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/35564 &'6>*Economic Development Institute ,M,! of The World Bank Public Disclosure Authorized v~4 A g h ~ 3 *s- E'~';'! EDI~~ISN E Public Disclosure Authorized Editedib~`y' SahaD. van u .17,7t K.>-. Public Disclosure Authorized IL o 4: *1~~~~~~~~~~~~~l Public Disclosure Authorized EDI SEMINAR SERIES EDI SEMINARSERIES Managing Restructuring in the Textile and Garment Subsector Examplesfrom Asia Edited by Saha Dhevan Meyanathan The World Bank Washington, D. C. o 1994 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing July 1994 The Economic Dev~elopmentInstitute (EDI) was established by the World Bank in 1955 to train officials concerned with development planning, policymaking, investment analysis, and project implementation in member developing countries. At present the substance of the EDI's work emphasizes macroeconomic and sectoral economic policy analysis. Through a variety of courses, seminars, and workshops, most of which are given overseas in cooperation with local institutions, the EDI seeks to sharpen analytical skills used in policy analysis and to broaden understanding of the experience of individual countries with economic development. Although the EDI 's publications are designed to support its training activities, many are of interest to a much broader audience. EDI materials, including any findings, interpretations, and conclusions, are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. Because of the informality of this series and to make the publication available with the least possible delay, the manuscript has not been edited as fully as would be the case with a more formal document, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to photocopy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latestedition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, Banque mondiale, 66, avenue d'1ena, 75116 Paris, France. Saha Dhevan Meyanathan is senior industrial economist in the Finance and Private Sector Development Division of the World Bank's Economic Development Institute. Library of Congress Cataloging-in-Publication Data Managing restructuring in the textile and garment subsector: examples from Asia / [edited by] Saha Dhevan Meyanathan. p. cm.-(EDI seminar series, ISSN 1013-2015) Includes bibliographical references. ISBN 0-8213-2768-2 1. Textile industry-Asia-Case studies. 2. Clothing trade-Asia- Case studies. 3. Corporate reorganizations-Asia-Case studies. I. Meyanathan, Saha Dhevan, 1948- . 11.Series. HD9866.A2M36 1994 338.4'7677'0095-dc2O 93-50881 CIP CONTENTS Foreword ........................................ v 1. Managing Restructuring in the Textile and Garment Subsector: An Overview Saha Dhevan Meyanathan and Jaseem Ahmed.................................... l1 2. Changing Trends in Global Textile Technology and Trade Roy Pepper and Har Bhattacharya.......................... 31 3. Some Considerations on the Multi-Fibre Arrangement: Past, Present, and Future Marcelo Raffaeli ........... 59 4. Textiles And Clothing In Global Economic Development: East Asia's Dynamic Role Kym Anderson .......... 83 5. India's Textile Industry: A Case Study of Subsectoral Restructuring Prafull Anubhai and V. L. Mote....................... 109 6. The Indonesian Textiles and Garments Industries: Structure, Developments, and Strategies Hal Hill .... 139 7. Restructuring of the Textile and Garment Industry in Korea li-Hong Kim........ 175 Bibliography ........... 197 iii FOREWORD The industrial sector program of EDI's Finance and Private Sector Development Division focuses on the process of industrial change (adjustment, restructuring) and its role in economic development. The training curriculum is presented within a framework that allows discussion of the role of the state in facilitating this change, and organizes the subject matter into modules which can then be grouped according to the needs of the participants. The modules review the effect on industrial performance of financial, fiscal, trade, regulatory, and specific industrial policies; how changes in the global economy can affect sector or subsector performance and how a country may in turn adapt its policies; the required institutional framework and infrastructure, including supporting infrastructure such as entrepreneurship, management capabilities, and technology; and the social dimensions of industrial change. Specialized training activities draw from the framework and include the role of the financial sector in facilitating industrial change, subsector and enterprise restructuring, public enterprise reform, privatization, industrial pollution abatement, and the effect of market structure on competition and on small enterprise development. The framework as applied to the textiles and garments subsector is presented in appendix 1.1 of this book. The program is articulated around cycles of regional and worldwide roundtables and seminars. Policymakers, mid-level civil servants, CEOs, and trainers are brought together to discuss agendas of specific issues and problems, often identified beforehand by the participants themselves. The papers in this book have been used in a number of seminars conducted by the EDI in collaboration with the Asian Development Bank. Chapter 3 originally appeared in Textiles Trade and the Developing Countries:Eliminating the Multi-Fibre Arrangementin the l990s (World Bank 1990).The Division would like to acknowledge the contribution of Roger C. Munter in editorial assistance and James E. Quigley and J. Brian O'Rourke in production assistance in the publication of this book. The views expressed herein are entirely those of the authors and do not necessarily reflect the views of EDI and the World Bank. Amnon Golan Director Economic Development Institute v MANAGING RESTRUCTURING IN THE TEXTILE AND GARMENT SUBSECTOR: AN OVERVIEW Saha Dhevan Meyanathan and Jaseem Ahmed 1. Introduction The textiles industry (encompassing textiles and garments in this book) has been a subject of interest, change, debate, and government action. It is an industry often encouraged by governments and one with substantial contribution to manufacturing output, employment, and foreign exchange earnings in several developing countries. In most developing countries, it grew sequentially in a backward manner starting with clothing, then into the textiles industry, and finally into man-made fibers. Promotion of the industry in many developing countries has been through a number of measures starting with infant industry protection (through tariffs on textiles, yarns, and fabrics), sectoral aid measures (modernization assistance, subsidies for the purchase of inputs, tax- based incentives, and provision of software infrastructural support), and export promotion measures. Until recently, the structure of the industry was characterized by large numbers of small- and medium-size firms. Industrial concentration was generally lower than other industries; but over the last few decades the trend toward oligopolistic market structures has become evident, particularly in the upstream segment of man-made fibers (which benefit from research and development activities, and firsthand knowledge of fashion trends and changing fiber preferences). In the downstream segment, this advantage dissipates rapidly due to greater number of firms, less favorable scale economies, less efficient production, and greater labor intensity (although technical change is becoming rapid in the cutting and pressing stages). This segment also faces growing internationalization of production, the restrictive effects of the Multi-Fibre Arrangement (MFA), and formidable international competition. 1 2 Managing Restructuring in the Textile and Garment Subsector:Examples from Asia In addition, new technologies (that integrate spinning and weaving activities and others that increase production flexibility) and changing product composition (which is differentiated at the lower volume-specialty type fabrics and yams) have intensified competition. Competitive advantage is now being driven by factors such as market access, connections with manufacturers of textile machinery and inputs, and flexibility in production, rather than low wage costs. In brief, rapid technological changes, competition from new suppliers, protection of the sector, and the structural characteristics of the industry