Challenges and pressures of globalization on garment industry in Nepal

Globalization means both opportunities and problems (threats) in Nepal. The benefits of globalization to developing countries seem to be extremely limited as the developed countries have very stringent migration laws that restrain the free movement of labour contrary to the spirit of globalization (Dahal, 1999). Nevertheless, there are two extreme views about the challenges of globalization to Nepalese garment industries. While one is pessimistic, the other is optimistic.

Some of the threats of globalization challenges are related to the following situations which need to be tackled carefully for garment industry to survive in Nepal.

n The complete phasing out of quota system would put tremendous pressures on the Nepalese garment industries to be competitive enough to survive since the present spill-over business resulting from the quota restraints in neighbouring countries would no longer exist.

n Although a large industries which are running with their own special efforts can survive for a few years after 2005, majority of medium and small industries, which outnumber large industries and heavily depend on quota privileges, will decline due to lack of ability to survive in the open competitive market.

n With the challenge on a few surviving garment industries to be more productive and competitive, there well be pressures on industries to reduce their cost of production in a massive scale which will mean in particular downsizing of employment of labour and reduction or stagnation in wage rate and other facilities

for the workers. Globalization in this sense is likely to give birth to problems of unemployment and labour unrest.

n Many entrepreneurs tend to be confused about what to do, nor have they been able to understand the concept of WTO clearly. The present pace of government to devise strategies and policies to face the challenges of the globalization process under the WTO regime is very slow while the time is running out. Considering what has been done in the past, one can not expect miracle to happen in the next three years to prepare Nepal for facing the challenges of globalization. It will be very difficult for Nepal to improve its competitiveness in the garment industry with the existing level of efforts and work culture.

n Decline in garment industry, which is currently the leading foreign-exchange earning industry of Nepal with export business of over US $140 million and capacity of employing some 50 thousand people, will have profound negative impact on the entire economy. To prevent this, government needs to take a lead role to bring all the key players to devise long–term strategies for countering the likely adverse situation from the year 2005.

n There is a possibility of deeper penetration of the Nepalese market by the Indian capital and labour with very little gains for the mass of population and disruption in their traditional livelihood patterns (Acharya, 1999). Nepalese economy, being a satellite of Indian economy for more than four decades of planned development, is still isolated from global economic revolutions that created many bubble economies in the SAARC and the ASEAN countries (Dahal, 1999). It is unlikely that Nepal will get rid of the continued Indianization process that is deeply rooted in behaviours of many Nepalese people (e.g., Acharya 1999, Shrestha, 1999). The process will continue to affect Nepal’s garment industry considering in particular the fact that Indian manufacturers and workers originally induce the industry.

n If the skilled Indian workers go back home because of demands in their own country for producing garments for unrestricted, open world market, it is also likely to create a problem of deficiency in skilled manpower required for the garment industry of Nepal.

n Being a land-locked country, Nepal cannot significantly reduce its present transport cost. The problem is further compounded by such factor as low productivity of labour, ineffective labour laws with little concern for efficiency and absence of backward and forward linkages in the garment industry. If the present unfavourable situation continues to prevail, it will be very difficult for Nepal to keep up its present performance after the year 2005.

n The present interest rate (around 15 percent) on bank loan in Nepal is considered to be high in the South Asian region. Some industries have already started feeling the pressure of repayment of bank loans. Furthermore, because of the uncertain

future of the industry itself with the phasing out of the quota system, some industrialists are starting to hold “wait and see” attitude refraining from investing further in their industries.

n As illustrated earlier, the cost of production in Nepal is much higher than in Bangladesh and India. There will be pressure now to improve this situation for the Nepalese garment industry because of the intense competition among all countries after the year 2005.

n Some industries have procured expensive machines in their drive towards modernization and for being more productive to face the challenges of globalization.

But many of these machines have not been used because of lack of technicians to operate and make repairs when needed. Lack of skilled technical manpower is a serious problem that needs to be solved if Nepal is to be more productive and compete with other countries.

n Present pace of infrastructure development, including policy designs and commitments of the government, is very poor. If this status quo situation exists without significant improvement after the year 2004, then it will be difficult for garment industry to survive. In fact, Nepal does not need to wait for next three years to see declining situation of its garment industry if other countries start enjoying special facility for easy access to US markets from now.

n Nepal does not need to wait for next three years to see declining situation of its garment industry if other countries start enjoying special facility for easy access to US markets from now.

