Garment industry disputes mean fewer orders and worried factory owners

Labour disputes in the garment industry, a main driver of Myanmar’s growing exports, have had a serious impact on orders from abroad and risk scaring away foreign investors, according to South Korean officials and sector representatives.

Disputes over workers’ demand for higher wages affected output at two South Korean factories and three Chinese-owned enterprises in Yangon earlier this year until a tough police crackdown in February got most workers back to the production lines.

Workers were demanding an extra 30,000 kyats (US$28) a month in wages.

“There is a really serious problem with orders,” said Chu Hyun-oh of Suitstar Garment company and representative of the South Korean manufacturers’ association. “The future of the garment business in Myanmar looks gloomy,” he told The Myanmar Times.

Myanmar representatives of the industry and union leaders had a much more upbeat perspective however, noting record exports last year. There is also the hope that orderly elections later this year could lead to an upsurge in orders from the US.

Mr Chu said that last year Myanmar had successfully attracted foreign investors who were lured by lower production costs compared with China. But labour costs had risen by some 25 percent and could rise further on the back of wage increases recently granted by the government to civil servants. He said foreign investors were urging the government to help resolve labour disputes by finalising an overdue law setting a minimum wage.

“Many buyers are watching the situation closely,” he said, explaining that they could easily switch orders to other countries, including Vietnam, Indonesia, Bangladesh, Cambodia and Laos.

South Korean and Chinese companies are the largest foreign investors in Myanmar in the garment and related sectors. About 140 South Korean companies employ around 100,000 workers. An easing of US and EU sanctions since President U Thein Sein’s reformist government took office in 2011 has led to an industry rebound.

The Myanmar Garment Manufacturers Association said that, based on an analysis of data in the first half of the 2013-14 fiscal year just ended, exports were on track to reach a record high of $1.7 billion, a near doubling of exports in just two years.

South Korean ambassador Lee Baek-soon said labour disputes that turned violent risked scaring away South Korean investors in Myanmar.

“Now they are thinking twice about staying for long or whether they might relocate to another country. It is a red signal,” he said in an interview. “There are many South Korean factories in China and Vietnam. From time to time they come here to do market surveys on possible relocation, but if they hear of labour disputes they will be hesitant,” he said, stressing the potential to create thousands more jobs.

The ambassador said that a monthly wage increase of K30,000 represented a rise of 40pc. He called this “intolerable” and would risk driving many factories into bankruptcy. He said garment sector wages in Myanmar were 30pc to 40pc lower than in Vietnam, but productivity was 20pc to 30pc less and Myanmar lagged far behind in terms of infrastructure.

“Job creation is much more important than labour rights at the initial stage of economic development,” he said.

Ambassador Lee confirmed that he had asked the police in Yangon to provide protection for a South Korean manager and a group of Myanmar workers who he said had been blockaded in their Costec factory on February 3 by striking workers outside.

“That is all we asked for,” he said, insisting that he had not called for a subsequent crackdown when police wielding batons broke up a demonstration of mostly young female strikers.

The ambassador stressed that only a small number of South Korean-owned factories had gone through labour disputes and that they had resumed operations. The rest, he said, had good relations with their workers and wanted to enhance fringe benefits, such as providing dormitories and night-schools.
U Aung Lin, chair of the Myanmar Trade Unions Federation, dismissed talk of foreign investors leaving. “This was said by the government for show,” he said.

He called on the government to help resolve labour disputes by completing the enactment of laws governing foreign investment, settlement of disputes, minimum wages, employment and skill development. The laws lacked enforcement and were deficient, he said.

Workers were aware of their rights but the law on the right to strike was confusing and unclear to workers, he said.

Wage increases could be granted if it were not for the extra expenses that employers had for renting factories, coping with power outages, logistics and “under the table money” for senior officials, he said. He also rejected the concept that job creation came before labour rights.

“Workers are not slaves, they are human beings as well. If they had got their rights, for sure they would not strike anymore,” he said, arguing that labour rights and creating jobs should go hand in hand.

However, on one issue he and the ambassador both agreed – that “external activists” had been involved in
stoking the labour disputes. Neither elaborated on who these activists were. “We don’t know exactly who they are. We have hunches. I cannot say if they were South Korean or not,” the ambassador said.

Daw Khine Khine Nwe, general secretary of the Myanmar Garment Manufacturers Association (MGMA), said Western investors were still hesitating over committing to Myanmar but not Chinese or other Asian investors who were drawn by its large and relatively young workforce.

Jacob Clere, MGMA project manager, said Myanmar’s “slightly unclear” policy framework still “scares” investors despite the passage of legislation in recent years. “Investors like stability and they like transparency, and if the policy framework, the rule of law is not very consistent, that makes them nervous,” he said.

The industry is hoping that US markets for Myanmar’s garment products will recover further, with parliamentary elections set for November seen as a landmark event.

“If they [the US government] are satisfied with the elections, then they might consider easing the pathway of US businesses wanting to do business in Myanmar. Because if there were a few small changes, then it would be very easy for US brands to start sourcing here,” he said, arguing that the US market could potentialy reclaim its position as Myanmar’s top export market.

“Japanese, Korean buyers haven’t always had the same ideas about social compliance as Europe and the US. They have their own approach … For that reason Myanmar missed out on what was basically at that time a trend toward increasingly responsible manufacturing,” Mr Clere said.

Mr Clere said the wage rates could be criticised but they were high enough that jobs were attracting people to move to Yangon from rural areas, and that, for example, garment factories paid more than the food processing sector.

“But in terms of labour unrest, it’s a worry because it’s been a big problem in other countries. A lot of brands and a lot of producers would like to see Myanmar do it better. I think a lot of people feel this kind of optimism, that Myanmar has a chance to do it better. A lot of people are trying to push things in that direction,” he said.

Source: Myanmar Times

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