The Financial Times Tuesday April 1 1969
X
COTTON TEXTILE PRODUCTIVITY STUDY
Call to end import quotas and
replace with tariffs
Development grants
needed to aid re-equipment
BY HUGH O'NEILL
The main recommendations of the Textile Council's productivity and efficiency study, published yesterday, concern Government action required to restore confidence in the industry's future and to create the environment needed for an increased rate of investment. The £100,000 report into the problems and prospects of the cotton and allied textile industries, which was initiated by the Board of Trade in June, 1966, suggests that the Government should dismantle the current quota arrangements, due to expire at the end of 1970, and introduce a tariff on Commonwealth cotton textiles, accompanied by improved safeguards against dumping and against a disruptive rise in imports during the transitional period towards tariff protection.
It also suggests that a necessary stimulus to the scale of reequip ment required will be the exten- sion of Development Area grants that section of the industry covered by the report together with the introduction of accelerated de preciation allowances.
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The report forecasts that there will be little change in the level of production in the industry as a whole between now and 1975. but to achieve the level of pro- ductivity and re-equipment needed to make the industry internation- ally competitive by the mid-1970s,
there will have to be a substantial dechne in the number of units and firms in spioning and weaving, The labour force in these sectors may have to fall by roughly 50 per cent. from its present 191,000
Expedients
Special attention is drawn to the failure of successive Governments to grips with the industry's get to problems and play their part in developing sensible long-term policies. Instead they had "sturanled from one expedient to another, spending large amounts of public money with litle to show for it in
of resalts.
way
The report firmly rejects a furthe: Government operated and financed sebeme to buy out surplus capacity, Nike the Cotton Industry Act. 1959, Such a scheme, it says, took no view on the question of structure and organisation, which is the main sub- gct matter of the current study. The fotore elimination of obsolete equip ment from the industry should result from the successfu marketing strategies and pricing policies associ ated with the level of retquipment and reorganisation suggested.
from relative freedom frem low price iampor competition in other advanced countries was a major contributor to these advantages.
A special study of costs and perfor mance of UK. rms indicated that although there was a wide spread of efficiency in the industry. costs VHEY by between 40-45 per cent, between the better and worse firms in specific sectors. The more profitable firms were those with lower costs, niore equipment operating on a two or three shift basis and with clos market haks. Standardisation of products and long runs also lead to significant cost reductions. But com. petition from imports during 1965-67 had adversely affected the efficiency and profitability of mest of the units studied.
الالعاب
The majority of U.K. firms, however, were maiting deterinmed efforts
tbcir per- improve formance and labour productivity in the more profitable of the units visited al improved by 35 per cent. in the past two years. Some of the beer units in each section were as technically up-to-date as any in the world.
However, despite a 30 per cent. reduction in the number of produe tion units in the industry since 1957 many high cos: firms still survived. It was significant that, until recently. the continued existence of surplus capacity had been coupled with an insufficiently aggressive price policy. This was probably because there had been a tendency for the more modern muki-shift mills to cut back produc tion rather than adjust their prices. to the full extent necessary to enable them to capture the available trade. This raised their unit costs and left prices high enough to enable some marginal firms to stay in business.
Hesitation
The high level of imports into the UK, had been partly responsible for the past hesitation in re-equipping and restructuring the UK. indusuy. Total imports now cartcsponded to
An important part of the report is that devoted to the comparison of UK labour and machine efficiency, and production costs with these of ber principal competitors. These 3 per cent, of total home consump to those from developing countries accounting for 40 per cent. of home consumption. which compares with about 10 per cent. for the BBC and the U.S.
statistics are qualified
2.5 being "illustrative rather than definitive but they nevertheless form the basis for some of the main conclusions on future competitiveness.
They show that there is a fairly marked disparity between the UK. industry's relative competitiveness ut different stages. In terms of labour and machine output the spinning sector compares least favourably with other countries.
Labour productivity in the UK. is generally about two-thirds of that in the HBC and one-third of that in the U.S.
The foreward estimates that there will be little change in the level of production of the industry as a whole between now and 1975 (except for a possible 20 per cent. increase in de mand for filament fabrics) are based on the assumption that the foreign trade balance will improve by 200m. square yards during this period. Bur stich a shift in the industry's foreign trade performance will only com about if major advances in produc
it
Recent wages in the UK are tivity and efficiency could be achieved. lower than in most EEC countries by about 20 per cent, while the U.S. has wages nearly 24 times those in the UK. On the other hand wages in the Far East and Portugal are typically one-quarter of those in the U.K
Differentials
Those wage differentials are offset to some extem by differences in labour productivity. In spinning and weaving the U.S. bas productivity two or three times that of the U.K. Labour productvity in the FEC "better" spinning mills is up to 40 per cent. Bigher than in the cor responding UK. mills, although in weaving EEC labour productivity is the same as or lower than, in this country. Ladia, Pakistan, Hong Kong and Portugal have lower poductivity
than the UK but not as low rela tively as are their wage rates.
