"Compliance / Non-Compliance" Two sides of the Same Coin!!!

As a consumer have you ever wondered, How much does it cost to make a pair of jeans?

The usual retail prices varies with the region but on an average including all big brands, stores & chains, an average pair basic pair of jeans would cost $20.  You may take this figure as a benchmark to understand the dynamics of this industry and what elements I aim to bring forward to you. 

So how much would a minimum basic pair of jeans cost to the brands/retail stores/ chains etc. Any guesses?? 

$8, $10, $15.... nope

An average pair of jeans for mens would cost around $5 to $6 to the brand and in-turn it would be retailed on a minimal base price of $20 (Formula of 3: Selling price of 3 times or more than the average purchase price) and more.  Brands do pay more or less as per their approved product detailing. For any supplier able to charge $10 and above to the brands is considered as premium goods manufacturer.   

Considering $6 as a base figure to compare, which costs does the supplier have to cover in this $6. The supplier has to cover all the following costs:

1. Overhead (fixed cost: includes utilities, salaries and all pre-requisite operational expenses)
2. CMT (Variable Cost: Cut, Make and Trim Cost, Directly linked with the production of goods)
3. Washing (The most complicated process, a wash recipe may cost from $0.50 up-to $2.00) 
4. Fabric (biggest element of the cost structure with price variability of $2 and above per meter)
5. Material Costs (Threads, Zippers, Labels, Tags, Buttons, Rivets, Packing material, etc)
6. Wastage (costs incurred through faults during the production process)
7. Bank Charges (Taxes, Bank Processing Fees)
8. Testing & Inspection Charges (Testing as per the EU & USA Standards)
9. Transportation, Logistics/ Courier Charges (Goods Transportation (sea), samples delivery etc).

After in-curing all these costs, the suppliers then have their profit margins which in-turn fall some where between $0.10 (minimum) to $0.25 (maximum).  The payment terms from the Brands are usually on credit primarily through Letter of credit (L/C) which can only be negotiated once the documents have been accepted and the goods have reached the destination.  Consequently from the confirmation of an order till the time its dispatched and reached the destination and the payment process, the whole process takes on a an average of 4 months (120 days). Usually the manufacturing companies have to work through extensively, to achieve an environment of economies of scale to be able to meet the tough pricing standards set by the brands. 

The competition and its stiffness does not stop here. Even if a supplier is able to meet these tough pricing standards, there is constant peril in the background, unseen.  This peril is the fear of being replaced by another supplier. Brands on an average have more than 100's of suppliers on the waiting list  for an opportunity to be given and produce their merchandise at a cheaper price. The competition is not just on the industry level of a country but globally as well, as manufacturers from every where reach out the the customer with their latest innovations in product, sustainability & other elements being offered at a cost competitive price.  In case of late shipments, Brands usually go for discounts on the selling price agreed with the suppliers. The discount usually varies between 10% to 20% of the price and depends upon how late the shipment is. In some cases the goods are aired on supplier account and in the worst possible scenario discount plus airing of goods. Suppliers need to be very efficient in their process of production to avoid these additional unforeseen costs, otherwise the loss amount would be quiet significant.  In the most critical of scenarios, where extensive delays have happened the orders are cancelled by the buyers.   

As a consumer/layman one might wonder that how do companies operate, survive and grow in this tough perfect competition market. Well the expenses and the requirements don't just stop here with the pricing standard. There is a long list of requirements set by the customer in terms of their code of conduct, GSP standards,  BCI Standard, EU regulations, Compliance Certifications & Sustainability. The cost of compliance is never cheap, yet all standards have been given by the customer to follow as a pre requisite to start and maintain business. That is why over the last decade the barriers to entry in the textile garment industry have been very high. Strong capital costs are required with an extended long term payback period.  So many new players who have keen interest in joining this Business/Industry  fall short on high capital investments, pre-requisites set forth by the brands in starting business, longer credit terms,  high proportion of current capital investment in stocks and material. The prevailing players  who have survived in this industry have done well over the years despite of the challenges they have faced over the last decade or so. 