n Nonetheless, things are not so gloomy. There are some indications that globalization process can be a blessing in disguise for the development of ready-made garment sector in Nepal, provided that some well thought out strategies are devised in advance and some of the present positive trends are maintained. Hence, some of the challenges are related to the following situations which, if capitalized carefully, will turn globalization process into opportunities for Nepal.

n Despite the possibility that many small and medium scale garment industries will close down, some garment industries will not only survive but also excel in their performance after the year 2005. With an eye on competition, some industries have already started not only exploring new avenues of market, but also making necessary arrangements for outsourcing of raw materials considering the likely demands of the markets.

n The locally available labour, if trained, can be a strength for the industry. Some industries have prioritized employing local labourers and providing them on-the job training to cope with the likely shortage of manpower at local level and reduce dependency on foreign workers. With the use of local manpower, the cost

of labour is expected to come down while both the supply and quality of manpower will also improve.

n With the removal of quota barriers, Nepal will be able to compete freely with other developing and less developed countries for having a reasonable share in the world market. Likewise, with reduction in tariff and non-tariff barriers, the size of the world market will increase by creating new market opportunities. It is also likely that cheap products coming from the developing countries could displace certain market share of the developed countries. This will lead to immense export market possibilities for the garment sector of Nepal. Least developed country like Nepal can also resort to export subsidy for their export products as well as zero duty access to other market. There will be immense possibilities of increasing export from Nepal, provided that Nepal can negotiate for enjoying privileges of a least developed country.

n Since only a few best and sophisticated industries can survive after 2005, their job quality and working conditions for workers can be expected to be better than those in many industries operating with low quality outputs targeted for ordinary buyers. These few best industries are producing quality products for the reputed standard buyers such as J.C. Penny, Walmart, Target and GAP which require that the industries maintain certain standards of working environment for their workers which will lead to improvement of working condition and better facilities for the workers.

n Large industries have increasingly realized that they can survive only by reducing their cost of production and improving product quality. Such a realization is likely to result in proactive initiatives of private sector, with support of the government, in areas such as R&D and skilled manpower development.

n Market positions have been much better than in the past and the government also has started offering some important facilities in recent years. Likewise, there have been some gradual changes in technology by replacing the traditional inferior Indian machines by the modern, superior Japanese and German machines. This has facilitated the process of transformation in production system from piece-rate system to assembly line system. Quality of the Nepalese products is generally considered to have improved significantly. Such a transformation in production system along with improvement in quality of products and export performance is an indication of improvement in productivity and willingness of the industrialists to face the challenges of competitive globalized market.

n About 20 percent of present export are estimated to be on non-quota items.

Likewise, the concentration of export business in the US market is also slowly decreasing with expansion of European and other Asian markets. These are positive indications that give hope for withstanding the pressures of globalization.

n More recently Nepal has started importing raw materials from third countries in an equal footing with that of India. This will enable the Nepalese entrepreneurs to enjoy both cheap and quality products after the full-fledged implementation of WTO concepts.

n Although total number of people employed in the garment industry has decreased in recent years because of gradual decline in small and medium garment industries, there are some positive indications with regard to employment situation and job quality, particularly in the case of a few large industries (to be elaborated in Chapter III).

n Considering the nature of the national economy, even a dozen of big garment industries of Nepal with Momento’s (presently the largest garment industry) size, can easily face the challenges of globalization beginning from the year 2005.

Large-scale industries can have various advantages in globalisation age.

Performance and the size of some of the medium and large garment industries are getting better compared to six or seven years ago. If this trend continues till the year 2005, then it will be possible to maintain as well as increase the pace of industrial growth even after the quota is phased out.

n Because of similar development thrusts in South Asia and similar experiences in the field of garment export business, the Nepalese entrepreneurs can explore some areas of collaboration with garment exporters of other neighboring countries and make some joint efforts for capturing a sizeable share of the world market.

Such a collaboration is likely to be meaningfully utilized in minimizing cost of production and transportation and promoting export market.

Productivity, as a means to generate competitive advantage, is a fundamental tool for enhancing competitiveness in the era of globalization (Bajracharya, 1999a). On the other hand, while competitive capacity is partly determined by external factors; such as, international environment, character of international competition and competitive policy of the chief rivals, and the competitiveness of the country (Bossak and Nagashima, 1997). Nepal, at present, is directly competing with its neighbouring countries in terms of both price and quality of products. Therefore, the most important challenge facing garment industry sector in Nepal in the wake of globalization is to improve its productivity to be competitive in the open world market.

3. Employment and quality of jobs in garment industry in Nepal