Compared with the UK. tosal yar production costs in Portugal and the Far East are consequently 20-25 per
Total grey fabric costs (Compared with U.K.)
U.S..
Austria
France Holland W. Germany Portugal Hong Kong
India
Pakistan Japan
Although producŭvity bad hear in- creasing faster than the average for UK manufacturing industry. would have to increase much faster if it was to catch up with the de- veloped countries overseas.
To achieve the desired levels of productivity there would have to be substamial reductions in the number of units and arms. In spinning in order to satisfy the forecast demand in 1975 the number of spindles would have to be reduced from 5.7m. to worked per week at 112) and the num 1.7m. (assuming the average hours
ber of units halved to around 65. are
In weaving where there currently 400 units with ownership spread among 280 firms, the report envisages that around 50 per cent, of rutal cloth production will be in the hands of a small number of large Broups and 20 per cent will remain in the hands of small specialist firms. ducing hulk runs, plus arether 50 or This might mean 80-100 mills pro-
so at the specialist and, involving in telai 100 tims.
estimated that in weaving, cost savings of between 20 and 40 per cent. can be achieved through replacement of Lan- cashire looms with modern joom types: white in spinning the opera don of conventional new spinuing equipment for four shifts instead of two could save up to 20 percent The introduction of break spinning could prove to be a viable alternative to most existing machinery in the lower yarn counts,
Through reodernisation at U.K spinning, the installation of new weaving machinery and the extension of working up to 168 hours per werk, UK. conversion costs in spín ping and weaving might be expected to fall by 25 per cent. These changes should improve the U.K.'s position so that it is fully competitive with the LBC. slightly Sener placed in rela- tion to U.S. costs, and cut the cost gap with the Far East from the presen: 20-30 per cent. to 10-20 per cent.
A policy that offers a pros pect of more stable trading cerdi- tions and some relief from the price disruptive effects of imports is i needed. The only acceptable way of! creating such conditions is to put a tarifi on inports of cotton textile products. including made-up goods. from the Commuraealth and to re- move existing quota restrictions
If datics were imposed on cotton yars and fabrics of about 85 per cent. of the post-Kennedy Round full rates on yarns 6.4 per cent, and on fabrics 14.9 per cent.-the 1.K. industry should be able to compute! with imports over a wide range pro- vided import prices are based on long-term costs,
Present Hong Kong grey fabric costs are 25-30 per cent. below the U.K. level In five or six years' time, if the UK productivity targets are achieved Hong Kong's advantage should narrow to around 17 per cent. After taking account of freight and
Sir James Steel, chairman of handing charges, a tariff of some 15
the Textile Council
output. with a
small number of
It is con-
medium-sized firms and a substantial number of smaller firms.
sidered that one of the best ways to create effective new groups from smaller firms will be to proceed on an ad hoc basis by inviting outside agencies to consider and advise on the merits and polentialities specific merger situations.
Pricing policy
of
But any direct Government action to encourage concentration will be mistaken Existing runs may con- tinue to absorb or to merge with other units but there seems no reason to accelerate this process, possibly at the cost of some economic distortion,
The report considers that the deci sion to re-equip should be taken on the basis of future market demands and not suaply on the basis of raising productivity or increasing output. seems that the small horizontal com, pany needs to be either very sure of its own market or to establish close
The report says that a central con- Spinning clusion of its analysis is that at no thne during the past 50 years has the Weaving industry as a whole succeeded in Finishing coming to term, with its circunt-
Approx. Totat stances.
Only in the last few years hes any important part of it begun to demon- strate that can command events and shape policies in a positive way. For the rest, management has sought
to adapt as best it could to external conditions which have often seemed
inexplicable and unfait."
In making proposals and recom mendations to increase productivity. in the spun yard and woven cloth sector, the rencit adds that firms and employees should bear in rind that they always have the alternative of moving out of this sectar altogether info other forms of textile activity. where prospects for ension better.
Dealing with specifin feas. need to establish closer relationships
Employment
trend
150,000
FEMALE
100
50
MALE
*S6*67*53
1958 *80 '62 *64
Spining, doubling, and weaving sections of the cotton and man-made fibre industries.
between marketing and production is emphasised. Firms with strong mar- ket links are on the whole the st profitable. There is a clear need for firms to study more closely the pat- tern of the market and to respond In the case of finishing it is ex as rapidly as possible to customer pected that the present 186 finishing requirements. Close links between uits will be reduced to around 90 producers and customers are vital if by 1975 and the number of firms may long production ruas, essential to decline from the present 100 to 30.
reducing costs, are to be achieved. With increased verticalisation the present 375 separate companies that control the spinning weaving and finishing sections may be reduced to 120-130 by 1975. There should also be a considerable decline in the number of independent converters from the present 700.