Covid-19 hit the garments and the brands pretty bad. Any thing termed non-essential, has suffered the wrath of this pandemic virus. Lives, Businesses, Industries and Economies all have suffered drastically. When this virus broke out in China, many were unsure and relaxed that this spread would be contained in the China. But what they couldn't foresee was that this out break would travel leaps and bounds and would affect nations, countries, and millions of people. No one would have forecasted countries being lock down for a period of 2 weeks and more. No one would have accurately predicted what kind of loss both human and financial the people would have to suffer and go through. But the situation got worse. Italy amongst the European nations was the first to close, followed soon by Spain, then Germany and so on. The worst impact came when UK & USA decided to get off. But brands being off was expected. what wasn't expected was when brands started cancelling orders.

Pakistan went into lock down on 23rd March, 2020. Before we had gone in lock down, we had received emails from customers in Italy of stopping the production. We received emails from customers in UK that all present production is stopped until further notice. All future confirmed orders are cancelled. Similar was the experience from customers in Spain and other parts of Europe. Many customers extended the letter of credit periods,  others started asking for discounts, while most of them went for immediate cancellation. In a very short span of time, things became worst for all garment manufacturers across the globe.  I would like to mention here that the payment cycle for manufacturers may be based on a lead time (as explained earlier of an approximate 120 days) but the expenses/salaries of the workers, vendor payments every thing is made periodically as soon as they are accrued. Buyers/Brands shutting off and essentially walking way from ready shipments have left things in a turmoil. Like all global companies, financial planning for manufacturers is done in advance. Procurement of raw material is done at the time of confirmation of order booking. Not only are the manufacturers stuck with investments made in raw materials but also in the production work in progress, ready to dispatch shipments amongst other amenities. The marketing people of different manufacturing organisations have been in contact with the buyers/brands but there is no clear status.


Further breaking it down for understanding, Pakistan total employment accounts for 49 Million people. Out of 49 Million, roughly 30% or approximately 15 Million people are employed by the textile industry alone in pakistan. On a whole pakistan is the 8th largest manufacturer of textile products in Asia.  The average annual per capita income in Pakistan is $1230/- to $1250/-. The minimum wage in Pakistan for un-skilled worker is $90/- Month or $1,080/- Annually. Comparing to Bangladesh who is the 2nd largest producer of textile products in the world after china.  Bangladesh employs 45% of its all employment force in the textile sector. More than 4500 factories are operational there with an approximate employment force of 4.1 million people. The per capita income of Bangladesh is $2,068/- Annually and has minimum wage of $89/- Month and $1,065 annually.

Brands closure for indefinite period, impact of delayed/cancelled orders, payment cycle revisions all this will significant impact on the workforce of these 2 countries. Potentially mass unemployment is expected in the textile sector with layoffs and retrenchment going up to 60% to 70% in the coming months in the textile sector. Figuratively we are looking at 10 million people on an average who will be laid off on a whole in both countries.

The impact would have been far less, if the buyers/brands had stood up to their commitments and taken the goods/shipments which are ready or in the production cycle. it would have given an approximate 3 to 4 weeks of leverage to manufacturers to plan their payments/ production process and then gone towards retrenchment. The world soars with corona virus as we speak today. Globally  every thing is on a stand still. The deepest sympathies go out to everyone who is presently suffering from this virus. Condolences to all those people and families who have lost their loved ones in fight against his virus battle.  But the west and developed countries also need to understand one thing, corona may affect many, but mass un-employment would affect all. Especially the 3rd world countries where majority of the population revolves around or below the poverty line.

Textile industry has revolved around the ethical code of conduct & sustainability over the last decade or so. Where are the Ethics Today? Where is Sustainability? Every buyer/brand/store would categorise  their supply chain as a business or strategic partner.  Today this term seems irrelevant. Supply chain are just partners of convenience. Its seem clearly enough when brands wanted orders at a competitive price, shorter lead times, the supply chain was conveniently available. Whenever these brands would get their supply chain  audited on ethical, social, healthy & safety standards: payment of wages and salaries would be deemed as critical issue. Any discrepancy on that front would immediately result in the lowest rating of Audit given to the manufacture and Brands would reserve the right to cancel all placed orders. Manufacturers/ Factories would need to submit corrective actions with evidence to the Brands and  yet the impact on loosing of business would be great. Today as the textile industry stands on the verge of collapse, where are the founders of compliance today. Where are the ethics & where are the highest standards that were preached to the manufacturers as pearls of wisdom. Its unfortunate to see how most brands have acted and just put a shut eye to all of this.

