Impact of COVID-19 on T&C

Impact of COVID-19 on T&C

Matthias KNAPPE, International Trade Center 08 December 2020

Egypt, Madagascar, Morocco and Tunisia

10% Overall estimated job

losses

Average loss 40%

in revenues due to C19 51% of the companies surveyed

have applied salary cuts. 80% of

companies who cut salaries did so by 25%

Survey findings that are consistent with recorded export figures (29%

January to August 2020)

56% Order cancellations

50% Switch to

medical textiles

Around half of all companies have had at least 50% of their orders cancelled

At least half of the companies have switched to medical textile products

Took loans 0%

Loss of orders 30%

till end of 2020

While 70% of the companies

confirmed having liquidity problems, ZERO % took loans due to COVID

76% of the survey respondents foresee this loss.

Impact of COVID 19 on the Egypt’s Apparel Sector

52% of factories have reduced their 70%

economic activity by half or more of factories focussing on the local market

40.7%

33.1%

of factories switched to PPE - 87% of these export PPE

of factories said they had fabric stock they could not use anymore

of SMEs are 50%

affected by export losses

50%

While all enterprises reported revenue losses SMES are

disproportionately affected by the crisis

of factories said that they had

financial difficulties to pay workers, rents, suppliers, taxes, etc.

32% of enterprises applied salary cuts

Impact of COVID 19 on the Tunisia’s Apparel Sector

of annual 9%

orders cancelled

13% of annual orders delayed (40% 1%

among survey factories). Companies have had less than 2 weeks visibility

on orders

of factories are definitively shutdown

70%

44%

of factories switched to the production of PPE

of enterprises have recovered their entire workforce

85%

49%

of companies in the textile and leather industries reduced their

workforce

was the average capacity utilization rate of factories

Impact of COVID 19 on the Morocco’s Apparel Sector

20% -

30% of order postponed but not cancelled All companies

Overall decrease of orders Paying for increased transportation cost (local and air)

50% 15- Annual revenue drop for enterprises Increased production of PPE

All companies reduce labour

costs

By applying

-voluntary salary cuts - reduced working shifts

- sending workers to technical unemployment

- compulsory annual leave

Increased CSR commitments (energy efficiency & employee

capacity building)

Impact of COVID 19 on the Madagascar’s Apparel Sector

Apparel exports from selected countries

Apparel exports from beneficiary countries in local currencies Jan - June 2020 as compared to 2019 (Egypt Jan - Oct)

-18.8% -18.3%

-26.2% -25.95%

-30.

-22.5 -15.

-7.5 0.

Egypt Madagascar Morocco Tunisia

Per cent age Loss

YoY (2020 over 2019) Loss Percentage

Data source:

Tunisia: Direction Générale du Textile et de l'Habillement Ministère de l'Industrie et des PMEs

Morocco: AMITH

Egypt: Apparel Export Council

Madagascar: Groupement des Entreprises Franches et Partenaire Madagascar

-23% Jan -

June 2020

US Apparel Imports Jan-Oct 2020 compared to 2019

Comparative Study: Bangladesh, China Turkey, Egypt, Jordan, Morocco, Madagascar, Tunisia

-11.66

-42.33

-17.73

-20.52 -17.56

-31.28

-35.02

-50.

-37.5 -25.

-12.5 0.

Bangladesh China Turkey Egypt Madagascar Morocco Tunisia

Per cent age Los s

YoY (2020 over 2019) Loss Percentage

Data source: https://otexa.trade.gov

Drop in YoY apparel imports from the world to US: -25.56%

EU Apparel Imports Jan-June 2020 compared to 2019

Comparative Study: China, Bangladesh, and Turkey, Egypt, Morocco, Madagascar, Tunisia

-40.69

-2.62

-36.09

-48.47

-34.28

-68.65

-47.79

-87.5 -70.

-52.5 -35.

-17.5 0.