Export efforts
A actor which esitigates against UK. firms achieving longer runs is the existence of the independent merchants, the bulk of whose trade imported grey 5 concerned with cloth. If the current trend towards verticalisation continues the
should chants' share of business dinugisht. imports cut back and the possibility of U.K. producers securing longer runs should increase.
Because of increased shift working and the need for highly trained (% difference)
operatives with technical qualifica- 5 to 3 tions the forecast reduction in the - to labour force from its present 101.000 →→→14 to + 2
to 55,00 wil fal! largely on female employees. The report points out 6 to +10 that the hours worked in the UK. 6 to 14 textile industry are shorter than in Although price was overwhelin- -21 to -18 any other country for which there is ingly the most important reason tor information and in many other UK. importing given in a survey of mer- -29 to -18
industries. U.K. mills actual work cheats and other buyers, there was -29 to 19 allocations were also low in com. also a recognition that buying from
domestic -27 to 25 parison with what could be attained
offered certain sources given proper management -31 to 25 planning. There was a need for more
and advantages. These included the passi- bility of better customer service and and better training and for a greater case of communications, continuity application of work study and other and availability of supplies and the specialist management techniques of benefits of being in a position to the UK. was to make up the lost ground and double productivity in spinning and weaving by 1975 and operate the majority of textile plants an a three or four shift basis, com- pared with the present 25-30 per cent.
cent. lower, and in the EEC and Austria, 10-15 per ceny, lower. Grey cloth costs of the "better" UK milis appeared to be only slightly higher than in the U.S.. EBC and Austria hut 20-30 per cent, greater than the Far East and Portugal.
Finishing costs, however, appeared to be lower in the UK. thon in most other countries. As a result the Gifferences in total finished cloth costs are more favourable to the U.K. than in the case of grey cloth,
The higher labour and machine outpor estes and lower production
Reduction-
maintain close control over supplies. was considered that all things being equal. most buyers were prepared to pay a premium for cloth from a U.K. source. The amount of the premium averaged about 5 per cent, which may be an important point in the future cost competitiveness of the industry.
1s unlikely, however, that the The reduction in employment is not
industry will find the length of runs expected to cause any serious social it needs within the UK. market. dislocation in the textile areas. in Vigorous eltoris should be made to view of the large number of textile expand experts from the current 10 employees in the higher age groups per cem, of home production. In the
tive employment in the North West. ducers should find it easier to come
Costs in spinning and weaving in end the opportunities for alterna- short term at least most LK. pro
other Western countries are attributed to the higher proportion of modern equipment and buildings, longer hours worked, the more widespread use of workstudy and other specialist skills. the more positive attitude of management and operatives to pro ductivity improvement and the more effective marker and production planning possible in vertical struc tures. In the case of the U.S. There was also a far greater degree of product standardisation.
pete in sophisticated European and American markets than to make significant inroads into the low-price imports at home.
At present, approximately 76 per cent of the total labour force is aged 50 and above, while 6 per cent. ix already past normal retiremem age. This imbalance should be of assist The trends in favour of further auce in reducing the labour force through voluntary retirement rather
product rationalisation may continue to intensify during the next few years,
than redundancy, The future reduc The growing concentration in the tion in the labour force is also likely
industry will be the most important
to be below that which has taken single factor,
place over the last ten years.
The report foresees an industry
On the benefits of re-equipment, consisting of perhaps tour or five
The stable conditions resulting shift working, and long runs, it is finns responsible for over half the
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per ceul, should provide reasonable protection for the efficien: UK. fru
There are several reasons for sup posing that a tariff on Commonwealth textiles will be the most appropriate solution for the industry.
There were Indications that the temporary charge on imports in 1965- 1966 affcered the volume and prices of Commonwealth imperis; the use of a tariff should stimulaté produc tion towards those products where the UK will have a relative advantage giving scope tor proftrable develop. ment of new technical and marketing ideas; and as cotton takes a declining share of a fairly static market, the effectiveness of quelas will diminish.
But there is: be a transitional period before quoras can be ahan- doned and reliance on tariff alone accepted. During this period the quota system should not be changed. so as to allow a significantly larger volume of imports than at present.
