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Posted on : Monday, 16th March 2020

ASEAN Textile Manufacturing Amid COVID-19 Outbreak


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ASEAN Textile Manufacturing Amid COVID-19 Outbreak


The current widespread of the coronavirus impacts Southeast Asian countries in many ways. While the health concerns are the direct hit points, subsequently labor shortage and manufacturing disruptions are greatly highlighted. The region is home to 655 millions and has two significant neighbors with more than two billions of people. The virus not only threatens health for the region, but also disrupts its manufacturing. Lets zoom in on the garment and textile manufacturing in particular in the region and pick a crucial lesson for the region.


Cambodia




Cambodia's garment industry faces widespread shutdowns by the end of March as the new coronavirus keeps textile suppliers in China shuttered, cutting off procurement of raw materials. Ten factories in the Southeast Asian country suspended operations by the end of February. [1] About 200 factories making mostly garments will likely suspend operations next month due to lack of raw materials from China caused by the new coronavirus, an official said on Thursday. Cambodia's garment industry employs about one million workers on a full-time basis. [2]



Cambodia’s garment factories are generally based on the principle of cut-make-trim (CMT) model. Under this method of production, the raw material, machinery and the design of the garments are imported from abroad, mainly from China. [3]


The country's apparel sector, meanwhile, is largely dependent on China for raw materials and is on the verge of running out of stock. Among other measures to help the economy, the Prime Minister, Mr. Hun Sen said the 4% registration tax would be suspended for all houses sold for less than $70,000 between now and January 2021. He also pointed to a planned state bank created to lend to smaller businesses and agro-industrial enterprises. [4]


Myanmar



The Myanmar Garment Manufacturers Association estimates that its nearly 600 member factories provide jobs for approximately 450,000 workers. [5] The garment industry of Myanmar has a huge potential to contribute to national economic growth as a substantial employment giver, and attract foreign investment. [6]


The abrupt raw material supply cuts from China threaten Myanmar’s garment industry and workers. A Chinese-owned garment factory in Yangon, Myanmar has recently declared bankruptcy, blaming it on losses caused by the COVID-19 virus outbreak. The Myanmar Royal Apollo garment factory in Shwe Pyi Thar township, Yangon, said it ran out of raw materials after China shut down factories due to the virus. [7] And more factories are planning to close in Pago region as well. [8]



The factory in Shwe Pyi Thar, opened in May 2016 with an investment of MMK 400 million (US$299,000) but had suffered net losses of MMK 400 million as of March 5. The factory was shut down and all its equipment is reportedly still inside, and subsequently will be auctioned in order that the company might be able to pay the workers’ back wages and some compensation, the notification said. [9]


A garment factory in Ayeyarwady Region reportedly closed suddenly, leaving all its workers jobless. [10] More than 1,000 workers from a garment factory in Kangyidaunt Township in Ayeyawady Region are out of a job due to the closure of factory following a shortfall of raw materials from China. [11]



The Confederation of Trade Unions of Myanmar has called on the government to establish a team to monitor factories before they close, as it’s suspected some sites are using the excuse of material shortages to temporarily shut down and evade labour disputes. [12] Myanmar has 262 Chinese-owned garment factories, more than 20 Myanmar-owned factories, 60 Japanese-owned factories, and more than 20 South Korean-owned factories. [13]


Indonesia




Indonesia is among the top 10 textile-producing nations in the world. The country is also the 12th largest textile and apparel exporter, with major exporting destinations, including the United States, the European Union, and the Middle East. [14]


According to the Indonesian Textile Association (API), the Indonesian textiles industry is expected to grow at a compound annual growth rate CAGR of 5.09 per cent in terms of revenue during the forecast period of 2018-2023. [15] The Indonesian textiles industry is highly fragmented in nature, with the presence of a huge number of local and international players in the market. [16] Compared to China’s garment and textile industry, China controls about 35 percent of global textile markets, Indonesia controls only about 2 percent. [17]



Indonesia’s domestic garment and textile industry recorded remarkable growth in 2017. From January until July 2018, the shipment value of Indonesian textile products reached $7.74 billion USD and is expected to reach $13-14 billion USD by the end of the year. There was the influx of 310,000 tonnes of illegally imported textile from China in Indonesia in 2017 alone. [18]


Vietnam



Vietnam is among the top textile producing nations in the world. The country is also the third-largest garment exporter, with major exporting destinations including the United States, EU, Japan, and South Korea. The country sets an annual export target of USD 35 billion for 2018. [19] About 90% of Vietnam’s textile manufacturing is exported. [20] The apparel and textile products of Vietnam are exported to 180 countries and territories around the world. [21]


As the demand rose worldwide, textile manufacturers in Vietnam are inevitably facing several challenges. One big pressing problem for garment manufacturers in Vietnam has been the heavy reliance on imported raw materials. [22]



The current COVID-19 issue impacted Vietnam's textile industry. [23] Vietnamese industrial sector is facing major concerns on labor shortages, and disruptions to supply chains. This will soon start to impact the supply chain in Vietnam, regardless of the number of cases in the country. [24]


The Covid-19 epidemic has slowed Vietnam’s exports to China and hurt the country’s mechanics, processing, manufacturing, garments, and textiles sectors by reducing the flow of input materials, accessories, spare parts, and components for production. [25]


Summary


Southeast Asian suppliers, not only in Vietnam but also Indonesia, Cambodia and Myanmar, have become increasingly important to global fashion brands. [26] ASEAN countries become the manufacturing ground for several global fashion and textile brands. But one thing in common for ASEAN manufacturers particularly the textile industry is that almost all of them are relying heavily on China for raw materials. Every situation in China supply chain directly affects the manufacturing flow and business targets in this region. It should not be understood as just a risk on the industry but can also be interpreted as indirect upperhand for China. ASEAN manufacturing firms as a whole should learn a lesson out of this pandemic from China. And this is the right time to begin building a wider network not only for the export market, but also for the import sources.


[1] Nikkei Asian Review

[2] The Star

[3] Asean Briefing

[4] Nikkei Asian Review

[5] The Asian Post

[6] Fiber2Fashion

[7] MM Times

[8] The Irrawaddy News

[9] MM Times

[10] The Irrawaddy News

[11] The Star Onliner

[12] The EcoTextile

[13] MM Times

[14] Mordor Intelligence

[15] Textile Focus

[16] Global Information, Inc.

[17] Indonesia Investments

[18] GBG Indonesia

[19] Mordor Intelligence

[20] Vietnam Insider

[21] Textile Today

[22] DHL International GmbH

[23] Quartz

[24] Vietnam Briefing

[25] The Voice of Vietnam - VOV World

[26] Nikkei Asian Review

Tags:
garment textile asean southeast asia industry manufacturing china raw material