Cost of Labour and Social Contribution Weighing on Production Cost - Essay Example

Made In France: Industry Change in the Textile Industry and Political Messages Introduction The France textile industry is one of the highest grossing industries in the European Union, with France being majorly associated with fashion. However, the clothing and textile has been crippled by various aspects, both local and global. The global fashion industry has largely changed in the past few decades and the introduction of low-cost fashion products from other countries such as Korea, Philippines, China and now the United States has posed endless challenges to the France Textile and Clothing Industry. As such, assessing the France textile industry critically highlights a number of economic realities that the France textile economy has been obstructing or existing against, and as such, some restructuring is necessary if the industry is meant to be made as efficient as the competition. Various factors, from political influence, labour challenges, innovation and technology, amongst other factors have a significant influence on the French textile industry. However, for France to succeed and achieve a competitive advantage in the textile industry, it needs to focus on a different approach as compared to what most companies in this industry are currently enacting. France cannot compete on low-value added production activities. It needs to focus on high value activities such as innovation. Cost of labour and social contribution weighing on production cost In just these three cities, Lille, Roubaix and Tourcoing, there are over 150 textile and clothing companies. Secondly, these companies alone generate over 1 billion euros annually for the country. The northern part of France, where all these companies are based, employs over 9,000 people. There are more than 300 textile and clothing companies in the city of Lille, which thus presents the picture of how fruitful the textile and clothing industry is for France. This is one of the unrealistic macroeconomic aspects about the French textile industries. With the competition being that high in one region, the fact that these organizations still make significant profits is very surprising to most economists. Critically assessing the cost of labour for instance shows how much the labour market has changed in the past decade. With the introduction of fast moving merchandize, the fashion industry now has to be changed greatly. Currently, the Fashion Industry in France employs close to 178,000 staff. This number however supposed to be declining with some of the organizations in France slowly adapting to the American way of Textile industry production, outsourcing to other countries. Despite the argument that labour costs in France are not as high as they are in the United States, most of the organizations are slowly considering to outsource the production processes to the countries where production is much cheaper (Kirby, 2013). This aspect however has not completely encroached the French textile industry, due to political involvement, which is centered on protection of the French people’s rights. Considering the speed in which goods are being ordered and their supply needed as is the case with all other competitors from other markets are supplying them, the aspect of labour needs to be tailored in a way that best fits the current the economy. The rise in the cost of labour within France is leading to the need for companies outsourcing their production and packaging services to other nations. Regardless, the legislation that largely is opposed to all outsourcing processes, which thus discourages the businesses in this industry to completely outsource their production roles to other nations. The drop in the prices of textile and fashion products due to the infringement of copyright laws by most nations from outside the continent has also been a major threat to the wellbeing of the textile industry in the country. Additionally, the increment in the living standards of French people has equally stimulated the need for higher salaries for employees in this industry, which completely reduces the possibility of the companies to sell its products at a low price for clothing and textile products. Another critical factor that stimulates this difference is the change is the social contribution. Currently, most fashion brands whose roots are French have conformed to the changes in the society due to the changing customer preferences and the media’s contribution as well. The social contribution, also known as the welfare program which is developed through the taxation of products that are mostly purchased from the country to insure all people from social risks, has also led to an increase in the prices of these products. Fashion products sold locally in France are still as expensive as those sold to other countries abroad. The social contribution is one of the government policies that has had many people view France as one of the maverick led countries of the world, which even devises a form of contribution from each of the people living in their countries to creative an overall pool that insures people from economic crisis, diseases and illnesses alongside other undesirables. The social contribution has as such increased the cost of production in the country and likewise made it increasingly hard for the country to sell products at prices as low as all other countries, China being the key country that is largely producing fast fashion products (Girod, 2012). As such, it is crucial for French people to understand that they cannot compete with the low priced textile products and as such, France can only rely on major innovations that are meant to increase the price of the products targeting purely the high end market. These political influences on the price of production costs and for the sale of products as well also largely affect the flexibility required by such an industry to compete equally with its competitors on a global level. France is well known for Luxurious brands, and it should keep it this way considering a variety of reasons listed above. Difficulty to do business: harder bureaucracy makes it hard to expand business The French are world renowned for their inflexibility in changing past systems. The country’s management system is monitored to date by a body by the name of CIAGI (Inter-ministerial committee for management of the Industrial Structure) (Zysman, 1984). The governing body predetermines various aspects about business growth in the country. Initially, France was governed to ensure that all the producers in the industry were small scale producers thus ensuring that that there were several small scale producers in the country, who offered jobs to the people locally. The traditions are till upheld and as opposed to what most people assume the government can control, the French government controls a sizeable portion of the textile industry. Bureaucracy comes in due to the inflexibility in the altering of business laws, practices and predetermined rules of engagement, presented by the government after the second world war that are still in play to date. The bureaucracy of the government in controlling the industry, and ensuring that the fashion industry is dominated by a small but several textile companies is one of the main reasons that the textile and the steel industries of France have never ever experienced growth owing to the decision making platforms that are existent to date, with the main aim of protecting the employment availability of the French people. Besides the government involvement and the setting of procedures that have to be followed despite the opinions most of the people might have against the current policies, the Union des Industries Textiles de France, another external organization still ensures that these rules are adhered to at all times, hence showing that bureaucracy in this industry will never end (Zysman, 