One might wonder what is the actual reality? The Compliance Standards/Code of conduct Preached for over a decade or this

It is worth mentioning here not all brands have walked out from suppliers. H&M, INDITEX, M&S, Target Stores, PVH, KIABI are amongst the few that are worth mentioning that have come forward and assure their supply chain partners that they will take all goods which are in the process of production. They are presently revising payment schedules and have assured suppliers that they will make payments for ready goods.  This news is a breath of fresh air for suppliers working with these prestigious brands. The respect and appreciation of all these brands who are owning up to their commitments is enormous and well appreciated throughout the textile industries operating across the globe.

But what about the rest. will they come out of their shells. Will they come to aid of their strategically convenient supply chain or would they let them suffer? In a news article yesterday it was announced Primark & Matalan amongst  retailers allegedly cancelling £2.4 Billion orders (Guardian: https://www.theguardian.com/global-development/2020/apr/02/fashion-brands-cancellations-of-24bn-orders-catastrophic-for-bangladesh).  It didn't matter if the manufacturer had worked with a Brand for 1 year or Many years. The decision has been same in most cases by most brands to simply cancel the orders, irrespective of what relationship they have shared over the years with the manufacturer. This decision in literal terms has been cold and swift. 

The biggest catastrophe of the last decade in the Textile Sector has been the 2013 Rana Plaza Garment factory collapse in Dhaka-Bangladesh. More than 1100 people died that day due to a fire which broke-out in the factory and the building collapsed. It was a tragedy of great volume. One of the most renowned brands were being produced at that facility and all of them came forward in aid of the affected and their families. The owner of the facility was send to prison over charges of murder, heavy loss of life and corruption. Manufacturers have evolved since then primarily due to the  impressive mega campaign run by the brands and other social organisations to improve the working facility standards. Countless seminars, meetings, audits have been conducted to assure that such an incident is not repeated. we hope and pray for the same.  The Rana plaza incident affected 1100 families. Mass unemployment is going to affect million of lives and families. Why are the social organisations/ ethical trading bodies/ brands all quiet about this. I have also written about the suppliers role as well and the possible negative out backs expected. you may read the article : "COVID-19, Pandemic & Textile Industry of Pakistan" (https://think--re-think.blogspot.com/2020/03/covid-19-pandemic-textile-industry-of.html ).   The question remains in balance, waited to be answered. The World is Watching.

One thing will come out of this. In time the clothing and textile industry will revive and brands will reopen. Clothing & Textiles is a very close second to the essentials.  But this time around the tables will turn. Suppliers that survive will choose only to work with brands & stores that have stood up with them and their commitments in this desperate time of need. In time it seems the paradigm will shift. The business structures will evolve and new strategic partnerships will be made with brands not just based on order quantities but on commitments honoured. Brands that left the supply chain high & dry in this time would need to put in extra efforts to win back the confidence of suppliers. 

The world on a whole will change. The damage too soon to forecast, but yes its going to be massive. The economies will change, the working models will change, life styles will change. Lets hope and pray that this pandemic comes to an end and the world as whole is able to counter-off this Covid-19 threat & its after math. 

Stay Safe, Stay Inside

Muhammad 

5th April, 2020

COVID-19, Pandemic & Textile Industry of Pakistan

On 26th February, 2020, Pakistan confirmed its first 2 cases of corona virus. 4 Weeks since the 1st case broke out in Pakistan,  the whole country is now on a lock down. These last 4 weeks have been full of  anticipation & fear. Not just because of the corona virus but also due to the global world shutting down. The indecisive future has taken a toll on all working individuals: Entrepreneurs,  white collar working staff & blue collar working staff. 

Entrepreneurs mostly from the manufacturing and export organisations have seen customers closedown region wise over the last couple of weeks. Italy was the first to shut down as the number of COVID-19 cases were increasing by the day. Followed up by Spain that announced lock down soon after Italy. People from the textile garment industry would highlight these 2 cities as the fashion premiers of garments as most of the Europe follows the trends set in these markets by brands/designers  etc. The inevitable was soon to come. UK , USA and the other mass markets soon closed down. 

