Low-cost textile labor is more expensive, says BCG report

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January 12th, 2015
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4:00 PM

The Boston Consulting Group has released a report debunking assumptions that textile labor costs should be kept low, in order to produce garments for maximum profit.

Challenging an idea held by apparel makers for decades, the Boston Consulting Group has released a report to debunk assumptions that textile labor costs – accrued in developing countries, such as Myanmar and Bangladesh - must be kept low, in order for garments to be produced the most efficiently. The BCG report referred to the rise in wages across the Asian continent in recent years, forcing fashion companies from China and Thailand to other points South, East, and West, as they seek the nation offering the cheapest labor. The report highlights “the latest in a long string of stops for the apparel industry in its migration of production facilities to countries with low labor costs,” said BCG in a statement. The American research group added "there is an incessant need for low cost labor" being acted upon by western brands. This is the main motive driving apparel retailers from one production country to the next. However, developing these countries, such as Myanmar and Bangladesh, aren’t able to absorb all production needs due to a limited amount of skilled workers and underdeveloped infrastructure within the nations. Furthermore, suppliers must import large amounts of raw materials themselves as the entry efficiencies of fabrics, trims, and packaging materials are inadequate within the borders of these developing countries. This, in turn, increases the cost of producing clothes. As the concept of cheap labor becomes rare and challenging, BCG suggests brands could get ahead by assessing “what they can do in their existing facilities to generate sustainable efficiency gains, as well as improving their speed to which customers receive the clothing” - taking the pressure off hunting down the cheapest labor markets in the world. The report calls for apparel companies to view their production processes and partners through three strategic lenses, namely: innovation, collaboration, and proliferation. “By adopting production innovations that improve speed and efficiency - such as new bonding and gluing technologies – brands can more readily locate their manufacturing centers closer to customers and increase their responsiveness to fashion demands,” BCG researchers advised. Via a working together with suppliers to adopt a standard unit of measure, brands can help bring cost transparency to the supply chain, providing their production partners with an incentive to improve productivity, it added. Finally, by improving coordination with tier one, tier two, and tier three suppliers, they can more actively manage their raw-material needs, said BCG. BCG concluded that it saw no future in low workers’ salaries, despite companies such as Gap setting their production sights on Myanmar due to extremely low labor costs. GAP was the first U.S. apparel retailer to announce it plans to enter the developing nation with the purpose of producing clothing. The move follows the lifting of Western sanctions, which were deregulated by President Barack Obama two years ago, due to political unrest.