1984). Regardless, the involvement of the government and the bureaucracy nature as shown by their logic not only controls the industry’s growth levels but also has ensured that people in France have equal employment opportunities. Despite this level of bureaucracy, outsourcing of labour to other nations has begun taking place, which beats the reason for existence of such a system altogether. Delocalization of Firms after Attainment of Critical Size Delocalization, which is also a form of expansion of organization, is only the surest ways through which French textile companies can attain full growth which is unmonitored. As such, considering the case of the country, owing to its principles as well as the countless involvements of the government and external unions that determine the levels of growth of these businesses shows that the only way through which the businesses can manage to attain the preset and predetermined goals is solely through the delocalization of their businesses. Delocalization of French textile firms would or already has had great levels of success. Globalization, a new aspect any given business is quickly adapting to is a possible solution for the bureaucracy ridden- small textile firms in France. As such, these organizations need to delocalize their activities if they are willing to attain maximum utility, growth and reduce costs of production. Primarily, not all textile firms in France provide high-end products and as such, the small firms selling products for the rest of the population are really suffering immensely from the bureaucratic nature of business within the French scene. Delocalization in the French contexts takes a few possible perspectives. One of the key aspects that French businesses can delocalize to be equally competitive in the contemporary textile fashion is the delocalization of their labour (Györffi & Oren, 2006). The cost of labour alone in France is one of the core causes of poor sales from their low-end products. The high-end products remain as profitable as they had initially planned. However, for the low-end products, combining the high costs of labour in France as compared to the rest of the competitors in China and other areas such as the United States that has delocalized and offshored all their jobs, French firms need to offshore their jobs as well. Besides delocalization of labour, the development of new plants in other areas and countries also would assist the organizations reduce their production costs marginally. Delocalization of the industry would have positive outlooks for the business to grow exponentially. However, not only is the delocalization of labour effective but also the delocalization of investments would have the businesses grow at exponential levels (Györffi & Oren, 2006). Foreign Direct Investments (Financial Delocalization), which are also known as offshoring is a source of business growth at exponential level. The foreign direct investments are a rich source of capital that can be well used to ensure that these businesses are able to grow within their new markets or in their existing markets. Currently, this would be the ultimate cure to the ailing industry, since even in their local areas, with more capital the businesses can enjoy the economies of scale. The delocalization of jobs has also had a significant influence on countries such as China, in that when the rest of the countries have been offshoring their jobs leaving their people unemployed, China has been on the winning end, since more of its people are getting employed. As such, for this case, it was better off if the firms offshored their financial system but retained their labour, from the perspective of the nation, but offshore outsourcing and offshoring is the ultimate key for business success in the French Textile industry. Different Kinds of Production Solutions Production costs must be reduced for the textile industry to gain momentum in France. The cost reduction strategies include labour cost reduction, cloth cost reduction and the overall reduction of overheads and administration costs. One of the most widely used production cost reduction strategy employed in most European countries is outsourcing. Moving to low costs countries is one of the easiest ways through which businesses have been able to maintain their costs at an all-time low. Hungary, Mexico and Malaysia are some of the highest profitable low cost countries in the world (Vestring et al, 2005). China as well is one of the most preferred destination for low cost production since despite the cost of labour, all other sources and factors of production in the country are equally low. Most United States organizations have shifted their businesses and their production lines to China. As such, French textiles firms also have a possibility of shifting from their current physical locations to much cost effective countries. If not, outsourcing their labour, but maintaining their operations in France is an equally workable recommendation. Globalization is equally another strategy that can be well worked out for most of the French businesses. Delocalization into the global market would have excellent results for the businesses in France. Besides increasing the market share, globalization would automatically transform these firms from small firms to large firms, hence increasing their bulky purchases and significantly reducing operational costs for the organizations (Fel & Griette, 2012). Offshoring or foreign direct investment in low-cost countries or rich market countries assists majority of organizations to expand their operations and simultaneously reduce costs as indicated in the article. Offshoring to emerging countries has had remarkable results for most of the developing firms are quickly adapting to this business model. Conclusion As evidenced in this paper, the French textile industry, besides being one of the best industries in the world, has had its share of challenges. Most of the businesses in this industry are not operating on full capacity and as such, it is crucial to consider the various production strategies that could assist these businesses to grow and increase their profitability. The French business and its political aspects also have limited the growth of the industry, through regulation and bureaucracy, but the main reason that the industry is still tender due to the involvement of the government is for the sustainability of France, and the promotion of employment within the country. However, the attainment of this national virtue has compromised the success levels and competitiveness of organizations in this industry and as such, it is crucial that besides considering the nation alone, the government of France should also focus on the entrepreneurs. References Fel, F. & Griette, E. (March 2012). Opportunities and Risks of Offshoring Strategies in India: Experience from Ten French firms. Retrieved on April 17, 2014 from < http://ddata.over-blog.com/xxxyyy/3/46/81/21/FOCUS-October-2011-March-2012.pdf> Girod, S. (January 2012). Five Lessons for the Chinese Fashion Industry from the French. Retrieved on April 17, 2014 from < http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Five-Lessons-For-Chinese-Fashion-Industries-From-The-French.pdf> Györffi, M. & Oren, G. (December, 2006). Relocation of EU Industry an Overview of Literature. Retrieved on April 17, 2014 from < http://www.europarl.europa.eu/document/activities/cont/201109/20110906ATT26029/20110906ATT26029EN.pdf> Kirby, E. (July, 2013). Frances Knicker industry: In a twist and losing jobs. Retrieved on April 17, 2014 from < http://www.bbc.com/news/business-23455614> Vestring, T., Rouse, T., Reinert, U. & Varma, S. (2005). Making the move to low cost countries. Retrieved on April 17, 2014 from < http://bain.com/Images/BB_Making_move_low-cost_countries.pdf> Zysman, J. (1984). Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change. New York: Cornell University Press. Read More