Practically everyone working in this industry has been fearful for loosing their jobs. More so for people who are working in sales and marketing who have seen the projections, future orders and other viable committments being put on hold. Sales and Marketing departments accurately forecast the downsizing for any company as they are in direct communication with the buyer and well aware of the global present situations and lockdowns. The management & other financial service departments have been working over time to access the cost benefit analysis of the present situation, more so working out the redundant costs soon to be eliminated in the foreseeable future. These redundant costs primarily include downsizing. In the first hit the skilled & unskilled blue colour workforce will be targeted as the capacities of all present manufacturing companies out weighs against the current requirements /orders of the customer. In-turn we will be seeing a massive down sizing of companies soon after the lock down is over (i.e 6th April, 2020). The beautiful prevailing human resource practices will indicate that workers will be send home with nothing but the earned salary of the previous month. As the word contemplation on the categorisation of workforce in the outdated laws of factories and workplaces, most of the skilled workers/ helpers/ junior assistants/ coordinators/ un skilled staff will be be set free and in most cases without notice pay, long term benefits or any other incentivised schemes. 

One might wander why would the junior most staff be let go in the first hit. 

The answer is Simple: "These workers are at the bottom of the food chain"  

So its convenient to let them go . Mind you these are the same people who are the back bone of the actual production of goods. These are the same people who work day and night to achieve the targets set by the planning department of the companies. The same people who put their heart and soul into their work to meet the deadline and the targets. These people are the bread winners of their house and usually on an average they have a family of 5 or more to support 

The word disposable actually fits in the real categorisation of these employees. As in any unforeseen event, these workers will be the first to be laid off. Usually such workers would also find instant work in other companies in the normal events because of their skill set. They will be hired again on similar work contracts, by other companies who have longer orders projections. But this time around, these disposable workers will not find instant work. As the entire industry is facing a shut out due to global lock down of buyers. This will not just be for a couple of weeks but will remain so for at-least the next 2 to 3 months at the very least. Because all brands/stores and companies are globally off. And even so that we all truly and dearly pray that things get better, buying textile products (garments and other amenities) would be the last concern for any consumers in the coming months. 

Q1: So what would happen when there will be abundant skilled resource with no jobs?

Mass unemployment increases poverty.  It also aids to stress, mental health, amongst other issues in the unemployed individuals.  In a country like Pakistan, where there are no unemployment funds, there is no cost of unemployment.  One of the most feared things in mass unemployment is suicide.  I will not touch here other elements such as increase in crime activity, social distancing, effects on health. My major focus here is (God Forbid) suicide and its correlation to mass unemployment. 

The suicide rate in Pakistan is approximately 1.4 deaths per 100,000 inhabitants. Pakistan's death rate, as given by the World Bank, is 7.28 per 1000 people. A study suggests: Unemployment causes 45,000 suicides a year worldwide. Researchers say unemployment linked to more suicides than recession and that risk among jobless is stronger where more people are in work. So where does one go with mass un employment, poverty driven economy and high number of social dependents on the earning individuals. There hasn't been many studies conducted on the suicide rates in Pakistan. Many go un-reported, due to pressures of social, cultural and religious norms. But behind the veil of normality, Suicide & mental illness triggered by poverty pressures exists in abundance. 

Q2: My 2nd question here is when companies do layoff junior White collar & Blue collar workers, why does this have to be instant? 

Why aren't their any notice periods/ notice payments/ gratuity or long term benefits payments? 

I am a part of this social group which discusses and focuses on the industry related issues. The topic of discussion over the last month has been retrenchment. It is surprising to say that most companies talked about down sizing. However none of the companies publicly addressed any compensation or benefits programme being offered to the people being down sized. I guess this is a confidential topic and most companies and their respective officials would choose not to share their strategies in public.  Even if retrenchment is the only strategy available to all the corporations, there are still better ways to execute them. Give everyone a fair chance and let them be compensated financially as per the law in the truest spirit. But rest assured, in most companies the history will repeat its self and primitive layoff standards would come into play. These actions will be represented as deemed necessary, whereas in reality they are nothing more than a sugar coating on a sharp knife.  

