The high turnover of workers is the Laos garment industrys major worry

The high turnover of workers is the Laos garment industry's major worry

Laos has set its sights on more than doubling its clothing exports by 2015. But while order books are full and overseas demand on the rise, problems finding and retaining workers could prove to be major stumbling block. Jozef De Coster reports.

At first glance Laos might not appeal to international apparel buyers. The small, landlocked nation in South East Asia lacks local textile materials, its workers are poorly educated, and its industry is small-scale compared with its neighbours.

But the country's low labour cost and preferential market access - especially its duty-free access to EU under the Generalized System of Preferences (GSP) - increasingly do.

Many of the 100 or so garment exporting companies in Laos say they could expand considerably if they only could recruit and retain enough workers.

Indeed, the chronic shortage of labour is the main hurdle in the country's goal of more than doubling its garment exports from US$183m in 2012 to US$500m by 2015.

And it is the reason why the Association of the Lao Garment Industry (ALGI) and its training arm, the Garment Skills Development Centre (GSC), at the end of last year detailed a major publicity campaign to attract more employees, aiming to double its workforce to 60,000 by 2015.

Balancing customer requirements and worker dissatisfaction is just one of the challenges facing exporters, many of whom say their order books are full but they are unable to take on new business.

Chamlong Janetanakit is a director of Hi-Tech Laos Apparel, which has 700 workers and is a subsidiary of the Thai apparel group Hi-Tech, with 5,000 workers. "We neither lack orders nor capital to expand. Our only constraint is the workforce," he told just-style.

Hi-Tech Laos Apparel mainly makes T-shirts, boxers and other knitted articles for German retailer Tchibo, but has been in discussion with brands like Hugo Boss and Armani and retailers like Marks & Spencer and Hennes & Mauritz.

The scale of the labour problem was shown in a study by The World Bank last July, which found large and medium sized Lao garment firms lose around 3.5% of their workforce every month (40-60% per year), while small firms lose over 6% each month.

By international standards wages are low, but in January 2012,the legal minimum wage in Laos jumped from LAK348,000 (US$43.50) to LAK626,000 (US$77) per month. ALGI notes this compares favourably with minimum wages in Vietnam (US$75), Cambodia (US$68), Bangladesh (US$61) and Myanmar (US$50). 

Factories also pay additional bonuses and overtime, meaning a garment worker can make US$100-250 per month including food and accommodation. Yet the firms continue to struggle to find workers and improve staff retention rates. 

Industry expansion key
The Lao garment industry currently employs between 20,000 and 30,000 workers and ALGI's president, One-Sy Boutsivongsakd, believes there are several reasons why it should expand. These include helping to alleviate poverty, as the largest sector of manufacturing employment in the tiny country of just 6.5m inhabitants, and a key source of low-skilled jobs for young female workers. 

One-Sy points out that garment workers start out earning US$100 per month, with this rising to US$120 after a couple of years. Line supervisors make US$150-200 per month, he says.

As president of ALGI since 1995 and rotating president of the ASEAN Federation of Textile Industries (AFTEX), One-Sy is closely watching developments that could affect the garment industry's interests.

Among his concerns are changes the Canadian government is making to its General Preferential Tariff (GPT) regime, which provides duty-free treatment to a range of imports from developing countries.

While Laos as a Least Developed Country (LDC) will remain a GPT beneficiary from July 2014, it could lose duty-free treatment on materials sourced from countries such as China, Hong Kong and Indonesia, which are set to lose their GPT eligibility.

One-Sy also has mixed feelings about the Lao government's ambition to upgrade the country from LDC to Medium Developed Country status by 2020. "Then, we will lose our GSP-status for exporting duty-free to the EU," he remarks. The EU is by far the main destination for Lao garment exports, taking 84% of the total in 2012. 

And he is recommending the government puts restrictions on illegal emigration of Lao workers who leave for countries like Thailand, since this emigration contributes to the shortage of labour faced by garment manufacturers.

Reducing worker dissatisfaction
Garment company owners in Laos understand very well that high labour turnover - driven by worker dissatisfaction with harsh supervision, poor working conditions and accommodation, and excessive overtime -not only hurts factory productivity and profitability, but also weighs on the industry's medium and long-term competitiveness and survival.

Dr Ramon Bruesseler, director of the European Chamber of Commerce and Industry (ECCIL) in the capital Vientiane, points out that the government believes it can help by pursuing a policy of "geographic diversification" - taking the factories to the workers, instead of bringing them to the factories, most of which are in Vientiane. 

Other efforts to increase worker satisfaction and motivation have met with varying degrees of success.

Trio Lao Export, an Austrian company specialising in workwear, has grown into the largest garment company in Laos, employing 2,274 workers. It has a remarkably low worker rotation rate, thanks to its investments in creating a worker-friendly environment, including a kindergarten and schools for workers' children. 

Hi-Tech Laos Apparel equipped work spaces with air-conditioning and provides five sets of work clothes to the workers each year, although only few of them wear them. 

And the Italian company Alpilao, which has 1,700 workers, focuses on quality (ISO-9001) and social compliance (WRAP, BSCI) and its partnering with premium buyers like Benetton, El Corte Ingles, Pierre Cardin and Geox.

But perhaps the best example of increasing motivation among workers, opening new windows for them to carry out more challenging work, recognition and responsibility, is to be seen at the Garment Skills Development Centre (GSC), driven by the German expert Wilma Driessler and the Laotian director Borivon Phafong.

Not only are sewing operators trained at GSC - they pay US$50 out of their own pockets for 18 days of skills development on their free Saturdays or Sundays - but also quality controllers, supervisors and managers. GSC also offers ToT training (Training of Trainers) to support upcoming recruitment projects. 

Founded in 2010, the GSC is funded by TDF Trade Development Facility Fund, Financed by AusAid, EU and administered by the World Bank.

And because it is connected to ACCP (the ASEAN Common Competency Program) established by AFTEX (ASEAN Federation of Textile Industries), once apparel workers have completed the ACCP Certification Test they receive a certificate recognised in all of the ten ASEAN countries.