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Global garment brands prefer contract manufacturing - UNCTAD
29
Jul '11
Analyzing the impact on employment due to Non-Equity Modes (NEMs) of investment in developing countries, World Investment Report 2011, released by the United Nations Conference on Trade And Development (UNCTAD), says the employment impact of contract manufacturing in low technology-intensive industries such as garments and footwear is significant in developing economies.

Most major brand companies such as Nike, Adidas, H&M, Gap, Puma, Collective Brands and Hugo Boss use extensive networks of contract manufacturers based in different developing economies to produce their brand products.

For instance, all of Nike's footwear is produced by contract suppliers outside of the United States – some 600 factories in 33 countries, including Argentina, Brazil, Cambodia, China, El Salvador, India, Indonesia, Mexico, Sri Lanka, Thailand, Turkey and Vietnam – which involves over 800,000 workers.

Similarly, Puma has contract manufacturing arrangements with some 350 factories, a majority of which are in developing economies, involving 300,000 workers. Thus, unlike electronics contract manufacturing, which is relatively concentrated in East Asia, contract manufacturing in garments and footwear is far more dispersed, especially in poor countries.

In some developing economies, foreign contract manufacturers constitute the bulk of the contract manufacturing activity. The rapid growth of the garment industry in countries such as Bangladesh, Cambodia, China and Vietnam owes much to the participation of foreign contract manufacturing firms producing locally for international clients, at least initially (UNIDO, 2009; McNamara, 2008).

In the case of Cambodia, 95 per cent of exports in the industry are by foreign firms, mostly developing economy Trans-National Corporations (TNCs) from China, Hong Kong (China), Indonesia, Malaysia, the Republic of Korea, Singapore and Taiwan Province of China. These companies employed around 300,000 people in 2009, accounting for nearly 50 per cent of Cambodia's manufacturing employment.

UNCTAD

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