 This article is more than 5 years ol

The second part of the question is, why wont these laid off people served with notice periods/ be paid notice pays or any other long term benefit. Its mostly seen as convenient. I am not saying that all companies will do this. But after reviewing historical data, historical employment practices, most of the companies will do this. The Trump card at play here is that globally the markets and the customers are off and their is no work at present. So it is deemed necessary for the companies to let go of all such employees. Business ethics will have no role to play here as numbers will speak for its self. All calculations here will denote to reduce the fixed costs. The most appropriate fixed cost to reduce is the salaries. So therefore all rationale will indicate, supported by the numbers/calculations to immediate go for massive reduction of employee force. I have said it in many forums and seminars that corporations are far powerful than the individuals. In a third word country like Pakistan, corporations are much more stronger than individuals can ever be. Any resistance to any retrenchment strategy is futile. As seen in most cases of the past, this time would be similar as well. 

The social cultural norms of our society tend to follow the examples set by the west in most of our lives. I have been following the media and internet on how companies are globally reacting to the threat of Corona Virus. Most Companies have not announced lay offs as yet. But-their  Governments have come forward with unemployment relief funds and so does Pakistan government as well. But my question is to the entrepreneurs of the Pakistan is that Governments will play their role in relief, how will companies act in this time? If we follow the west so well, why cant we follow them in their HR practices as well. This is not just the time to add or subtract numbers but to reflect and come forward in owning your people and owning your human resource. 


Downsizing is inevitable, Agreed!!  Why cant there be a better way to do it? why cant people be compensated in the truest spirit of the law. We don't need riddlers in form of HR practitioners who twist and turn the law in the favour of the corporations. we need people with better understanding of human experience. We need people who understand, incorporate and act in the truest spirit of Human resource and corporate social responsibility. Its time to show the best standard. Have the spirit of giving. Have the spirit of looking after one another.  We need to sustain this period as whole, as a group and not just for individuals. There is no other way to sustain it. 


Even China a country which remained closed & lockdown for almost 2 months  has not announced any layoffs or retrenchment strategies. Governments, multinational corporations, airlines, everyone has announced emergency relief funds and programmes for their work forces and people. People have been working from home and they are being paid in full. Most textiles factories in Pakistan have not even paid the accrued salary of March, 2020 even though the banks are fully operational and people are at homes in the lock down. Government and other respective bodies are urging people to stay at home. Stock up on food and other amenities for the next two weeks. How does one expect any worker to buy food when they have not been paid their Salary of March, 2020.  The lock down started in the last week of March, 2020 and will remain in force till 6th April, 2020. Most of the workers don't even know if they will be paid for the days off in lockdown or not. Historic practices do indicate that such leaves will be treated as leave without pay. Lets see time will unfold every thing in the next couple of weeks.  

As some on who has been associated with Textile (Garment Manufacturing) industry of Pakistan for the last 10 years. I feel this phase is different amongst all the other slumps that we have seen in the past. This is not a usual breakdown of activities. The impact of COVID-19 will last for months to come. I hope and pray that the world is able to counter this threat to the earliest.  However the impact and aftermath is gonna stay with us for many months to come. I have been contacted by a number of junior associates, workers and other relevant people from the industry. Everyone reaching out in context to discuss what the future might hold. I try to give them hope & reassurance in this dire time. However I myself don't exactly know how things will be once the lock down is over.  For the time being its just a wait, A wait for the Sting!!!

I will say this globally every economy is going to suffer. However the deep impact on third world countries where majority of the population revolves around the poverty line will be impacted more.  Corona may destroy human lives but the downfall in economies will impact everyone. We are headed towards another great depression and in the foreseeable future for the next 5 to 6 months the impact will be massive. The worst is yet to come!!!!!!!!

Last but not least,

My heart goes out to everyone affected through this terrible virus. May God Almighty give them good health and speedy recovery, Amen.

For those who departed from this world due to Corona Virus. I pray that you all are blessed with heaven and eternal peace. Because you all fought a very brave war.

I personally want to thank all the paramedics, doctors, nurses, medical staff, police, army and who  so ever is out there trying to save people. You people are not just national heroes but global heroes. May God Bless you always.

For Everyone Stay Safe People, Stay inside.

God Bless.  

Muhammad 
31st March, 2020