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

July 17, 2015
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?

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