Garment industry fights to survive

The Jakarta Post ,  Jakarta   |  Fri, 05/11/2007 7:33 AM  |  Opinion

Hery Kameswara, Jakarta

Despite the good news that Indonesia's apparel export trade has improved dramatically -- particularly after the safeguard policy against China was enforced -- there are still many concerns haunting the industry.

The safeguards (like trade blocks) capped China's trade quotas with the EU and U.S., enabling Indonesia enter these international markets and so compete more effectively on a global scale.

In fact, these trade agreements have seen Indonesia's export trade grow from US$4.3 billion in 2004, to $4.9 billion in 2005 and to $5.5 billion in 2006.

But the safeguard policy currently being applied against China by the EU and U.S. will terminate at the end of 2007 and end of 2008 respectively.

In addition to this looming change in the marketplace, there has been a distinct lack of leadership from the Indonesian government in terms of creating any vision, direction or strategy for the garment trade industry.

Local companies have been forced to start cutting costs because they cannot compete effectively -- domestically or internationally.

In February this year, 15 garment companies moved from Jababeka Industrial Town, Greater Jakarta (West Java) to Central Java where the minimum wage is about 20 percent lower than Greater Jakarta.

But unfortunately, the savings these companies will make on reduced wages could determine their survival rate.

The margins companies can make per garment are also dependent on variables including electricity and rental costs, which can also be decreased by moving to poorer areas.

The greatest challenge facing local companies then is to keep direct-labor productivity at the highest possible output per person, per garment.

Missing these targets will see management go in search of other cost-cutting opportunities.

And this will in turn effect internal operations, including staff recruitment, the quality of fabric used and pattern design.

Another enormous challenge for our garment manufacturers is to find niche markets for specific products, including their high-grade garments.

And obviously, managers must constantly concentrate on upgrading employees skills.

But there are still so many obstacles facing Indonesia's garment industry.

Minimum wages were recently increased by 10 percent -- yet we are still losing the race against countries such as China and Vietnam, where labor productivity is so much higher.

Relocating factories in Indonesia is a short term answer to a long term problem.

The minimum wage will be increased year by year -- and even if we successfully find niche markets for Indonesian-made high-end garments, our factories must still compete with China, Thailand and Vietnam.

It's interesting to see what has been done in Thailand, where the Bangkok Fashion City Project was launched in 2004.

This campaign will see Bangkok become a hub of Asia's fashion industry by 2010.

Their direction is clear -- they will upskill industry employees, develop and foster value chain relationships across the industry, and further develop Bangkok's city image.

As part of this campaign, The Bangkok International Fashion Academy (BIFA) has been set-up at Chulalongkorn University with a diploma program in fashion business.

The university will also offer short-term programs in fashion design, fashion technology, management and fashion merchandising.

Bangkok Fashion Week, fashion trend workshops, competitions and overseas road-shows are other examples of projects Thailand has instigated as part of their holistic fashion campaign.

By comparison, the Indonesian industry has made just one step toward increasing our global marketing strength -- they used a government loan to replace some old machinery in a few factories.

The question is -- what will we do once the safeguard policies are removed and we are back competing on a flat scale with China?

The writer is an economist.

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