Bangladesh China Turkey Egypt Madagascar Morocco Tunisia

Per cent age Los s

YoY (2020 over 2019) Loss Percentage

Data source: emergingtextiles.com based on Eurostat; Data in Euros

Drop in YoY apparel imports from the world to EU: -30.86 %

Outlook and Country Plans for 2021 and Beyond Common characteristics of all 4 countries

Nearshoring

Strong focus on Sustainability

Market Diversification (USA, Europe & ACFTA)

Product Diversification PPE & Niche products Reducing costs

Digitalisation &

e-commerce

Country branding and marketing

Low Visibility

GTEX - MENATEX

Resource Efficient & Circular Production Processes in the textile and clothing sector

Global Webinar – 8

December

Ann-Kathrin Zotz Delphine Clement

• Support SMEs in the T&C sector to use resources more efficiently and to move towards circular production (water, energy, chemicals, waste);

• Raise awareness on the significance of compliance with sustainability requirements of international buyers to establish and maintain supply relationships;

• Contribute to the training of experts who can support SMEs in the design RECP measures and strategies;

• Enable institutions to support SMEs on becoming more resource efficient and implement circular production

processes.

Main objectives of the resource efficiency

and circular production (REPC) component

Why going green? – Benefits for companies

3

Economic and financial

• Make savings by optimizing resources consumption and management

• Reduce resource dependency and associated risks

• Comply to environmental regulations

• Access new financing Business opportunity

• Comply to environmental sourcing requirements from international buyers

• Develop new products and services

• Improved reputation above unsustainable companies Environmental

• Contribute to fight climate change by reducing CO2 emissions and environmental footprint.

Trend: Demand for increased traceability, transparency and sustainability

- Where, by whom and how a garment was made?

- Which raw materials were used?

- What is the environmental footprint?

Drivers: Consumer facing campaigns, complexity of production networks (fragmented supply chain + geographical distances), company sustainability policies

Private sector response: sustainability goals and stricter requirements

“use of a 100% sustainable cotton (organic, BCI and/or recycled cotton) before 2025” – Inditex Group

“By 2030, H&M Group aims for 100% recycled or other sustainably sourced materials”

“100% of PVH suppliers will meet or exceed all of its social and environmental standards by 2030”

Global sustainability trends in the T&C sector

Over 90% of targets set by companies cover environmental-

related impacts 

Trend: Stricter environmental and supply chain related regulations and sourcing requirements

 International textile and fashion retailers and brands are increasingly are revising their sourcing requirements to more stricter ones to meet consumer demands and regulations

Global sustainability trends in the T&C sector

COVID-19 accelerating further

sustainability trends in T&C sector

Two main COVID-19 related drivers:

• Reduced demand leading retailers and brands to consolidate further their supplier base

• Financing stimuli available in origin and destination countries are provided against social and environmental targets under the “build back better” agenda

 Retailers and brands further enhance their sustainability related goals (circularity, carbon emissions, water footprint)

 Increasingly select to engage only with “best performers”

commercially, social and environmentally

RE baseline data collection

1

RECP

Measures Identification et planning of RECP measures

3

Cost-Benefit Analysis Benchmarking

and gap assessment

Gap assessment on efficiency of resources management and

opportunities for improving production processes by comparing data to benchmark values

2

RECP Strategy

RECP Strategy design and communication plan

4

Company data collection on energy and water consumption and waste production

ITC RECP approach

Efficiency benchmark values regarding waste production, energy and water consumption are set at the factory level using representative sample of companies

RECP component – Countries and SMEs

14 10

16 21

• Beneficiaries: 61 textile and clothing SMEs

• Sub-sectors: Fast Fashion, Denim, Knitwear, Technical Textile, Lingerie

• Trainers: 15 RECP coaches

RECP measures identified

Identify and remove compressed air leakages Insulation of hot surface areas

Install LED light bulbs

Revise contract power and tariffs

Install a solar power system for electricity generation

Replace old sewing machines (put in place a maintenance and repair system)

Install monitoring system of waste production, recycling and disposal Establish contracts with licensed partners for waste recycling

Textile upcycling: cleaning cloths, re-usable towels…

Install waste water treatment plant Reduce water volume of dye baths Reuse water from dye baths

Preliminary results

JORDAN

• 50% drop in heating system, less maintenance, and better utilization for the pressing employee LED will cut 60% of the lighting energy cost, and will decrease 20 of HVAC energy consumption

• New Machines consumes 30 % less energy, less maintenance, and more productivity

• LED will cut 60% of the lighting energy cost, and will decrease 20 of HVAC energy consumption MOROCCO

• Extension of the hot water storage capacity resulting from the cooling of the machines by the installation of a vertical storage tank for water re-use 27 500 m3 water saved, avoided costs of USD 50 K

• Use of a heat exchanger to recover thermal energy from effluents and cool wastewater before it arrives at the water treatment plant 15 000 m3 water saved, avoided costs of USD 27k

