Tag: Ethiopia

OM in the News: China Is Turning Ethiopia Into a Giant Fashion Factory

“We’ve arrived at a new moment for the global apparel industry,” writes Businessweek (March 5, 2018). Ethiopia, a drought-afflicted, landlocked country of 100 million on the Horn of Africa is transforming itself into the lowest rung on the supply chain that pours out fast fashion and five-for-$12.99 tube socks. Lured by tax incentives, promises of infrastructure investment, and ultracheap labor, countries the Western world once outsourced production to, particularly China and Sri Lanka, are now the middlemen ramping up production here for Guess, Levi’s, H&M, and other labels. These industrialists like Ethiopia because the government wants them as much as they want cheap labor and tax breaks. Since 2014, Ethiopia has opened 4 giant, publicly owned industrial parks; it plans 8 more by 2020.

“The plan is to create a total of 2 million jobs in manufacturing by the end of 2025,” says a government official. “We are an agrarian nation now, but that will change.” The regimented days in factories are unfamiliar to most Ethiopians, though. “They get only 30 minutes for lunch,” one politician says. “Their backs hurt. They are exhausted. Those jobs, they make everyone sick.” Managers, primarily Sri Lankans brought in to impart the efficiencies achieved in their country’s sweatshops, would view this comment as epitomizing one of their main complaints: Ethiopia hasn’t equipped its citizens for the rigors of industry.

Outsourcing to the developing world has allowed Western consumers to ignore or remain oblivious to the environmental damage and working conditions behind the rising sea of inexpensive clothes. PVH, the parent company of Tommy Hilfiger and Calvin Klein, is the sole American manufacturer here. PVH views itself as a “supply chain pioneer,” because it sets out to develop the production capacity it needs and to directly oversee it. “If you believe industrialization is a good thing and raises people up, out of poverty,” says PVH’s Supply Chain Officer, “then the apparel industry has been the trigger in most developing countries.” As to doing business in Ethiopia: “This is no different from China in the late 1980s to 1990s.”

Classroom discussion questions:

  1. What are the advantages and disadvantages of manufacturing in Ethiopia?
  2. What are the main OM issues for a company opening a plant there?

OM in the News: The Search for Cheaper Labor Leads to Ethiopia

Women at work in Addis Ababa at the GG Super Garment factory
Women at work in Addis Ababa at the GG Super Garment factory

For more than a decade, Asia has dominated clothing manufacturing, churning out cheap clothes on inexpensive labor that are shipped to malls world-wide. But over the past few years, rising production costs in China and several deadly factory accidents like the collapse of Rana Plaza 2 years ago in Bangladesh, have forced apparel companies to hunt for alternatives from Myanmar to Colombia to Ethiopia. Ethiopia was recently identified as a top sourcing destination by apparel companies.

Africa, reports The Wall Street Journal (July 13, 2015), is the final frontier in the global rag trade—the last untapped continent with cheap and plentiful labor. Ethiopia’s garment sector has no minimum wage, compared with Bangladesh, where workers earn at least $67 a month. Garment workers in Ethiopia start at $21 a month. (Chinese garment workers earn $155- $297 a month.) Most countries in Africa benefit from a free-trade agreement with the U.S. And, unlike other emerging economies such as Vietnam and Cambodia, many African countries can grow their own cotton, which shortens production time.

Big apparel makers are willing to go to great lengths to find new, low-cost sources of production. Consumers have been conditioned to expect a plentiful supply of cheap clothing, which has pressured the margins of companies like Wrangler, Lee, and Calvin Klein. Ethiopia holds the most promise for developing garment production in Africa, factory owners and brands say. “Ethiopia seems to be the best location from a government, labor and power point of view,” says one CEO.

Many African countries lack roads to transport finished clothing, and landlocked Ethiopia doesn’t have a port. The workforce is untrained in sewing clothes. But apparel companies remain interested despite those hurdles. They are drawn to not only the cheap labor, but to the inexpensive power, which is the 2nd-biggest factory cost after workers. The Ethiopian government is building a railway to the port in neighboring Djibouti to help exports leave the country more quickly.

Classroom discussion questions:

1. What are the advantages and disadvantages of locating a new plant in Ethiopia?

2. Will Africa be the next China?

OM in the News: China’s Latest Export–Manufacturing Jobs

ethiopiaHuajian Shoes’ factory outside Addis Ababa is part of the next wave of China’s investment in Africa. It started with infrastructure, especially the kind that helped the Chinese extract African oil, copper, and other raw materials to fuel China’s industrial complex. Now China is getting too expensive to do the low-tech work it’s known for. African nations such as Ethiopia, Kenya, Lesotho, Rwanda, Senegal, and Tanzania want their share of the 80 million manufacturing jobs that China is expected to export, reports BusinessWeek (July 28-Aug. 3, 2014).

At Huajian’s factory,  wages of about $40 a month are less than 10% of what comparable Chinese workers make. But just as companies discovered with China when they began manufacturing there in the 1980s, Ethiopia’s workforce is untrained, its power supply is intermittent, and its roads are so bad that trips can take 6 times as long as they should. “Ethiopia is exactly like China 30 years ago,” says Huajian’s CEO, whose company supplies such well-known brands as Nine West and Guess. Frustrated by “widespread inefficiency” in the local bureaucracy, the company is struggling to raise productivity from a level that is about a 1/3 of China’s. Transportation and logistics that cost 4 times what they do in China are prompting Huajian to set up its own trucking company.

ethiopia 2Manufacturers coming here don’t have to worry about finding new workers. The population of 96 million is Africa’s second-largest after Nigeria’s. Cheap labor and electricity and a government striving to draw foreign investment make Ethiopia more attractive than many other African nations. “It could become the China of Africa,” says a Johns Hopkins prof.

Classroom discussion questions:

1. Why is China exporting manufacturing jobs?

2. What are the advantages and disadvantages of locating in Ethiopia?