INTERNATIONAL COMPARISON OF THE HOURLY LABOR COST IN THE PRIMARY TEXTILE INDUSTRY WINTER 2011 The average labor costs shown in this report might not always check with the official statistics of the respective countries for the textile industry. They are based on data collected and made available to Werner International and are a realistic representation of the actual labor costs. This service Werner International provides to its clients since 1968 and is based on data supplied by a panel of Werner clients in each of the participating countries. Copyright 2012
GENERAL OBSERVATIONS Initiated in 1968, we are pleased to release the new Werner International 2011 Labor Cost Comparison in the primary textile industry, which is the only study comparing the hourly labor cost in over 40 countries worldwide. We believe that this study provides a fair representation of the situation for the vast majority of textile producers in the world. Our comparison covers all primary textile industry sectors, consisting of spinning, weaving and dyeing & finishing and has been built by combining the information confidentially collected from a large and diversified cluster of industrial players in each country. Cut & Sewing operations are traditionally excluded from this comparison. Labor cost in the clothing industry is in fact much more difficult to compare due to the industry fragmentation and the limited industrial scale of most operations. With the necessary limitations, it is however, often adopted as the best proxy available also for the confection industry. As we did for previous editions, we would like to stress that the hourly labor cost is but one of the many factors impacting the competitiveness of the textile industry. Nevertheless, it is the single most relevant driver in the continuous process of global relocation of productions which has characterized our industry in the last 30 years. In an open global system less and less restricted (but heavily impacted) by external factors such as exchange rates, important production flows will continue to geographically reallocate in search of even temporary competitiveness. The previous labour cost comparison of 2008 took place during the global economic and financial crisis of 2008/9, with the global economy being struck by financial instability and questions of bank regulation and financial sector oversight. Now in 2011/2012, the public debt crisis has taken centrestage, with discussion focusing on cutting public deficits, including the raising of taxes. After the financial crisis, markets now question public finance sustainability even in countries such as France. Within Europe, stabilising and even reducing labour costs is part of the overall economic mechanism to reduce the impact of the debt crisis. In North Africa and the Middle East, the Arab Spring is having a severe impact on the economic performance and industrial fabric of countries. In addition, the impact of exchange rates between the various countries is, as usual, playing an important role in comparing labour cost data between countries. And although the exchange rate between the US$ and the has been fluctuating heavily over the last years, the exchange rate difference for most European countries is below 4% between 2008 and 2011. However for countries like Australia, Turkey, and a range of Asian and South American countries, the impact of the exchange rate difference can be as high as 45%. We all realise that a new business era is in front of us. An era for which textile and clothing companies must prepare themselves with a strategic effort in order to adapt, improve and redesign their business models to fight the global impact of the financial and debt-crisis, with the aim of sustaining growth and enhancing profitability. Constantine Raptis President Werner International, Inc. 2012 1
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HIGHLIGHTS Switzerland is still in first place with the highest hourly labor cost in the textile industry, a position it has held since 1987. The appreciation of the Swiss franc versus the US$ has further increased the gap. Australia has moved to the second place, almost entirely due to the appreciation of the Australian dollar over that same period (+45%). In local currency, the labor cost increased just over 9% for the same period. Amongst the top ten, European Union countries take six positions, with Portugal and the East European member states ranging from 58% to 27% of US labor cost and Bulgaria having almost equal labor costs China, Thailand and Malaysia. Japan, still in first place in 2000, and 2 nd place in 2008, is now in 5 th place. The USA itself is occupying the 12th place, same position as in 2000. Several of the positions have changed; most of this is due to changes in the exchange rate to the United States Dollar. For example, Taiwan and South-Korea labor costs have increased substantially in US$ and are at about the same level Portugal. There is not much movement in the lower part of the ranking: the lowest labor costs are noted in Asia, with Vietnam, Pakistan, India, and Indonesia. Within Eastern Europe, overall labor cost has been catching up fast, with countries like Poland, the Czech Republic and the Baltic states reaching hourly rates of between 5 and 8 US Dollars. Textile workers in Albania and Bulgaria on the other hand only cost about 2 US$ per hour. Latin American countries remain very competitive with labor costs between 2 and 4 US$, the same level as Turkey, Poland. Only Argentina s labor cost increased to over US$ 5.3. The wage gap between developed and developing countries is increasing and the range from the lowest hourly cost to the highest hourly cost is showing an ever increasing expansion : in 1989 2% to 150% in 1998 2% to 186% in 2004 2% to 224% in 2008 3% to 234% in 2011 3% to 273%. It should also be noted that in some countries there is a substantial difference in hourly labor cost from company to company, from region to region, from spinning to finishing, from large to smaller company, etc. As in the past, the variation in exchange rate of U.S.dollar is having a bigger impact in many cases than the actual increases in local currency. To illustrate this, the following graph is providing the appreciation/depreciation of national currencies vis-à-vis the US$. Werner International, Inc. 2012 3
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As in previous years, we would like to stress that the hourly labor cost is but one of the many factors which impact the competitiveness of the textile industry. A factor for labor productivity has to be introduced in each case to arrive at a more meaningful unit labor cost. But even then, it can only give a limited view of the total competitiveness of the primary textile industry since total competitiveness depends on other cost and non cost factors, such as raw material, energy, interest cost, inventory turnover, throughput time, quality, styling, etc. For more information and questions, please contact us at : 12801 Worldgate Drive Suite #500 Herndon, VA 20170, USA Phone + 1 703 871 3938 Fax + 1 703 871 3901 www.wernerinternational.com info@wernertex.com Werner International, Inc. 2012 5