• Use of dyeing machine tanks for reuse of rinsing baths 15 000 m3 water saved, avoided costs of USD 27k

• Install LED light bulbs  41 706 Kwh saved, avoided costs of USD 4000

• Off-peak consumption analysis 97 561 Kwh saved, avoided costs of USD 8000

Examples of RECP best practices – Jordan: waste recycling

Fabric rolls

Plastic Fabric

Carton

From off cuts to fillings for pillow cases and matrasses

From paper waste to cardboard for packaging

Examples of RECP best practices – Jordan: waste recycling

1) Grinding the fabrics 2) Production of fillings 3) Pillow cases and matrasses being filled

1) Compacting the paper 2) Cardboard production 3) Reuse for packaging

Examples of RECP best practices – Tunisia: Recycling of plastic waste

1) Waste collection 2) Separation by type 3) Reduction of volume

4) Plastic scrap 5) New product: tubes

2) Sifting 3) Blending 4) Moulding

5) Drying 6) Marketing 7) Installation

1) Landfill

Examples of RECP best practices –

Tunisia: Recovery of sludge from wastewater

15

Examples of RECP best practices – Jordan: water purification

Increasingly demanded by international buyers to reduce water footprint and do not release of harmful chemicals to the environment

Lessons Learnt

Making the business case for sustainable business practices is key to drive private sector action, which is enhanced through:

- Quantitative analysis of each

sustainability measure, which translates into bankable projects

- Clear linkage between the financial and commercial implications of

unsustainable business practices - Working within the ecosystem of

different stakeholders in the T&C sector (including technology providers and

financiers) Other relevant

stakeholders Associations

Government

Financiers (banks, investors)

International buyers Technology

providers

Beneficiary SME

DEC 2020

RMG INDUSTRY DURING THE CRISIS OF COVID-19

Asif Ibrahim Vice Chairman

Newage Group of Industries Director

Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

THE FIRST WAVE

Export drops to record low in history, as April, May and June (y-o-y) registered -85%, -63% & -11.4% growth respectively

21.72 -10.76 51.65 36.96 13.02 3.14 8.68 11.84 9.57 2.76 14.88 -3.49

9.70 -11.46 -4.70 -19.79 -11.98 1.26 -2.98 -4.28 -20.14 -85.25 -62.06 -11.43

-100.00 -80.00 -60.00 -40.00 -20.00 0.00 20.00 40.00 60.00

July August September October November December January February March April May June

Month-wise RMG export growth, FY2019-20 vs. FY2018-19 (Y-o-Y, values in US dollars)

2018-19 2019-20

FY2019-20 export growth recorded lowest ever, i.e. -18.12%

8% 12%

-6%

7%

16% 13%

23%

17% 16% 15%

1%

43%

7%

13% 14%

4%

10%

0%

9% 11%

-18%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

RMG Export Performance Comparison of last 20 fiscal years (values in US dollars)

Freefall in export

The fiscal year 2019-20 ended with US$ 27.95 billion of RMG exports, which was recorded US$ 34.13 billion during the same period last year, the year on year growth was -18.45%.

Growth of RMG export during July-September is 0.85%, that means export was leveled off on y-o-y basis, this was mainly contributed by the reinstatement of orders.

The decline in export in FY2019-20 in actual amount is US$ 6.3 billion, which is around one-fifth of our export last year. We lost 3.73 billion worth of export just in last quarter, i.e. April-June 2020.

Export started plummeting again from October 2020.

RMG Export Order Cancellations & Kept on Hold by Region

$ 574 mil

U.S.A.

$ 52 mil

Canada

$ 1930 mil

Europe

$ 620 mil

Non-Traditional Markets

Other impacts caused by COVID-19

Non-payment by buyers, discounts, deferred payment, deferred shipment, forced loan to pay B/B LC, buyers’

bankruptcy, uncertainty over payment receivables.

Financial loss

Compliance to health protocol adopted to prevent contamination also has certain cost at factories’ end.

Comply Health Protocol

Sudden disruption in the supply chain like the unavailability of accessories and processing requirement make the operations inefficient.