Given this situation the industry should achieve a major breakthrough by the mid-1970s. Thereafter. tarif protection alone should be adequate but only if effective incasures are taken to stop dumping and eliminate any special export incentives (as the Pakistan subsidy scheme) and to
Forecast change in overall structure, 1968
1975
No. of
No. of
No. of
Units
Cos.
Units
No. of Cos.
131.
63
60-70
25.30
398
279
140-150
100
186
162
90
30
715
444
(290)
120-150
informai links with selling companies that will give advance warning of market changes To re-equip a spin wing mill without having examined all the relevant factors is said to be
sheer folly."
Firms which re-equip and go for intensive machine utilisation must adapt an appropriate pricing policy, The aim of hilling a large proportion of capacity with long runs should be assisted by creating differentials be tween prices for long and short runs. A successful marketing strategy and pricing policy requires that the selling price for long runs should be below that which a firm using obsolete. equipment can afford to charge.
Such a policy is the best way to eliminate obselete equipment. The report calculates that the cost bene mis of re-equipment should be able to produce a satisfactory rale of return at the same time giving the ability to price out of the market those producers who continue operate old plant.
The alternative ja a further Gov- ernment scheme to buy our surpins capacity. There is no evidence that the industry will welcome such a scheme and even if it were to be entirely Government Snanced such expenditure of public funds will be no justified.
Although in 1967 investmen by the industry reached £23m. and prah. listed schemes indicated that e Tur ther £60m would be spent within the next two or three years, this rate of investment was not high enough.
prevent undue distortion of trade.
with the UK. participating in any international schemes to
regulate international trade in cotton textiles.
Although the iarifi proposal amounts to a tundamental change in British commercial policy towards the Commonwealth, the report draws attention to the imposition of tarifs on rextile imports from the U.K. by other Commonwealth countries, con- cluding that the UK. is under no moral obligation to continue to give free entry to them. The anomalies in the UK. system of protection should be removed.
in a vote of dissent to the report Mr. E. T. Garside, a member of the report's executive committee and the managing director of an indepen dent cotton spinning company, argues the case for a reduction in the level of quotas during the trans itional period to a tarif
Mr. Gartside suggests that quotas should be renegotiated with the de veloping countries for another five years from 1971 on the same basis as for the past five years but with an annual reduction factor of 2 per cent. per annum. During this perind a 15 per cent. tarift should be introduced on alt textile goods from the Com monwealth, to be fully operational by 1973, to give a two-year period in which to gange its effectiveness. Quotas could then be phased out after 1975 provided tariffs gave the neces sary procection. Failing that, it would be necessary to renew the quotas for a further five years until 1980.
Modernisation
In an observation on costs, Mrs. Caroline Miles, a member of the Tex- de Council who has been closely associated with the report, submits
Many Grms have doubts About furure profitability of spun yarns and woven cloths. Some special in- centive to invest may be required to further progress towards a trans- formed and re-equipped industry. The financial desirability of investing in the Development areas is very evident. But the report submits: that U.K. costs can be reduced below **The national interests are not being the levels implied, with the added served by encouraging the building advantages of a
vertical operation.
of new unintegrated plants outside and a greater degree of modernisa
The existing textile areas and we believe that further encouragement should be given to new investment in the traditional districts."
The Government is urged to estab lish a temporary 40 per cent. invest ment grand for that section of the textile industry covered by the report and situated outside the Develop gent Areas. It is also suggested that depreciation allowances should recog is the fact that plant working on a three-or four-shift basis will have a bie shorter than 14 years. should qualify for the 25 per cent. anna! allowance available to other industries and for four-shift working 30 per cent. would be justified.
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On the effective use of labour and the high level of fabour costs the report says that a strong upward movement in wages will probably he a mure effective spur to economy ins use of labour then any other tech- nique than can be devised,
The ambitious target of doubling labour productivity by 1975 is up- likely to gain acceptance in the in- dustry unless Government policy on imports is altered so as to inspire cfidence in the future, declares the
tion,
She calculates that additional cost Savings can reduce prices by 6 to 8 per cent, more than the target leveis indicated. Although actual selling prices of Asian grey fabrics are likely to be lower than estimated, the cost gap can be narrowed still further.
Mrs. Miles says that although the task of catching up is likely to be even greater than has been realised. and will be accentuated by the high cost of shift working in the U.K.. har conclusion agreed with the report in that the U.K. will be competitive he hind a moderate tariff which is indeed what one would expect in what is becoming a
very capital intensive industry."
The studies of comparitive costs. and profitability in the UK. industry were carried out by the Textile Coun cil Productvity Centre and the Shirley Institute. The summarised re- sults of these and other surveys are to be published in a second volume within a few weeks.
Cotton and allied textiles-a report on present performance and tuure prospects. Vol. 1. The Textile Council. Royal Exchange. Manchester: 45s.