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<p>Malaysian Textile &amp; Apparel IndustryINTRODUCTION Do you know that Alain Delon, Gucci, Adidas, Nike, Reebok, Brooks Brothers, Kohls, Polo, Ralph Lauren, Calvin Klein, Yves St Laurent, and many more world reknown up-market brands are made by the contract manufacturers in Malaysia? On the other hand, some local brands like British India and John Masters have penetrated into global markets with their superior quality and designs, whilst other home-grown brands such as Somerset Bay, East India Company, Seed, Anakku, and lot of others are striving to expand the domestic middle-class market share as a warm up to venture overseas. Textile and apparel are basic consumption items, in both developed and developing countries. The industry, especially clothing / apparel, is labourintensive and requires relatively modest capital to start up and operate. Therefore, developing economies such as China, India, Vietnam, Cambodia, and others, that have pool of low wage rates labours, appeal to the companies seeking off-shore production with cost advantage than the developed countries.</p> <p>May, 2007 Volume 9, Issue 5</p> <p>In This IssueMalaysian Textile &amp; Apparel Industry New Industries in Southeast Asias Late Industrialization: Evolution versus Creation , The Automation Industry in Penang (Malaysia) Considered International Headlines</p> <p>1</p> <p>11</p> <p>The textile and apparel was once the top three export earners of manufactured goods for Malaysia, and Penang is one of the prominent location for textile and garment makers in the country. Today, Penang / Malaysia, however, is no longer the low wages labour intensive production centre, with the emergence of China and Indochina. Do we still remain competitive in this industry? Is textile and apparel a sunset industry in Malaysia? This article presents briefly Penang / Malaysias development of the textile and apparel industry, highlights the opportunities and challenges faced by the industry players in Penang / Malaysia, as well as to gauge the prospect and direction of the industry in the context of a changing global textile and apparel market. OVERVIEW OF THE WORLD TEXTILE AND APPAREL MARKET</p> <p>28</p> <p>For the period of 2000 2004, the global textile and apparel market recorded a 2.9 per cent of compound annual growth rate (CAGR) to reach USD 2.3 trillion (or RM9 trillion), with textiles, and apparel and accessories, accounted for about 43.4 per cent and 44.1 per cent respectively (in 2004). Asia pacific region captured more than 50 per cent of the world market, followed by Europe (21 per cent) and the United States (about 16 per cent)1. In 2005, a total of USD 70.8 billion worth of apparel and clothing were imported by United States, of which 23.7 per cent were from China2. The imposition of quotas against China has reduced the imports. Nonetheless, imports of cotton bed linen from India, Pakistan and Brazil rose. The demand of apparel and clothing in the United States continues to grow - upbeat sales were recorded in 2006 in the clothing, superstores, warehouse clubs and accessories stores3.</p> <p>1</p> <p>The Third Industrial Master Plan (IMP3), 2006 2020 Trade, August September 2006, A MATRADE Publication for Malaysian Exporters, Malaysia External Trade Development Corporation (MATRADE) 3 World Textile and Apparel Trade and Production Trends, Textiles Intelligence; December 20062</p> <p>1</p> <p>The surge of import from China due to the global quota phase out on textile and apparel trade in January 1, 2005, had caused a misfortune for European Union (EU) manufacturers. Nevertheless, when quotas were re-imposed again in mid-2005, the situation started to improve in early 2006. The import of made-in-China clothing and apparels to EU has slowed. Local production in EU stopped falling and orders picked up due to some success in the East European markets. The EU manufacturers have to relocate their lower value textile and clothing production to low cost developing countries, and to venture into higher value interior decoration textiles and technical textiles. Chinas exports of textile and apparel increased significantly during the past ten years in transition to a complete phase out of the quotas4. According to World Trade Organisation (WTO), the export share of China-made textile and apparel intensified from 13 per cent of world trade value in 1994 to 20 per cent in 2003. When the global quotas on trade in textile and apparel lifted in January 2005, the import data of United States and EU in first quarter of 2005 registered sharp increases in the volume and steep declines in unit prices for the China made textile and apparel products. The quotas were re-imposed by United States and EU in mid-2005 to restrict imports from China. Nonetheless, the exports of China continued to grow steadily in 2006 as the Chinese textile and apparel exporters managed to source for new / alternative markets such as Turkey, Mexico and South Korea. India is one of the