Sudden Disruption

Increased unit cost of production, against declining unit value

According to NBR

-1.79%

FY2019-20 vs. 2014-15

In US Market

-1.84%

2019 vs. 2014

In Europe Market

-1.64%

2019 vs. 2014 PRICE CONTINUES TO FALL

Source - NBR

Unit price is falling severely in recent months

-2.42% -0.94% -1.10% 4.99% 0.46% -1.72% -2.30% -2.56% -5.23% -4.15% -5.19%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

January February March April May June July August September October November

BD’s RMG Export Unit Price Trend US$ / KG, Y-o-Y 2020 vs 2019

HOW HAVE WE RESPONDED

Stimulus package and policy supports by the Government

Cautious re-opening of factories by enforcing health

protocol

Engaging and negotiations with global brands with

support of media

MAINTAIN AWARENESS ON HYGIENE AND HEALTH PRACTICES BGMEA’s post COVID health response – at a glance

Staggered approach to re-open factories:tripartite committee (involving government, trade unions and business organizations) the factories were decided to be opened up gradually following a very strict, zone based, staggered approach and maintaining the highest possible safety standards.

RMG factories remained closed during 26 March-26 April:General leave was declared by Government of Bangladesh from 26 March – 26 April (through subsequent extensions). Export oriented industries were allowed to operate. Most of the RMG factories were closed respecting the advise of BGMEA .

Cautious steps followed in re-opening:The re-opening starting with manpower of only 30% of factory capacity, following strict safety protocols, and ensuring the factories are joined by the workers only who live in the adjacent localities.

Ensuringcompliance to BGMEA’s factory opening guidelines:Compliance to health protocol adopted to prevent contamination being monitored by BGMEA’s audit team. Besides, we have partnered with Inspectorio to help member factories mitigate COVID resurgence.

Tests:State of the art PCR COVID test lab for the RMG workers, In addition there are 2 sample collection booths operated by BGMEA for suspected COVID patients working in RMG factories.

Counseling & awareness raising:BGMEA and Maya have signed an agreement to provide free services to help prevent and limit the spread of Covid-19, while also addressing general medical and mental health related issues amongst ready-made garment (RMG) workers.

SIGN OF THE SECOND WAVE

-2.98% -4.28% -20.14% -85.25% -62.06% -6.63% -1.98% 2.58% 3.09% -7.78% -2.66% -17.64%

-90.00%

-80.00%

-70.00%

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%10.00%0.00%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Jan-Nov

Month-wise RMG export growth, Jan-Nov of FY19 vs. FY20 (Y-o-Y, values in US dollars)

After a slight recovery from the freefall during July-September, export is plummeting again indicating the early impact of the 2^ndwave

The retail clothing stores sales in USA and EU also showing similar V shape recovery, yet retail sales growth is still slashed by a quarter.

1%

-3%

-55%

-78%

-36%

-17% -18%

-4% -9% -13%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Retail sales in EU

(YoY index clothing stores’ retail sales)

2% 1%

-49%

-86%

-62%

-24% -23% -20%

-9% -13%

-100%-90%-80%-70%-60%-50%-40%-30%-20%-10%10%0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Retail clothing sales in USA (YoY index of clothing stores’ retail sales)

WAY FORWARD

Extension of the terms of the stimulus

packages, and reevaluating the needs of the industry

in the backdrop of 2^ndwave and global

economy.

Legal protection to deal with bankrupted buyers,

develop insolvency resolution mechanism, and loss financing mechanism to deal with forced

loans.

Maintain the health and hygiene

practices at workplace, and effectively design a

social protection scheme for working

class.

Engaging brands.

SUSTAINABILITY AND

THE ROAD AHEAD

Pledge for workers’ education

Pledge for workers’ children’s education

Pledge for mental health

Pledge for Sustainability

Pledge for tradition and heritage

Pledge for Workers’ Health

Pledge for Efficiency

The seven pledges

towards a greener, more humane industry are encompassed with one

single idea:

Go Human, Go

Green

Emerging realities

02 Globally geopolitical risks (e.g. USA-China, Hong Kong-China, and Japan-South Korea), trade tensions and concerns about shifts towards more protectionist policies, yet the EVFTA is a glaring example of prudent commercial diplomacy.

Changes expected in the post-pandemic market in terms of e-tailing,

continued upsurge in e-commerce with less physical assets, and the resulted changes in the supply chain have both pros and cons. The businesses of SMEs could be remodeled to cater to niche market where quantity is less.

03 01

INADEQUATE CAPACITY OF BACKWARD LINKAGE SECTORS: Capacity-wise there is still 20% shortfall for knitted fabrics and 60% shortfall of woven fabrics. This is one of the major drawbacks for the industry to qualify for EU GSP in post LDC phase as we would need to comply double transformation rules of origin.

This also indicates huge opportunity for investment in primary textiles especially in woven and MMF based.

