Francois Woo has been one of the most successful entrepreneurs of independent Mauritius. Starting from very modest beginnings he has built a multinational company – Compagnie Mauricienne de Textile, aka CMT, which operates in three countries and two continents, employing nearly 20,000 workers. Unfortunately since the beginning of this year trouble has been brewing at the company and Mr Woo is threatening to transfer the bulk of his operations overseas — to Madagascar and Bangladesh, where he is already running some operations.
The reasons publicly invoked by Francois Woo relate mainly to the “administrative” hurdles regarding the recruitment of foreign labour as well as presumably the “regulatory” constraints which have been impeding access to banking facilities. He has also mentioned the rising costs of operations. There is no doubt that there are very serious implications if ever the threat of moving most or all of the CMT’s operations overseas were to materialize.
The direct consequence would be a significant reduction of the export proceeds of the Textile and Garments sector (CMT is one of the two largest exporters of garments), the loss of job for about five thousand Mauritian employees (half of the total of 10,000 employees of the company, the other half being foreign workers), a number of indirect jobs and significant indirect contributions to the national economy. We would not be too far from the conundrum of a “too big to fail” situation except for one important difference: however considerable the damage caused, it would still be “contained” – there would be no “systemic risk” to the national economy, as in the case of the failure of a large bank, for example.
No need to emphasize though that the human tragedy associated with the closure or extensive reduction of operations of such an important and entrenched company would be appalling.
This is the second occasion since the beginning of this year that Mr Woo has resorted to this kind of public commotion in order to put pressure on all those concerned to find a quick solution to his pressing problems. One surmises that having recourse to the press for expressing his grievances is in itself a form of ultimatum to the authorities, leading a trade-union leader to state that Mr Woo is “blackmailing” the government.
It is true that in the local context we have been used to private sector bosses lobbying the policy-makers in more “hush-hush” meetings rather than exposing their grievances in the public domain. The means used may indeed be a reflection of the level of desperation of Francois Woo confronted with what seems to be an “impasse” regarding the inclination of the decision-makers to provide suitable resolutions of his problems.
This whole drama, though, does raise a few questions.
Are the problems faced by the CMT simply a case of “bureaucratic hurdles” and regulatory constraints? In which case there surely are other more appropriate means of dealing with them.
Do they have anything to do with the fact that Mr Woo is perceived to have been close to the Navin Ramgoolam regime? The grapevine seems to suggest that even if this had been the case, reason has prevailed because no government would take the risk of deliberately participating in a move which would create such massive loss of jobs.
Which leaves us with one more fundamental and rather agonizing question.
Could it be that the very business model adopted by the CMT and replicated by other companies is now reaching the end of its lifecycle in the present national and global environment?
As from the early 1990s, the textiles and garments industry in Mauritius went through an anticipated phase of consolidation and rationalization. Many of the small and medium enterprises, which had flourished during the heydays of “preferential access without quota” to the European and US markets and the sub-contracting model, were closing down. The number of workers in the “free zone” dwindled from the peak of nearly 90,000 to around 40,000 over a period of twenty years or so.
Even as this was happening, the rationalization process also meant that a few large and very large enterprises characterized by more capital intensive and modern methods of production emerged to become the real drivers of the industrial infrastructure. Under the WTO-led liberalization of world trade, the textiles and garments trade regime globally became more market-driven and forced local producers to become more competitive as Asian nations with large reserves of “cheap” labour such as China, India and Vietnam were given liberal access to hitherto restricted markets.
Under the circumstances, two options then seemed open for the industry in Mauritius: either a shift to the upper segments of the market based on backward vertical integration into innovative designs, creation and production of smaller volumes for value-driven niche market segments (an option which needed a whole new set of policy orientation); or sticking to the mass market price-driven segments by adopting state of the art technology and a relatively more capitalistic business model.
In spite of a lot of noise about the first option, there are only a few success stories to show for it. As too often happens in similar situations, in the conflict between what is easy to execute and what is right to execute, it is the former which trumps the latter. The dominant trend of consolidation and rationalization along the same market/product and supply chains won the day and the industry saw the emergence of a few very large establishments employing multiple thousands of workers (Star Knitwear, CIEL Group, CMT, etc.)
In an era of globalisation defined by the transnational movement of factors of production in search of lower costs of production, the experience of Mauritius has been characterized by the import of cheap labour from overseas (China, India, Sri Lanka and now Bangladesh). This is an integral part of the choice of a business model, which is driven by cost competitiveness instead of innovative value addition. It is to be feared that the problems cropping up at the CMT are the symptoms of a deeper contradiction at the heart of its business model.
The Textiles and Garments industry is no longer ring-fenced from the rest of the national economy as it was originally. The more the industry gets confronted with mounting costs of living associated with a maturing and diversified national economy, the more it has sought to compensate with increasingly larger numbers of imported labour. In a country purportedly transiting from a low-income to a high-income economy, this cycle seems to have reached its zenith and becomes less and less tolerable socially and politically.
In that sense we may be witnessing the end of another cycle of the industry. It is a fair contention that in the end CMT may be facing the end game for its operations in Mauritius.
* Published in print edition on 4 March 2015