export objectives so that the working environment of the industries, as well as those who work in them, becomes such that an excellent quality is produced and marketed as a result of the ability to compete, by achieving better productivity and by enforcing job quality.

An ounce of action is worth a ton of theory - - - - Friedrich Engels

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September 17, 2001