04 Fourth industrial revolution, the paradox of jobs and competitiveness, and opportunities through re-skilling and up-skilling.

GREEN GROWTH

125

CERTIFIED

10

SILVER

79

GOLD

34

PLATINUM

125LEED Green garments factories certified by the U.S.

Green Building Council (USGBC)

9out of the worlds top 10garment factories are in Bangladesh

500more factories are in the process of getting LEED certification

BGMEA joined the UN’s Fashion Industry Charter for Climate Change with an ambition to reduce GHG emission by 30% till 2030.

BGMEA pledged Green Button – A State Owned Global Seal by German Government.

OPPORTUNITIES

Opportunities:As per WTO data of 2019, Bangladesh is posited second holding 6.83% share of the global market. The share has

increased consistently in last 15 years, i.e. from 2.47% in 2005.

There are opportunities to further penetrate in to global market, which requires a different strategic approach.

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Export trend of major clothing exporting countries

Bangladesh Viet Nam India Turkey Indonesia

31%

7%

6%

3% 3%

2%

2%

46%

Global clothing export share, 2019

China Bangladesh Viet Nam India Turkey Indonesia Cambodia Others

THANK YOU

Vice President of China National Textile and Apparel Council Chairman of the Sub-Council of Textile Industry, CCPIT

Mr. Xu Yingxin

Current Situation of China's Textile & Apparel Industry

Outlook of International Cooperation in Post Epidemic Era

01 02 03

Current Situation of the Industry Overview of the Industry’s

Outward Investment

Outlook of Cooperation

in Post Epidemic Era

Current Situation of the Industry

Part 1

⚫ Complete Industrial Chain

Garments Home textiles Industrial textiles Weaving

(colored weaving) Knitting

(colored knitting) Non-woven Natural fiber

planting/breeding

Oil exploitation and refining

Man- made

fiber

Spinning (colored spinning)

Dyeing printing

and finishing

Textile machinery

＞ 300

Direct Employment

≈ 20

≈ 100

Employment Indirectly-driven Industrial clusters and Specialized Markets

＞ 50%

Enterprises Above Designated Size

＞ 34,700 ^＞ 4,943

Operating Revenue Share in Global Fiber Processing

Feb. _Festival ^Spring Holiday

+

Lockout due to the COVID-19

Sep.

Mar.

May Apr.

June July Aug.

Steady recovery of the domestic market Expanding the

production of anti-epidemic products

Online retail sales of clothing products reached the year-ago

level

Resumption of business

activities In 2020

Over 90%

companies resume production and the

supply chain basically back to

normal

Positive growth in offline retail sales of

clothing products

(compared with the same period of the previous

year)

Rebound of export orders

Positive growth in exports of clothing products

(compared with the same period of the previous year)

Daily production capacity of masks from 20 millions up to hundreds of millions

Data：Working Committee for Industrial Clusters, CNTAC

Domestic

Consumption

Production ^Investment in Fixed Assets

Export

The Industry’s Operation in 2020

Production

Growth of industrial added value year on year

(industrial companies with annual revenue of 20 million yuan or more)

Output growth of main products year on year

(industrial companies with annual revenue of 20 million yuan or more)

-3.7%

58.6%

-33%

0%

33%

66%

Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Mar-20 May-20 Jul-20 Sep-20 纺织工业 产业用纺织品行业

Source：National Bureau of Statistics Textile and

apparel industry

Technical textiles industry

-40%

-20%

0%

20%

服装clothing 无纺布nonwovens 化纤^Man-made 纱 布

fiber yarn fabric

Domestic Consumption

Source：National Bureau of Statistics

Major indexes of China’s domestic market Growth in retail sales year on year

-5.9%

-9.7%

10.4%

7.4%

-36%

-18%

0%

18%

Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Mar-20 May-20 Jul-20 Sep-20

社会消费品 服装鞋帽针纺织品（限额以上）

粮油食品（限额以上） 日用品（限额以上）

Consumer goods

Grain and oil Daily necessities

Clothing, footwear, hats, knitted products.