prominent suppliers in the world textile and apparel market. Its export of textile and apparel has grown substantially since the elimination of quotas. The export of textile and apparel to United States, for instance, have increased more than 25 per cent, from USD 588 million (February 2004) to USD 737 million (February 2005)5. The modernization effort and provision of textile and apparel parks by the Indian government have enhanced the competitiveness of the industry. Low production cost and the availability of a large pool of low wage labour gave Vietnam the cost advantage to develop its textile and apparel industry. For the first four months of 2007, the country registered a year-on-year rise of 31.7 per cent of textiles and garments export worth nearly USD 2.2 billion. Vietnam aims to ship USD 7 billion worth of textile and apparel in 2007, compared to USD 5.8 billion last year6. The conventional markets for Vietnamese clothing include United States, EU, and Japan. The exports of USD 3 billion worth of Indonesian clothing to United States have positioned the country as the fifth largest textile and apparel supplier to the United States7. Indonesias textile and apparel exports continued to grow steadily in 2006 due to the strong demand in the United States. The exports of Thai apparels have surged in 2006. For the first quarter of 2006, the countrys export of garments and clothing accessories increased 11.3 per cent to USD 868.3 million compared to the same period in 20058. The United States was the largest export market for Thais textile and apparel, accounted for more than 30 per cent of its total textile and apparel exports during the first quarter of 2006. The second and third crucial markets were EU and the rest of ASEAN respectively. However, high costs are putting pressure on the Thailands garment makers to relocate elsewhere such as in China, Vietnam and Cambodia.</p> <p>4</p> <p>2</p> <p>Global quotas on trade in textiles and apparel ended January 1, 2005. This quota had existed for many decades under the worlds Multi Fiber Arrangement, but were phase out over 10 years, starting in 1995, under the World Trade Organisa tions (WTO) Agreement on Textiles and Clothing. 5 Major Shippers Report, February 2005 data. U.S. Department of Commerce 6 Vietnam Textile and Apparel Association (Vitas) 7 United States and Indonesia Sign Agreement to Prevent Illegal Transhipments of Textiles and Apparel, Sept 26, 2006, Office of the United States Trade Representative 8</p> <p>MALAYSIAN TEXTILE AND APPAREL INDUSTRY When the policy shift from import substitution to export oriented industrialization was promulgated in the Second Malaysia Plan (1971-1975), it led to the growth of the textile and apparel industry. Textile and apparel has remained in the second / third ranking in terms of exports value of manufactured goods, before it is overtaken by manufactures of metal, petroleum products, and optical and scientific equipment, from 2003 till present. In 2006, there were more than 68,000 workers employed by 645 licensed textile and apparel companies in Malaysia (Table 1). The industry is mainly clustered in Johor (Batu Pahat, Segamat, Keluang) and Penang. Batu Pahat, for instance, accounted for nearly 60 per cent of the garment / apparel firms that produce almost 40 per cent of the countrys textile and apparel exports in 20059. Table 1: Malaysia - No. of Companies in Operation for Textiles and Apparel Industry, 1996, 2005 and 2006 Year Textiles Apparel Total 1996 164 281 445 No. of Companies 2005 253 342 595 2006 n.a. n.a. 645</p> <p>Source: 1996 and 2005 data were derived from The Third Industrial Master Plan (IMP3), 2006 2020 2006 data was derived from</p> <p>Over the past 10 years period (1996-2005), a total of RM4.9 billion of the textile and apparel investments were approved, with nearly 83 per cent of them were in the textiles sub-sector (Table 2). Foreign investments accounted for almost 58 per cent and the majority was in textiles sub-sector. Domestic investments dominated the apparel subsector, with a total amount of RM572 million or about 67 per cent. Table 2: Malaysia - Approved Investment in the Textiles and Apparel Industry Industry Textiles Foreign Domestic Apparel Foreign Domestic Total InvestmentSource: Derived from The Third Industrial Master Plan, 2006 - 2020</p> <p>1996 2005 (RM billion) 4.093 2.568 1.525 0.852 0.280 0.572 4.945</p> <p>The Malaysian textile and apparel industry comprises two main sub-sectors: (i) Textile encompasses a broad range of activities such as polymerization, spinning, weaving, knitting and wet processing; (ii) Apparel includes garment making and clothing accessories (buttons, zippers, labels and packaging) Various made-in-Malaysia textile and apparel goods, as listed in Table 3, have gained an excellent reputation in the world market for quality, reliability and prompt delivery.9</p> <p>The Third Industrial Master Plan (IMP3), 2006 2020</p> <p>3</p> <p>Table 3: Textiles</p> <p>Made-in-Malaysias Textile and Apparel Goods