20 Aug, 2014

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 Can the domestic market sustain the mushrooming garment factories?
 
Can the domestic market sustain the mushrooming garment factories?

Kathmandu: While factories focusing on export of garments are struggling for survival, small and medium scale garment factories targeting the domestic market continue to mushroom. However, absence of an industry friendly environment and lack of level playing field with unhealthy competition threatens to leave the garment industry threadbare.

Brand bogus

The garment factories targeting domestic markets are not only by far and large unorganised, some of them are not even registered with the concerned government body. Stake-holders give varying numbers in terms of their existence. There could be some 400 such factories, estimates Devendra Bhattarai, proprietor of Om Apparel Pvt Ltd, a medium-scale factory catering to the domestic market for the past eight years.

Such factories rarely stand on their own brand image, with most of them producing and supplying products with foreign brands

and labels reading ‘Made in Thailand’, ‘Made in Malaysia’, et cetera. “People think that foreign brands are naturally superior and good. Therefore, small dome-stic manufacturers go after foreign names,” explains Mankaji Shrestha, proprietor of Bhawani Trade and

Exporters. “Wholesalers order garments under a particular label and brand name and we design and print them accordingly,” informs Bhattarai.

Though Shrestha’s enterprise is export-based, he has adequate experience dealing with the domestic market. “I supplied 800 pieces of garments to my retailer friend eight months ago, but he hasn’t been able to pay me yet because the products haven’t been sold,” says Shrestha.

Problems piling up

Tough competition with imported garments, shortage of raw materials, credit based market system and dishonest wholesalers are the major hurdles facing this industry, according to stakeholders.

In most cases, even if retailers are able to sell the products, they reportedly intentionally delay payment. “Not only do they not give us any advance payment when placing orders, they don’t even pay us after delivery saying the products have not been sold, while all of it would have been sold out,” complains Bipin Darji of Advanced Manufacture in Khusibu area. Because of the delayed payment and problems with cash flow, factories constantly face problems in retaining workers. Not only that, they are also unable to scale up or upgrade themselves due to lack of loan facilities. “Financial institutions do not trust us enough to provide loans,” laments Darji.

However, all the aforementioned challenges are nothing compared to the biggest threat, which is having to compete with cheaper readymade garments mostly from China, according to the factory owners. “Thanks to high cost of production, a pair of jeans produced locally comes at Rs 600 per piece, whereas a similar item smuggled from the border across Tibet is floated in the market for just Rs 400,” says Shrestha.

Besides curbing illegal imports of readymade garments, stakeholders demand the government create a level playing field so that domestic producers can compete. They reason that promoting the domestic garment industry would result in employment generation with the establishment of many factories producing accessories such as buttons, zippers, packaging materials, et cetra.

Growth genesis

The annual export of garments from 1998 to 2001 stood at around Rs 10 billion, fondly reminisces Ashok Kumar Agrawal, general secretary at Garment Association Nepal (GAN). However, with a multitude of problems like power shortage, labour issues and political instability engulfing the industrial sector of the country, garment export was brought to its knees. “Garment industry now exports garment worth just Rs five billion,” informs GAN President, Udaya Raj Pandey.

“Since Nepal’s political situation is unpredictable, timely delivery is one of the major challenges. Hence, neither the clients nor the industrialists in Nepal have confidence in dealing with big orders,” says Pandey,

explaining that multinational brands have long since stopped placing big orders in Nepal. Besides the lack of enabling environment at home, the economic slowdown in Europe is also a contributing factor for reduced export, according to Pandey.

Such an adverse situation forced the closure of many big export oriented factories. While some skilled workers left for foreign employment, others ventured into setting up their own small factories targeting the dome-stic market. Moreover, some industrialists also diverted their business focus to the domestic market with a new hope. Equally true is also the fact that some industrialists failing to succeed in the international sphere turned to the local market simply to utilise their stock of fabrics, raw materials and machines.

Darji says that he had no option left than to start his own factory after a big garment export factory that he used to work for closed down. “I spent the prime of my life in this trade and I have no other skills. Therefore, I ventured out with my own enterprise,” he says.

Though mostly unheard of, a few such garment factories have been catering to domestic market for almost a decade and many more have cropped up in the recent years. Employing between 12 to 40 people, such industries are either small or medium scale and produce 100 to 250 pieces of garments a day. These industries mostly produce jeans, cotton pants, tee-shirts, shirts as well as jackets.

Varied views

Garment factories targeting the domestic market invite opposing views. People like Shrestha believe that it is foolishness to invest in such ventures whose future is unpredictable. “Many such ventures have closed already as they could not sustain. Those blindly jumping into this sector will surely meet the same fate,” predicts Shrestha. Darji also admits that some such establishments have collapsed as they could not stand the adverse market situation.

However, there are people who see a future in the novel arena. “Though unorganised, the attempts made to venture out in this territory by targeting domestic market is appreciable,” says Pandey. He asserts that products of such factories are available on the footpath stalls as well as numerous shopping malls. Assessing that such factories hold 20 per cent of the total market share, he says, “In the past, Nepal never manufactured any jeans pants, but today most of the jeans that youth sport are actually manufactured

in Nepal.”

The Ministry is positive about garment industries targeting domestic market, says Dhruba Lal Rajbanshi, director general at the Department of Industry. “The Ministry believes the custom duty on import of readymade products should be hiked by at least 15 per cent to the duty levied on import of raw materials. And we are doing homework to this effect,” he says. However, the fruition of such homework is not guaranteed, given the lack of coordination between the Ministry of Industry, Commerce and Supplies and the Ministry of Finance. Besides, industrialists and merchants involved in import of finished products also attempt to influence the government and that is yet another story.

With the shrink in international market thanks to stiff competition from China, Shiva Prasad Bhatta, managing director of Shiva Shakti Export, thinks that he might switch to domestic market in the future. But unless the situation improves, neither the local nor the export

targeted factories may be able to provide a safe blanket for the troubled garment industry.

 

 
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