10.9%

5.6%

34.3%

17.4%

-20%

0%

20%

40%

Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Mar-20 May-20 Jul-20 Sep-20

全部网上商品 穿类 吃类 用类

All kinds of

online products ^{For wear}

For eat For use

Domestic Investment in Fixed Assets

Jan-Jun

- 19.6%

- 27.3%

Jan-Oct

Export

Growth of textile and apparel exports

-19.9%

-4.9%

51.1%

79.2%

56.7%

50.0% 47.0%

36.0%

15.9%

-20.0% -22.0%

-27.7% -24.4%

-7.1% -5.6% 3.2% 6.5% 6.8%

-60%

-40%

-20%

0%

20%

40%

60%

80%

0 50 100 150 200 250 300 350

Jan-Feb Mar Apr May Jun Jul Aug Sep Oct

Textile exports Apparel exports

Textile exports year on year Apparel exports year on year

From March 15th to October 20th,

China had provided anti-epidemic assistance to

150 countries and 7 international organizations.

Export of epidemic prevention materials:

⚫ 179

⚫ 1.73

⚫ 543

Part 2

Outward Investment & Cooperation of

China’s Textile & Apparel Industry

0.9 1.0

3.1 2.1 3.0 2.6

5.4 5.2 9.5

14.1 26.6

11.8 9.8

13.0

4.7

0 5 10 15 20 25 30

Belt & Road＞80%

＞10

Multiple

Industries & Forms

Source: Ministry of Commerce of China

Outward Investment of China’sTextile & Apparel Industry

($100 Million)

越南

Vietnam 1,565

埃塞俄比亚

Ethiopia 326

缅甸

Myanmar 258

柬埔寨

Cambodia 164

埃及

Egypt 162

马来西亚

Malaysia 120

巴基斯坦

Pakistan 85

塔吉克斯坦

Tajikistan 86

Regional Distribution of Outward Investment

The Volume (counted) of Major Countries Receiving Investment from China’s T&A Industry

(2015 - 2020H1, million USD)

Vietnam:cotton-spinning (color- spinning and color weaving), fabrics, clothing

Myanmar:clothing Bangladesh:

clothing

Cambodia:clothing

Malaysia:cotton-spinning Pakistan:cotton-spinning

Egypt:spinning, weaving, dyeing and finishing, clothing

Ethiopia:cotton-spinning, wool-spinning, dyeing and finishing, clothing

Tanzania Uganda

Angola Nigeria

Madagascar Zimbabwe

Zambia

Uzbekistan:cotton-spinning Tajikistan:cotton-spinning

HK China

Singapore

Raw Materials

Design R&D

Brand and Marketing Resources International

collaboration of high-quality resources

Due to the Covid-19

Investment Slowdown

but still

MOVE ON

Outlook of International Cooperation in Post Epidemic Era

Part 3

China’s Imports and Key Products

Partners Imports in 2019

（Thousand USD） Key Products

Morocco 140,911 Apparel and clothing accessories

Tunisia 77,229 Apparel and clothing accessories Industrial textile

Egypt 69,678

Cotton and related products Other vegetable textile fibers Apparel

Tajikistan 22,127 Cotton and related products Silk and related products

Jordan 15,246 Apparel and clothing accessories

Madagascar 10,687 Apparel and clothing accessories Other vegetable textile fibers

Kyrgyzstan 4,334

Wool and related products Cotton and related products Silk and related products

From 2015 to 2020 H1, the total investment

volume from China to the mentioned 7

countries reached to

250 million USD.

Egypt Jordan Tunisia Morocco Kyrgyzstan Tajikistan Madagascar

Future Cooperation in Post Epidemic Era

Trade Cooperation

Industrial-capacity Cooperation Industry Communication

THANKS

Textiles & Clothing: Expanding exports in a sector impacted by COVID-19

How Cost-to-Value Analysis can stimulate more ethical behaviour of factories & buyers

International Trade Centre Presentation

By David Birnbaum

8 December 2020

The Problem

Our global garment industry faces two serious problem

1. We are held in low regard by those associated with us including Governments, institutions, NGOs, our own stakeholders and even the consumers on whom we rely.

2. We cannot create a way to overcome these problems because we are caught up in a failed decision making process.

The decisions we make do not lead to the results we expect

Cost to Value Analysis

The system is easy to understand.

a. Cost is what the supplier pays for materials and processing b. Value is what the customer pays for materals and processing c. Almost eveyone in the process is both a supplier and a customer

a. The yarn spinner is the fiber supplier’s customer and the weaving mill’s supplier b. The Retailer/Brand is the garment factory’s customer and the consumer’s supplier

d. Value defines price

e. Every decision carries cost f. Every decision creates value

g. The correct decision creates higher value than cost

Alternative Solution #1: The Fairness Principle

The relationship between the supplier factory and his customer retailers/brand should be based on fairness.

