Thought-Factory.net Philosophical Conversations Public Opinion philosophy.com Junk for code
parliament house.gif
RECENT ENTRIES
SEARCH
ARCHIVES
Commentary
Media
Think Tanks
Oz Blogs
Economic Blogs
Foreign Policy Blogs
International Blogs
Media Blogs
South Australian Weblogs
Economic Resources
Environment Links
Political Resources
Cartoons
South Australian Links
Other
www.thought-factory.net
"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

socks and jocks « Previous | |Next »
February 26, 2009

The decision by Pacific Brands, the company behind some of Australia’s well known clothing labels (Bonds, Berlei and Holeproof), to lose seven factories, axe more than 1800 jobs, indicates that there is no future for low wage, low skill manufacturing in Australia and shift production to China. The sad reality is that the sacked PacBrands workers are not going to get another low skilled job and the dole, at $255 a week, is not enough.Nor is it likely they will be able to reskill and become skilled workers.

NicolsonBonds.jpg

This judgement is in spite of PacBrands having problems of its own making, including a brand portfolio built by acquisitions that is full of duds, a debt repayment profile that has morphed from manageable to threatening since the global crisis erupted and the consumer shift to discount retailers and a decline in consumer spending. Pacific Brands immediate problem is debt, not sales and margin. This is in spite of clothing tariffs being set to drop from 17.5 per cent to 10 per cent next January, and to 5 per cent in January 2015.

Australia is a high wage country and low wage manufacturing is not competitive with low wage manufacturing in China. So closing Pacific Brands’ remaining Australian factories and shifting production offshore by the clothing, textile and footware is a necessary strategy.

The recent Green review of the TFC sector supported financial assistance but emphasised innovation and industry focus on high-end value-added, rather than trying to compete with low-wage countries. Green said:

Evidence to this Review demonstrates that the key success factor for the TCF industries, as for industries more generally, is the development of innovative capability at the level of the enterprise and workplace,which is driven not only by research and technology development but also by an increasing emphasis on business model transformation, market-led organisational changes and the integration of firms into collaborative networks and supply chains.

The Review maintains, contrary to the manufacturing sceptics, that Australia’s TCF industries have a promising future, but this can only be achieved through a concerted effort to differentiate their productshrough uniqueness, product quality and design, branding, quick response and new approaches to supply chain management, with a clear emphasis on corporate social responsibility in the application of labour and environmental standards.

However, though the Rudd Government is happy to spend $6 billion or so of taxpayer dollars to drive innovation in a car industry Australians won’t support when they buy their cars, but will only offer a far smaller version of the same kind of subsidy----- $270m between 2005 and 2015--- to the TCF sector. Strange.

| Posted by Gary Sauer-Thompson at 6:21 AM | | Comments (10)
Comments

Comments

It was inevitable, but it's very sad and it won't be the last. What will happen to those people?

Swan may live to regret using that socks and jocks line.

I was amazed to learn that any of the mass-produced clothing lines still made anything here at all. I thought they all went offshore years ago.

We can have cheap clothes and cars and electronic equipment or we can have a thriving manufacturing sector paying Australian labour costs but we can't have both. Both political parties have been quite good at explaining that for 25 years now so it's disappointing to see Turnbull's mob resorting to protectionism again.

Lyn,
Judging from research into the last round of restructuring under Keating in the 1980s roughly a third of those laidoff will never work again; a third will reskill, and a third will find other low skill work. I read that somewhere recently but I cannot recall where. In this case the laid off workers are mostly migrant women.

Ken,
that's right. The textile clothing and footware industry faces a difficult time with competition from low-cost producers, lower tariff rates and free trade agreements. The standard industry policy is to support both restructuring and to shape the restructuring with a value-add, innovative approach to manufacturing (eg.,as in the car industry).

Green said in his review that:

The recommendations of this Review to the Australian Government foreshadow a major change in the focus of industry policy from sector-wide structural adjustment, with generally acknowledged diminishing returns from tariff reductions, to the development of innovative and competitive capability at the enterprise level as part of a process of integrating or ‘mainstreaming’ the TCF industries into the broader policy framework.

It's not clear what this value-add, innovative approach to manufacturing would look like in the textile clothing and footware industry. Was Pacific Brands doing this?

Peter there are still a lot of small fashion houses that get clothes made in Australia, usually using outworkers who get as little as $4 an hour because they are on piecework.

Opinions vary about whether this is a good or a bad thing; some call it sweated labour, others say it provides entry to the labour force for many women who could not do it any other way, especially migrant women from non-English speaking backgrounds. They set up a sewing machine in the garage and work 12 hours a day.

Whether good or bad, it's the only way in which clothing manufacturers can compete against firms in Asia and South America.

I read that they had heavy debt levels, sales were down due to Woolworths having their own private label brands in socks, underwear and basic clothing items. and were required by the banks to restructure more quickly.

The banking syndicate have their hands on PacBrands throat in the current credit crisis. The share price is down to 22c when it was $2.50 in the 2004 float of the company after the hedge funds exited making a profit of $1 billion.

Why the heavy debt? What did they buy?

They bought Yakka workwear in 2007 and Sheridan Sheets in 2005, which cost them around $400 million. Cash is short from declining sales. They are being squeezed by Woolworths, K-Mart, Target etc. It was Woolworths' imported underwear that benefited from Rudd's Xmas cash stimulus, not PacBrands.

The wages cost in manufacturing represents about 12% or so normally of all costs. It is wrong to equate companies leaving Australia for reasons solely of cheap labour.

Companies have been coming and going from Oz for many years for many reasons. Sounds to me the company here has made a few wrong decisions recently and this may be another. But they obviously feel their products can be serviced to the world better from another location(which is true) and are prepared to give up a large portion of their market here to do so.
Thats their choice.

PacBrands is moving to China because of incompetent greedy management. The massive bonus paid to the CEO come from sacking 1850 workers. As Crikey noticed this incompetent management
- was getting 80% of its profit from 3brands and the bottom 200 brands contributed 2% profit
- the CEO has form for taking obscene fees from companies that are being sent broke like Mirvac
- is importing from China at a time when the Australian dollar is expected to devalue against foreign currencies so PacBrands is heading to the liquidator.
As a taxpayer I expect that James McKenzie the CEO pay back the $15 million government subsidy from his bonus.

As a larger Australian I am unable to find chinese made clothes or shoes that are long enough to fit. Then we notice that chinese made goods do not have the same quality control as Australian made goods, so Sheridan sheets shred, Bonds Tshirts twist to the left, and undies shrink in the wash.