Overview
Part 1 comprised understanding the textile & apparel industry, production process and global trade in textiles and apparel. Part 2 looked at development of world textile & apparel regulations, voluntary export restraint, General Agreement on Tariffs and Trade, STA & LTA (Cotton Arrangements), the Multi-Fibre Arrangement (MFA), Agreement on Textiles & Clothing and Rules of Origin in the textile & apparel industry. Part 3 analysed the Impact of the MFA, birth of new players, web of protectionism, quotas and factors affecting demand for textiles and apparels. Part 4 reviewed Malaysia’s textile and apparel industry in terms of structure and players, the primary & made-up textiles sub-sector, the apparel sub-sector, the players, the free industrial zones, duties and tariffs and licensed manufacturing warehouse, import duties & tariffs and textile & apparel production in Malaysia. Part 5 reviewed investments in Malaysia’s textile & apparel industry, Malaysia’s textile & apparel imports and exports.

7.0 Issues on Malaysia’s Textile & Apparel Industry Competitiveness

7.1 Labour

7.1.1 Labour Cost
As can be seen from Table 1, Malaysia’s labour cost in this industry is among the highest in ASEAN, surpassing neighbouring competitors such as Indonesia and Thailand. On average, labour represents 20% of the industry’s production cost incurred in Malaysia, compared with 3-8% in the other developing countries. To make the situation worse, the Added Value per Labour Cost (AVLC), which gauges the competitiveness in terms of labour cost, for both local textile and apparel sub-sector has been declining. The textile sub-sector’s AVLC declined 9.47% in 2002 and 7.97% in 2003 whereas the apparel sub-sector’s AVLC declined 13.37% and 7.0% for the same period respectively. These illuminate the problem of eroding competitiveness from the cost aspect.

Table 1 : Hourly compensation (US$)

7.1.2 Labour Availability
From the feedback gathered from interviews with various players, associations and government regulators involved in the textile and apparel industry, another pressing issue faced by our local textile and apparel industry is the shortage of workers in the manufacturing line. Most parties in this sector attribute this problem to the boom in the electronics sector which has resulted in a preference by the locals to work in the semi-conductor and electronic component manufacturing sectors, as they provide better working environment. Though the preference is subjective in nature and not quantifiable, taking a glimpse at the average salary and wage per employee in both sectors does provide some justification on the claims.

Table 2 : Average annual salary & wages per employee (RM ‘000)

However, though foreign workers are easily available, the reliance on foreign workers to fill in the gap left by the locals create the problem of high retraining cost whenever there is a change in workers due to government regulations. On top of that, many major foreign buyers do not encourage their contract manufacturers to employ foreign workers and instead prefer the employment of locals, on the ground of social responsibility. This requirement increases the pressure on the availability of labour.

7.1.3 Labour skills & productivity

Most manufacturers that i Capital have talked to were of the opinion that the local workers are better in terms of skills in handling complicated designs and sewing techniques. In terms of productivity and efficiency, they also consider local workers to be on the higher end. However, if one were to consider the Added Value per Employee (AVE) of the textile and apparel industry, this optimism does not seem justified. AVE is one of the most commonly used productivity measurement that shows the amount of wealth/value created by each employee in an industry. Accordingly, the AVE in the textile sub-sector declined in 2001 and 2002 by 9.45% and 2.48% respectively. As for the apparel sub-sector, it recorded a more severe decline of 10.87% and 4.70% for 2001 and 2002 respectively.

7.2 Capital Investment

Looking at the long-term trend, the capital investments approved by MIDA in the textile and apparel industry are declining sharply. In 1998, the value of capital investment approved in this industry was RM699 mln (with 35 approved projects), falling to RM186 mln (71 projects) in 1999. Although 2000 recorded a sharp rise in investments approved (RM1.19 bln in value with 44 approved projects), the rise was short-lived for the value of the approved projects dropped to RM429 mln (43 projects) and RM197 mln (30 projects) in 2001 and 2002 respectively. However, 2003 showed an improvement compared with 2002 with 34 approved projects worth RM292.7 mln.

In terms of investments in machinery, Malaysia is badly behind the other players. From 1992 to 2001, Malaysia purchased 437,614 short-staple spindles, 21,900 long-staple spindles and 5,451 open-ended rotors. Compared with Indonesia and Thailand, these figures are dismal. For the same cumulative period, Indonesia invested in 1,419,912 short-staple spindles, 90,948 long-staple spindles and 19,247 open-end rotors whereas Thailand invested in 893,324 short-staple spindles, 61,042 long-staple spindles and 41,609 open-end rotors.

The fabric sub-sector is no less unimpressive. In 2000, Malaysia possess installed capacity of 4,000 shuttleless looms and 1,200 shuttle looms, compared with 27,000 shuttleless looms and 200,000 shuttle looms in Indonesia.

In a nutshell, Malaysia’s reluctance to invest in the upstream is causing her to lose her competitiveness in this segment. Although it can be argued that Malaysia is in a transition phase of shifting to the downstream and value-added apparel segment, it should be realized that the upstream industry, which does not rely on cheap labour, is a source of competitive advantage. A well-established domestic integrated textile and apparel industry also reduces the reliance on raw material imports such as yarns and fabrics, which also contributes 21% to textile and apparel exports.

7.3 Access to Raw Materials & Infrastructure

With local involvement in upstream activities such as polymerisation, spinning, knitting and dyeing, raw materials such as fibres, yarns and fabrics can be easily sourced locally. Importing raw materials rarely affect the lead time as there are frequent shipments from India, China, Australia, Pakistan, etc, made possible by the strategic location of the West Malaysian ports. Local manufacturers also have the advantage of having an extensive highway system, which speeds up goods transportation.

7.4 Electricity & Water

The upstream activities in the textile and apparel industry are more affected by the cost of energy and water tariff as opposed to labour costs. Therefore, a country’s power tariff indirectly forms a competitive advantage or disadvantage for her textile and apparel industry. Consider 2 yarn producing countries using the same level of technology and sourcing the same fibres, what determines the competitiveness of one country over the other is the pricing of its yarns, which have to take into consideration the cost borne by the producer. Malaysia’s electricity tariff can be considered as competitively low. As shown in Table 3, Malaysia’s electricity tariff is more competitive than Cambodia’s and Vietnam’s; approximate to Thailand’s and loses to Indonesia’s in the industrial sector. Malaysia also has a reliable power supply, as opposed to the electricity-shortage problems currently faced by Vietnam, Cambodia and China.

Table 3 : 2003 Tariff in ASEAN (US cents per kilowatt-hour)

As for water rates, Malaysia’s water tariff is 30-40% lower than the tariffs in Cambodia and Vietnam. On top of that, having a reliable water supply also benefits the industry by making dyeing operations possible. Taking Cambodia and Namibia as examples, the water shortage problem faced by these two countries seriously impairs the dyeing operations there. This is one of the reasons why certain local players only set up downstream operations in Cambodia and maintain the upstream operations locally.

7.5 Reliance on Contract Manufacturing

Though domestic players have the capability to produce world-class standard apparels, they are relying heavily on contract manufacturing. More than 80% of local apparel manufacturers are manufacturing for international brands. The risk is that if the buyers decide to award their contracts to other countries, it will have a disastrous effect on the industry. Except for a few companies, no effort has been undertaken to produce and develop local brands and to capture the local and foreign markets, unlike the players in Thailand. Taking Hytex as an example, it is involved in both contract manufacturing and the development of 4 in-house brands. However, its contract manufacturing division contributes 42% to its revenue whereas its own brands contribute only 21% to its revenue.