The Problem: In developing countries, where factories specialize in commodity garment production, the customer continually forces down FOB prices while at the same time garment costs continually rise. The point is reached where the prices paid by the customer are below factory costs. As a result factories have been force out of business

The solution: Since the problem is caused by the customer, the customer should be forced to increase the price paid to the point where a fair price to cost relationship has been achieved.

The data is clear. Factories have been forced to close because they are unable to show a profit based on low prices demanded by the customer

The Fairness Principle (cont)

When we apply Cost-to-Value analysis, situation changes radically.

An analysis of FOB prices on major commodity products shows that the problem is not that customers pay these factories lower prices, but rather that customers pay everybody else higher prices.

Since price is based on value, the customer is paying the losing factories lower FOB prices because their products are worth less than the products supplied by the factories that are paid higher pricesd

The data is clear. The solution lies with the factories. Find out what the factories want and give it to them

The Low Price Paradox

The fairness principle is fundamentally flawed 1. We cannot define fairness

2. We cannot enforce fairness

3. As with many of the issues in the traditional decision making process the assumptions on which fairness is defined are untrue

In the industries based on low FOB price, both the factories and their customers believe that consumers place low- price as the single greatest value

This is demonstrably false

The World’s Top 10 Garment Exporters 2019

Rank Country Value $mn Market Share

1EU 134,531 28.6%

2China 138,238 29.4%

3Bangladesh 40,715 8.7%

4Vietnam 30,038 6.4%

5India 16,508 3.5%

6Turkey 15,540 3.3%

7Indonesia 8,246 1.8%

8Cambodia 8,287 1.8%

9Pakistan 5,843 1.2%

10Sri Lanka 5,638 1.2%

Source ITC Geneva

China and the EU have much in common

• Easy access to locally produced materials,

• Ease of doing business,

• Concentration on sophisticated fashion products,

• Educated management and technical specialists and well trained workers

• Strong domestic demand particularly for fashion clothing.

The difference is price

FOB Price Comparison EU v China (Year of Latest data)

HTS Description FOB EU FOB China Year

6205.20 Men's Cotton Woven Shirts $15.11 $5.99 2015

6203.31 Men's wool Jacket $111.31 $47.27 2019

6203.41 Men's Wool Pants $40.94 $26.11 2019

6203.42 Men's cotton pants $16.41 $6.51 2016

6204.42 Women's Dresses $21.93 $6.60 2016

6204.61 Womens wool pants $51.39 $21.62 2019

6204.62 Women's cotton pants $14.29 $6.04 2018

6209.10 Cotton T-shirts $4.18 $2.99 2015

6110.11 Wool Sweaters $41.37 $14.75 2019

6110.20 Cotton Sweaters $11.86 $6.68 2015

Definining Value

Design: The EU is home to the world’s greatest agglomeration of design centers including, Italy, France, Spain, Netherlands, Sweden, Germany, ETC. Importers placing orders in the EU generally rely on EU design. Contrast this with China where the customers placing orders provide their own designs, often of EU origin

Brand: Made-in-Italy, Made-in-France, Made-in-Spain etc. provide a cachet which allows the importing retailer

and/or brand to charge a higher price. Some may claim that this brand cachet is unwarranted, but we have to

accept that these EU based brands create value which Made-in-China lacks.

Fairness Principle ---Conclusion

In a changing industry both customers (retailers and brands) and factories that continue to believe low-

price equals higher cannot survive

Alternative Solution #2: Ethical Standards The advantages ^:

1. Definable: Growing Consensus

Factory worker rights Factory working conditions Factory worker Safety Sustainability

Reduced Pollution

Reduced Global Warming

2. Enforceable: Consumer Driven Market Customers must meet consumers’ requirments

The Angora Sweater Collapse

The Covid Virus Customer Conundrum: To pay or not to pay, that is the question

The Covid-19 Pandemic and Ethical Standards Child Labor and Slavery

Garment exporting countries in Asia have serious problems with both child labor and slavery.

According to a recent report, Hidden and Vulnerable – The Impact of Covid-19 on Child, Forced and bonded labor, published by goodweave the advent of the virus has markedly increased child labor and slavery in Asian based garment exporting countries.

We can asume that everybody is against both child labor and slavery

The Covid-19 Pandemic and the fairness princple

There is an argument for both child labor and slavery.

