Covid leaves global garment industry in disarray

Aabid Firdausi MS/Nandita Shivakumar | Updated on August 17, 2020

Cancellation of orders and delays in payments by brands, shortage of raw materials from China, lockdowns, and fall in demand have hit supplier firms, mainly MSMEs in Asia, hard

The Covid-19 pandemic has accentuated the misery of garment workers who are paid poverty-level wages in global supply chains. This is not a sudden crisis, but a structural one. For years, global fashion brands that outsource production to suppliers in developing countries have been making supernormal profits through unfair purchasing practices, while garment workers who produce clothes in unsafe conditions have been left with little to no savings.

A significant majority of the supplier firms in the Asian garment industry are MSMEs (micro, small and medium enterprises) that operate on limited working capital. Within MSMEs, micro enterprises that operate on wafer-thin margins constitute the largest segment and employ the largest number of workers, most of them being women from marginalised communities. These enterprises further rely on piece-rate informal workers in factories or subcontract operations to home-based units that rely on unpaid domestic labour. However, the lack of transparency in supply chains ‘invisibilises’ such units, making it difficult to track super-exploitative practices and hold brands responsible.

Four major shocks

Due to the Covid-19 pandemic, supplier firms faced four major shocks. The first shock came around February 2020 in the form of a shortage of raw materials from China, which affected production in countries like Cambodia, Indonesia, Myanmar and Sri Lanka that depend on imported raw materials. In Myanmar, for example, this led to the closure of at least 20 factories and the loss of 10,000 jobs.

The second shock came in the form of cancelled orders, delays in payments or through demand for discounts by brands to suppliers. A survey by the Business and Human Rights Resource Center finds that nearly half of 35 global brands surveyed have not made any public commitment to pay for completed orders. In Bangladesh alone, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), this has caused a revenue loss of around $3 billion and has affected some 2.17 million workers.

The third shock that occurred simultaneously or in quick succession with the second came in the form of state-administered lockdowns, which was particularly harsh in countries like India. Indian supplier associations like AEPC and CMAI report that small manufacturers faced unprecedented distress during the first phase of the lockdown due to suspension of supply chains.

The fourth shock to supplier firms in the form of reduced business and dull prospects of recovery arose as a result of the cascading effects of several distinct macroeconomic trends that affected global demand and supply, trade and finance. This is despite the temporary opportunity in the form of producing face-masks that brands and few suppliers have taken advantage of. McKinsey estimates that the global fashion industry will contract by 20-30 per cent in 2020, resulting in a “Darwinian shakeout” affecting 80 per cent of players, if regular sales are disrupted for two months.

The burden of these shocks has been disproportionately borne by workers in Asia, with reports of mass layoffs without severance pay, unpaid wages and wage cuts becoming commonplace.

Demand for concessions

Given the nature of the crisis, garment manufacturing associations in South and South-East Asia have been demanding concessions in utility payments and relaxation in credit so as to sustain themselves. This has been met to some extent by governments through various relief packages, though the quantum of relief has been inadequate. Additionally, industry bodies have also called for a relaxation in labour laws during the crisis, which is in line with the state policy of ‘simplifying’ labour regulations to facilitate the ease of doing business.

Simultaneously, across garment producing countries, there have been reports of union-busting through targeted layoffs and repression by police force. The Business and Human Rights Resource Center (BHRRC) reports that more than 4,870 unionised garment workers have been targeted for dismissal by nine factories in Cambodia, Myanmar, Bangladesh and India.

Apart from hampering the freedom of association that is a right of all workers, there is no compelling evidence that such reforms alone generate long-term investment or employment. Industry bodies and governments need to abandon the neo-liberal dogma that unions breed inefficiency. Strong unions through collective bargaining, can in fact, reduce wage inequalities, increase labour productivity and bring stability to workplace relations.

Any progressive change in the industry can only come only with the recognition that international brands are the principal players in export-oriented garment production. The Freight on Board (FOB) price at the point of exchange is set by brands at levels that do not meet the living costs of garment workers, leading to a race to the bottom in terms of wages, while brands corner as much as 75 per cent in profits. Through the fast fashion model, brands have placed undue pressure on suppliers to deliver cheap clothes in low lead times, which in turn has led to new forms of informality and precarity among workers.

Moving forward, fashion needs to ‘slow down’, fair transfer prices must be paid, poverty wages should no longer be accepted as a norm and social protection should be expanded to both formal and informal workers. The case for public investment, labour unions, and the payment of a living wage is stronger than ever.

Firdausi is a research student at the Tata Institute of Social Sciences, Mumbai. Nandita Shivakumar is India Coordinator of the Asia Floor Wage Alliance

Published on August 17, 2020

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