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Enabling Sustainable Value Chains in Asia’s Apparel Frontier: Building Human Capital and Improving Working Conditions

Myanmar’s readymade garment industry is still small when compared to that of neighboring Bangladesh, the world’s second-largest sourcing hotspot. The former’s 350 garment factories currently in operation are utterly dwarfed by the latter’s 5,600. But more than 700 new factories are expected by 2015, and the industry in Myanmar is growing fast, earning $917 million in 2012; up from $770 million in 2011. Estimates show the potential to create more than 10 million additional non-agricultural jobs by 2030. Indeed,one of the most striking comparative advantages of the country’s location is its availability of abundant, low-cost, and fairly well-educated labor.Key to making sustainable sector growth happen will be managing the workforce well and building human capital fast enough.

Working Conditions Are a Lever of Industry Upgrading

Labor conditions in the apparel industry are a leading stakeholder concern around the world. At the root of the problem is a widespread perception that decent work and competitive enterprises are in conflict with each other. Owners and managers often assume that actions that aim to improve working conditions or safety merely create additional cost burdens for enterprises, even though these improvements can actually yield productivity returns as well. Research by the International Labor Organization (ILO) and others corroborate such a potential win-win scenario, and show how unproductive the widespread practice of “management by shouting” is. Improving workers’ voice, empowerment and skills through participatory management is a means to improve working conditions and to achieve efficiency improvements at the same time. Yet, the benefits that responsible practices generate for companies and workers alike are often overlooked.

The new report released by Impact Economy—a global impact investment and strategy firm—titled Creating Sustainable Apparel Value Chains provides an evidence-based assessment of the prospect of sustainable textile and garment value chains and the levers needed for sustainable industry transformation, including the levers of human capital and working conditions.

A Shortlist of Best Practices

In terms of social performance, the research surfaced a number of firms in major sourcing locations that actively take steps to meet worker needs and enable participatory management. The highlights include:

Strong human resource management practices that include internal posting of job openings and encouragement of employees to apply for these positions. Sophisticated HR practices also include evaluation of employees; Highly efficient sewing lines; Free meals, free transportation, a 24-hour medical center, on-site sports and recreational facilities; In-house doctors, nurses, and paramedics to assist with primary healthcare and disease prevention (e.g. providing free screenings, diagnosis and basic medicines); In-house canteens overseen by a certified nutritionist, as well as offering free meals; Buildings for the management staff, providing housing for more than 80 percent of the employees; and a dedicated social responsibility team and innovative initiatives.

Redefine Labor as an Asset

Key to enabling such a forward-looking approach to maximizing social performance and productivity alike is redefining labor as a competitive asset and to derive productivity returns that compensate for the cost of the measures listed above. The methodology pioneered by Better Work, a nongovernmental organization, provides an illustration of a practical way forward on working conditions. Better Work runs country programs that combine assessment services to measurecompliance with ILO core international labor standards as well as advisory services to support practical improvements through workplace cooperation. Its advisors work directly with each factory to:

Establish and facilitate a Performance Improvement Consultative Committee (PICC), which includes representatives of workers and management; Create and implement improvement plans, and recommend training services; and increase company performance on subsequent compliance assessments through targeted remediation activities.

Similar to other such programs, Better Work aims to achieve a step change in working conditions. The training curriculum is thus broad and includes HR management, Occupational Safety and Health (OSH), negotiation skills, training of trainers, supervisory skills training, preventing and addressing sexual harassment, as well as training on worker’s rights & responsibilities. The main challenges of this approach are its resource intensity, and the struggle to truly embed it in factories so that good practice is not abandoned once there is a change in management.

A Blueprint for Human Capital Building is Ultimately Needed

Training and changes in attitudes are important,  but investments in human capital are ultimately the key for Myanmar to deliver on its potential. The ability to enter higher value added production and raise productivity hits bottlenecks without enough technical skill, and adversarial labor relations lock all parties into unproductive patterns of behavior and low productivity in the absence of sufficient up-to-date management skill. This undercuts the ability to pay higher wages.

The shift of the global apparel industry to the developing world has historically meant a tremendous loss of knowledge and skill. Bangladesh, the region’s leading sourcing location, is a prime example of this situation. The country does not have standard training for most professions, nor is there dual education. Bangladesh faces a lack of skilled workers at both the machine operator and mid-management levels, including technical professions, despite numerous private, public and multi-sector workforce initiatives. About 150,000 additional skilled workers are needed each year just to keep pace with the rapid growth of the industry. At the operator level, the skills gap is an estimated 25 percent. The entire textile and apparel complex is estimated to need 70,654 textile technologists by 2015, which represents a gap of 65,010 from the current number of degree holders in the industry.

Greater skill at all levels will be required for Myanmar to avoid this seeming eventuality and actually deliver on the vision of a sustainable global apparel industry—from selecting and deploying chemicals at the beginning of the pipe to in-country pre- and post- production services such as design and quality testing. This requires human capital on a massive scale.

How to Get Started

Improving working conditions and building human capital may seem like a daunting task even though clear and concrete steps can now be taken at the factory level. But recognizing the potential often requires a mindset change. Management practices play an important role in improving working conditions across firms and improvements often require low levels of capital investment. Employers need to have a genuine understanding of their workers’ needs, engaging workers directly on issues rather than simply making assumptions about what workers want. An added complication is that the classical worker lens on issues and priorities does not fit perfectly in this industry where 80 percent of the workers are women who typically have to balance work with other important obligations such as childcare. For example, unscheduled overtime is a top concern for any caregiver. The good news is that best practice examples exist that can address this and other issues—provided there is willingness to graduate from widespread adversarial owner-manager-labor relations, leveraging everyone’s ability to contribute to long-term success and sustainability.

Besides human capital, another lever that is not being pulled sufficiently in the industry is the process of raising total resource productivity. Covered in the next post in this series is how lean manufacturing and process redesign has the potential to reduce use of chemical inputs by 20 percent, energy by a third or more, and water by 50 percent. This is good for both the environment and the P&L.

About the Author:

Dr Maximilian Martin is theFounder and Global Managing Director of Impact Economy. He also serves as Founding Faculty in Residence at Ashoka U and Lecturer in Social Entrepreneurship at the University of St. Gallen. He previouslyserved as founding global head and managing director of UBS Philanthropy Services, head of research at the Schwab Foundation, senior consultant with McKinsey & Company, instructor at Harvard’s Economics Department, and fellow at the Center for Public Leadership, Harvard Kennedy School. He holds an MA in anthropology from Indiana University, a MPA from Harvard University, and a Ph.D. in economic anthropology from the University of Hamburg.

 

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