One major constraint that export-oriented apparel manufacturing companies face is seasonality of work orders, says G. Jayapal Nair.
It is the bane of many an apparel manufacturer depending on exports. Several fail to bag production demands consistently through the year to match production capacity. But what causes this gap in orders? The grounds could be several.
Some of the popular reasons include:
The manufacturer may not have big buyers demanding high volume orders every season
Styles given for production could be very different from the manufacturer's technical capabilities
Manufacturers are unable to meet low price demand of customers
Hence, during some months of the year, the volume of order fluctuates widely, dipping to as low as 40-50 per cent of the capacity or even lower.
The situation is tough for both manufacturers and labourers. To manage overhead costs, manufacturers often reduce the number of labourers during the lean period. Most of them are contractual workers who earn per piece of work that they do.
To make a reasonable living, workers move to other locations or factories in search of employment. Once orders return to the particular manufacturer, the search for labourers begins again. Each manufacturer has to compete with other factories to bring back the workforce. This inconsistency creates trouble for manufacturers who need to induct workers according to their companies' rules, regulations, production and quality systems. This stultifies the growth of the factory.
Inconsistency in the number of orders is the main reason low- and medium-sized factories employ contractual labour. The company cannot implement HR practices in their full spirit with these workers for obvious reasons. When factories have salaried employees, they need continuous orders. Otherwise, workers cannot aim for higher efficiency. Factories, especially those that invested heavily to meet mandatory compliance requirements to win orders from international customers, struggle to reap return on investments.
Boom in domestic readymade garment industry provides opportunity:
Domestic populations in all apparel manufacturing countries, especially India, are increasingly attracted to Ready Made Garments (RMG) fashion products. This segment has grown to almost the same size as the export industry. Factories that export apparel may think about filling their order gap with domestic orders to use their capacity consistently through the year. Manufacturers will thus have more ease in bagging local orders according to their production capabilities.
To solve this issue, the government may think about a liberal hybrid or composite policy for apparel manufacturing, including amending Special Economic Zones/ Export Processing Zone (SEZ/EPZ) rules for factories within the zones. They may be permitted to produce either for export or get domestic orders within the same factory. The factories can then produce, say, a maximum of 30 per cent value equivalent to their export earning in a year towards the domestic market, with a tax rate at par with export duty slabs.
Benefits to manufacturers
When manufacturers can run factories to almost full capacity through the year using both export and domestic orders, workers can be employed as permanent staff. Worker scarcity and related troubles can be curtailed to a greater extent. The factory can run more efficiently and with higher profitability. Promoters will be more interested in investing the required compliance standards on the factory and can run it more professionally. Also, it enables them to offer competitive prices to international buyers and get more export orders.
Benefits to labourers
This would be a win-win situation. Workers would not have to worry about finding work, nor would they have to search for jobs every now and then. With better income, efficiency will improve. They can even earn incentives if they perform well.
Benefit to the government
If factories run at lower capacity, the import tax collected is correspondingly low. Once that happens, loss in productivity and loss in export earnings cannot be undone. Besides, the government can ensure an extra number of work days and earnings to the labourers. The flexibility of using both export and domestic buyers improves profitability and attracts more investors to the apparel manufacturing sector.
In this era of deglobalisation, the government may consider allowing apparel producers to use high-value manufacturing infrastructure to execute orders for export and domestic consumption. It will be in the true spirit of Make in India.
About the author:
G. Jayapal Nair earned his B. Tech in Electrical and Electronics Engineering from Mar Athanasius College of Engineering, Kerala. He is a professional with more than two decades of experience in apparel manufacturing organisations and has held varied portfolios in the senior management in India and in the Middle East.