Covid-19 has resulted in factory closures and increased unemployment. In most developing countries and LDCs factory workers have no savings and little or no government support. The loss of a job can be life threatening to every member of the family.

Under those circumstances any family member with any job --- mother, farther, son or daughter --- means survival for the family.

Without a a job holder the alternative is to borrow money using a child as collateral. If the amount exceeds $500 the mother recognizes that the loan will never be repaid, leaving the child with a lifetime of indentured servitude. This a terrible decision for any parent, yet the reality is he or she has no alternative. We cannot blame the mother, nor can we demand that any individual or group provides the funds necessary for the survival of the family

In this situation the fairness principle has no meaning

The Covid-19 Pandemic and Ethical Standards

The fairness principles deals with what should be Ethical standards deals with what is.

Slavery and child labor is unethical

Where does that leave us? I suggest that this leaves us in a pretty strong place

Up to now the existance of child labor and slavery has been our industry’s dirty little secret Many of us were aware of what was going on.

The participants --- both customers and factories hoped:

The consumer will never know The consumer would not care

These hopes no longer exist. In today’s consumer driven industry any customer caught selling a garment produced by an enslaved child will be out of business. Under the circumstances prudent retailers and brands would do well to immediately investigate every supplying factory. The we-did-not-know defense will not succed

Where does this leave the worker? Also in a pretty good position.

To survive the factory must employ someone.

If the factory can no longer employ children or slaves it must employ the free parents

Ethical Standards --- Conclusion

In a consumer driven industry

the move towards higher ethical standards is an opportunity for the factory to move forward

Because

The requirements for ethical standard are all in the factory

Global Good Practices along the Apparel Value Chain

Dr Rajesh Bheda Managing Director

Rajesh Bheda Consulting Pvt Ltd, India

Textile & Clothing: Expanding exports in a

sector impacted by Covid-19

Covid-19 has played havoc everywhere and the apparel

industry is no exception

Source: Traid

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5

Challenges faced by apparel SMEs

6

7

How certain countries and companies deliver superior performance?

Think! There must be a better way That’s where we need sharing of good

practices

Inception of Good Practices Guidebook by ITC

- The development of the Good Practices Guidebook is being undertaken by Rajesh Bheda Consulting

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The structure of publication

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Good Practice

• What is it and why?

• Pre-conditions for implementation

• How to implement it?

• Expected benefits and KPIs

• Estimated Investment and ROI

Case study

• About the company

• Problem Description

• Process followed

• Results

• ROI

• Lessons learned

Low value addition- low profitability

Majority of SMEs lack value adding capabilities

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Figure: Value-Adding Stages in the Apparel Global Value Chains: Smiley Curve

Domains of Good Practices & topics

Implementation of Zero-Defect Operator

(ZDO) Programme for quality improvement

Zero Defect Operator (ZDO)

- ‘Zero Defect Operator’ refers to an operator who does not produce or pass any defect/s from his/her operation to the next process.

- It is applicable to any production or service industry. ZDO strengthens the Right First Time quality parameters of an enterprise.

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Resource / Preconditions required

- Full commitment of the top and middle management - Willingness to reward the employees

- Regular practice of capturing the defects generated at every operation and by each operator

- Good coordination and synergy between the production and quality teams

Implementation Steps

Step 1

Form a cross functional team for the implementation of ZDO

programme

Step 2

Ensure that all the team members understand the

basic concepts of quality

Step 3

Explain to the cross functional team, the benefits of the ZDO

programme and the methodology of developing

ZDO

Step 4

Select a pilot line for training the operators as ‘Zero Defect

Operators’

Step 5

Explain the objective of the programme and methodology of the training to the operators

in the pilot line

Step 6

Get volunteers who would like to undergo the training

Step 7

Train the operators on how to ensure defect free production and how to self-inspect their

output

Step 8

Implement monthly inspection summary format like Traffic

light system where every operator’s output is inspected

2 to 4 times a day

Step 9

Visual display of the results of this inspection, with colour coding as shown below: (a)

Green for no defect, (b) Yellow for 1 defect and , (c) Red for more than one defect

Training, Implementation & recognition

Traffic light inspection format

Format Implemented on the

production floor ZDO with badge

Implementation of ZDO Programme for quality improvement

CASE STUDY

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Name: ABC Private Limited

Location: Dhaka, Bangladesh

No of employees: 1600 (about 70% women) Monthly Capacity: 3,40,000 Pcs

Major articles: Tops and Bottoms

Major Customers: UK based large format discount stores