The good and bad of globalisation.

[Dave A]

This story on M&G deals with the Chinese clothing import issue. But essentially it highlights the dilemma faced with globalisation issues.

An agreement to limit Chinese clothing and textile imports has brought mixed reaction, with labour in the textile industry welcoming the opportunity to rebuild the industry and the Democratic Alliance (DA) saying it will bring price increases.

The opposition party said it will ask the minister of trade and industry whether concerns of the clothing and textile retail industry were considered, as well as the implications for consumers and employment.

The South African Clothing and Textile Workers' Union (Sactwu) said on Monday that 55 000 new jobs could be created.

"We need to use the space created to ensure we make our factories state-of-the-art and improve training of workers on a scale that will develop South Africa into a world-class producer," said general secretary Ebrahim Patel.

"Over the past four years, the local fashion-manufacturing industry has lost approximately 67 000 jobs, largely as a result of a surge of imports from China," said Patel. "Over the same period, the five big retailers have recorded R18,1-billion in pre-tax profits. It is now time for retailers to work with the local manufacturing industry to place the country and employment before profits."

He said the vast volumes of imports from China have had a devastating impact, with factory closures in the poorest parts of the country such as Dimbaza in the Eastern Cape, which have become industrial ghost towns.

On the one hand we have the effect on local employment. On the other we have the lower cost of goods to consumer.

I note there is no similar move on electronic goods.

[duncan drennan]

Since I saw the story on the news, I've been wondering if this approach makes sense at all.

Firstly, cheap imports don't only come from China - places like Vietnam also export clothing at low prices (so where will the buyers start looking?)

Then after that, what happens at the end of those two years (I think the agreement is for two years) - is it really possible to setup an industry that can compete with China on price, and more importantly should we really be trying?

There are a number of items working against SA in this particular regard, including, strict labour laws, BEE and AA issues. I would say we have two years to reform the labour market (haha) if there is even hope of competing with China.

I suppose the question that I'm asking here, and that applies to just about everyone's business (in the world), is - can we really compete with China?

I think it is possible, BUT we have to change the rules to favour us, exploit our strengths and their weaknesses. This requires a whole new way of thinking, not a two year trade restriction.

[Dave A]

I suppose the question that I'm asking here, and that applies to just about everyone's business (in the world), is - can we really compete with China?

There was a time when we were saying the same thing about Japan.

[duncan drennan]

There was a time when we were saying the same thing about Japan.

I don't really know the history behind this - care to elaborate?

[Dave A]

It was a concern in the '70s and '80s.

It was probably most evident in the car industry. Japan could produce a car far cheaper than anybody in the West. In time the situation stabilised to what we see today.

There was a similar run in computers. IBM produced the original PC, Japan started producing copies at a third of the price and flooded the market.

At first Japan was accused of producing cheap copies, then good copies, and now they're pretty innovative. The same causes were declared as we see with China today - cheap skilled labour and a lack of respect for copyright and patents.

Now we have Toyota's costing more than Ford's (and holding their value better too), but for quite a while they were substantially cheaper.

The thing is China has a far greater size and therefor potential impact.

[duncan drennan]

MoneyWeb is carrying an article from the Wall Street Journal on this

[Dave A]

Well the reactions are coming in.

In this story retailers are throwing up their hands in horror and saying this is going to hurt inflation, the retail sector and consumers.

In this second story, Cosatu in particular takes exception to the retailers resistance. Both stories from M&G.

Am I surprised - not really. Mr. Price in particular can probably attribute its spectacular rise to canny imports from China. What did suprise me was the corruption angle!!! Didn't occur to me that officials could gain from this.

Anyway, by coincidence, I bumped into an acquaintance at the airport this morning who was on his way to Hong Kong. He imports for Mr. P and it was an interesting conversation.

His take was that the local CMT industry could well compete with the Chinese imports given the slip in the exchange rate and the 40% duty. However, the problem lies in fabrics - these would have to be imported as local is not very lekker in the textile industry at the moment - a point alluded to by the retailers as well.

I wonder what is going to face us at Christmas when we have our annual shopping spree?

[Dave A]

I like what Trevor Manuel has to say in this story from Business Report. Maybe we shouldn't be braver to the point of being foolhardy, but be looking closely at options and niches.

South African business should be braver in the face of global competition, Finance Minister Trevor Manuel said on Thursday.

Referring to government moves to limit Chinese textile imports he said: "Whether we can implement the Chinese deal is another question... but part of the problem is that South African business walks away from challenges too easily".

He cited an example of an innovative Western Cape company that had begun producing a niche-type of T-shirt cheaper that it could be made in China.

Manuel said the Council for Scientific and Industrial Research had assisted the company to find a unique fabric design.

"Clothing is highly segmented. There are niches and we must be able to turn this (textile import issue) around and refocus on what we're good at."

He cited another example of a shoe manufacturer, competing with Chinese imports, that ceded functions it was weak at and instead focused on its strengths within the production process.

"Within five months of taking that decision they needed to enlarge their staff.

"It's a mindset issue," said Manuel.

"Don't be alarmist. Sit down and try to resolve these things. There must be a few rational routes out there."

[duncan drennan]

I think that is the point that I was trying to make (at first) - we need to change the rules to favour our strengths.

[Dave A]

I think that is the point that I was trying to make (at first) - we need to change the rules to favour our strengths.

I think Trevor read your post

There's no doubt you're on the right track, Duncan. Now we've just got to get it filtered down to the general populace.

[duncan drennan]

I think Trevor read your post

Wouldn't it be great to actually get people like Trevor (and others) onto this forum?

[Alan]

If the labor issue was the main reason behind this move, i seriously doubt if we would be able to compete. The unions resist all attempts at automating the CMT factories, much like the service stations in this country. With the productivity of the labor force coupled together with our labor laws i don't see it happening. Sorry if i sound like a bit of a pessimist here.
Dave giving you age away there, so glad I'm not old enough to remember the 70's.

[entoserv]

If the labor issue was the main reason behind this move, i seriously doubt if we would be able to compete. The unions resist all attempts at automating the CMT factories, much like the service stations in this country. With the productivity of the labor force coupled together with our labor laws i don't see it happening. Sorry if i sound like a bit of a pessimist here.

So you are actually saying it is the labour movement and trade union's fault?!

[AndreMorgenrood]

So you are actually saying it is the labour movement and trade union's fault?!

I think that is exactly the problem. We could never compete with china head on when it comes to the cost of labour. Automation is the next logical step forward if we want to be competetive but you wont be very popular if you build a large factory but only employ a handful of people to make sure the bearings are oiled.

[duncan drennan]

I liked Tito's comments on this.

It was possible the large number of goods from India and China were helping to keep inflation low, he continued.

Mboweni told Parliament last month that the quotas did not make economic sense and would not save an industry that was not competitive.

"If you have not become competitive, you have no dog's chance in hell of becoming competitive in the three years or so that the quota will be imposed," he told the portfolio committee on finance.
-----

"I gather [Vavi] says I should not talk about the economy, only monetary policy," Mboweni told the dinner guests.

"I'll stick to monetary policy if he sticks to union organising."

Full story on M&G

It doesn't make sense from Tito's perspective because his sole mandate is to keep inflation low, and the quota's will effectively push inflation up.