Apparels</p> <p>Fibres Yarns e.g. cotton yarn, CVC yarn, polyester/cotton yarn, polyester/ rayon yarn, spun polyester yarn, texturised nylon yarn, polyester filament yarn, acrylic yarn, acrylic/ wool blended yarn, worsted and woollen yarn, cotton coarse yarn Special yarns, textile fabrics and related products Woven cotton fabrics Fabrics woven of man-made textile materials Knitted or crocheted fabrics Tulles, lace, embroidery, ribbons, trimmings and other small wares Floor coverings such as carpets and rugs Home textiles such as bedlinen, table linen, towels Industrial textiles such as ropes, cords, car seat fabrics, geotextiles, dryer fabrics and press belt</p> <p>Jackets Overcoats Skirts T-shirts Blouses Pants Undergarments Scarves Handkerchiefs Headgear such as caps and hats Textile accessories such as zippers, buttons, sewing thread, industrial thread, embroidery thread, drawstrings, labels, laces, embroidered articles, collars, cuffs, hooks and eyes, tape, polyester padding, interlining, velcro tape, cotton tape and narrow fabric.</p> <p>Source: Malaysia External Trade Development Corporation (MATRADE)</p> <p>In 2006, the total export of textile and apparel amounted to RM10.6 billion (Table 4), or the seventh largest contributor to total value of manufactured exports of the country. Although the export share of textile and apparel to the total exports has dropped from 3.5 per cent in 1996 to 1.8 per cent in 2006, its export value, in fact, has increased. The exports of textile and apparel grew at a compound annual growth rate (CAGR) of 4.1 per cent, from RM6.8 billion in 1996 to RM10.6 billion in 2006. The major export markets for Malaysian textile and apparel are United States, European Union, Turkey, and Canada. Among the major Malaysian textile and apparel exporters include Penfabric, Penfibre, Ramatex, Pen Apparel, Canteran Apparel, Tai Wah Garments, Sin Wah Industries, Hytex Apparels, Honsin Apparel, Plas Industries, Esquel, etc. The Malaysian export of textile and apparel accounted for approximately two (2) per cent of the world textile and apparel trade10. Import of textiles and apparels, mainly from China, Taiwan, and Japan, have increased by an average annual growth rate of 2.5 per cent, from RM4.1 billion in 1996 to RM5.4 billion in 2006. The import of raw materials, mostly textile yarns, woven and knitted fabrics, was mainly due to the shortage of local supplies, both in quantity and quality.</p> <p>10</p> <p>4</p> <p>The share of Malaysian export to the world textile and apparel trade was estimated by Malaysian Textile Manufacturers Association (MTMA).</p> <p>Table 4: Malaysia Export and Import of Textile and Apparel Goods, 1996 - 2006 Year Description Export RM million 1996 Total Textile &amp; Apparel Share (%) 2000 Total Textile &amp; Apparel Share (%) 2005 Total Textile &amp; Apparel Share (%) 2006 Total Textile &amp; Apparel Share (%) 197,026.1 6,816.0 3.5 373,270.3 10,265.3 2.8 533,787.8 10,289.1 1.9 588,949.0 10,601.9 1.8 Import RM million 197,279.7 4,134.2 2.1 311,458.9 5,036.3 1.6 434,009.9 5,033.6 1.2 480,492.6 5,400.0 1.1</p> <p>Source: 1996, 2000 and 2005 data were derived from The Third Industrial Master Plan (IMP3), 2006 2020 2006 data was derived from</p> <p>PENANG TEXTILE &amp; APPAREL INDUSTRY Textile and apparel is a pioneering industry leader that set their foothold in Penang, when the industrialization process started to take place in the early 1970s. Among the prominent players since 70s and still in operation today include Penfabric, Penfibre, The Eastern Garment Manufacturing, South East Garment, etc. There were 52 textile and apparel establishments in Penang in 2006. The jobs offered in the textile and apparel industry accounted for approximately 6.5 per cent of the total employment of the manufacturing industry of the State (Table 5). Most of the larger textile and apparel players in Penang are either fully foreign owned or joint venture, while the smaller establishments are mainly dominated by local small and medium size firms. Penang No. of Companies in Operation in the Textile and Apparel Industry, 2006 Total Total Em% Contribution to Sectors Compaployment* Total Employment nies Textile and Apparel 52 14,515 6.5 Others 1,373 208,742 93.5 Total 1,425 223,257 100.0Source: The Penang Industrial Survey 2006</p> <p>Table 5:</p> <p>5</p> <p>Table 6 shows the total approved manufacturing projects for both Penang and Malaysia for the period of 2004 - 2006. Out of the total 156 approved manufacturing projects in Penang for 2006, three (3) of them were textile and apparel, with a total capital investment of RM48.6 million and a potential to create 224 employment opportunities. Table 6: Approved Manufacturing Projects for Penang and MalaysiaNo. of Projects 2004 Textile and Apparel Penang Malaysia 0 36 1 35 3 30 0 5,865 76 12,800 224 2,863 0 823.9 4.4 373.9 48.6 821.3 2005 2006 2004 Potential Employment 2005 2006 2004 Capital Investment (RM million) 2005 2006</p> <p>Overall Manufacturing Penang MalaysiaSource:</p> <p>14...</p>