Value chain analysis Jordan garments
The garment sector is one of the principal drivers of economic growth in Jordan today. Jordan places special importance on the garment sector, since it employs 2.5% of the country’s total workforce and makes up 21% of Jordan’s exports in value, which has great economic and social significance. Exporting to international markets has become increasingly important for Jordan in recent years, since regional markets slowed down due to political and economic instability. The reopening of the Syrian and Iraqi borders offers the potential for reconstructing trade networks and utilising currently unmet export potential. Looking forward to developing its exporting potential, Jordan’s stakeholders in the garment sector have shown strong interest in questioning and rethinking the production and trade of garments.
Sector landscape
There is no reliable data available on the current volume of garment production in Jordan. Data from the International Trade Center (ICT) indicates that Jordan’s garments exports were valued at 1.6 billion USD in 2017. Ninety percent of this value consists of high-quality sportswear for brands such as Nike and Under Armour, and the majority is destined for North American markets under the US-Jordan Free-Trade Agreement. This value chain analysis (VCA) highlights the clear divide in the Jordan garment export landscape between the approximately 85 large factories having 500–2,500 employees, which make up for approximately 95% of Jordan’s current garment exports, and the approximately 150 small and medium factories with 10–500 employees, which generally do not export but have mostly shown interest in doing so.
Business case
The VCA has found that the trade agreement between the EU and Jordan and the relaxed rules of origin has indeed triggered the interest of the private sector in exporting to the EU. However, the complexity of hiring a specific share of Syrian refugees required under the EU-Jordan trade agreement has proven challenging in practice. In addition, the advantages of exporting to EU are not any bigger than exporting to the US, for example, which has a free-trade agreement with Jordan providing similar incentives to exporters. In Any case, Jordan’s factories are and should be looking into market diversification, as these trade conditions may change in the future.
For Jordan to diversify its export markets beyond the US and regional markets, it would be interesting to focus on the medium-high or high EU market segments, according to our assessment of trends in the EU and of Jordan’s competitiveness in the global market. However, the regional and US export markets also offer unmet opportunities. Therefore, we recommend building a clear EU export business case for added value and FOB production models in order to manage risks. The business case for EU export should be different for each factory, depending heavily on individual characteristics such as current typology of products, business model, target markets, current skill set and investment necessary to meet EU requirements.
Challenges
The company assessments we performed confirmed the impression that SME factories currently not exporting do need to take significant steps in order to optimise and formalise their business processes. At the same time, EU buyers’ awareness of sourcing from Jordan is still relatively nascent. In addition, key obstacles to optimising value- added production for the EU market include a lack of understanding of European requirements regarding standards and design, lack of access to technical assistance and, in some cases, lack of financial resources to invest in production line optimisation and certification. Employing Syrian refugees seems interesting as adding value to what buyers seek in terms of branding and corporate social responsibility (CSR), but it poses multiple challenges which prevent it from being a practical solution to labour shortages and compliance with rules of origin in the short term. Companies also mentioned the difficulty of access to skilled labour as one of the key obstacles to the development of the sector.
Opportunities
Some key existing advantages of Jordan’s garment factories, which could be utilised to grasp the potential to amplify the opportunities in the EU market include: the excellent compliance with environmental and social standards; the sector’s potential to respond to flexible orders and small order sizes, and the high level of education of the factories’ management staff. The reopening of the northern borders with Syria would also create a major opportunity for Jordan’s factories, reducing one-way transport times to Western Europe from 18 to six days. All ofsustainable and compliant products.
Product-Market Segment Combinations (PMCs)
Jordan’s garment sector already focuses on products of relative added value for mid and mid-high segments, preferring ‘low-volume, high-price’ production over the ‘high-volume, low-price’ production that manufacturers in countries such as Bangladesh and Vietnam do. Jordan cannot compete in this segment because of its comparatively high lead times, high costs and low efficiency. We have identified, along with EU experts and local stakeholders, the following product groups which have high or moderate potential for Jordan in the EU market. Nevertheless, all these product groups would be worth considering when developing export promotion interventions. The selected PMCs meet Jordan’s capabilities and EU markets demand:
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High-potential product groups:
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Product groups with moderate potential:
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Pathway to EU export readiness
The VCA proposes a roadmap to optimise Jordan’s EU export potential, building on two levels of interventions: factory-level and ecosystem-level solutions. Together, they will provide the garment sector with a strong foundation consisting of market information, skills, production capacity and contacts required for Jordan’s garment exports to the EU to grow. At the factory level, we propose a proactive strategy that requires factories to start optimising their current production efficiency and output quality. This would enable the next step: becoming export ready by targeted training on EU market requirements and ‘look and feel’. This latter step is also strongly recommended for currently exporting companies, due to their current focus on the US market and its alternative trends and standards.
At the same time, we strongly recommend building sector support capacity as well. Setting up a skilled organisational body would be crucial for improved international competitiveness of Jordan’s garment SMEs, which can facilitate the factories’ collaboration efforts towards joint fabric sourcing and sales, for example. A national sector body could solve another critical obstacle, the difficulty of access to information, by offering a digital database of EU market information and an interactive information desk for any type of garment related enterprises. Third, a national sector organisation could provide continued lobbying to ensure the representation of the garment sector’s interests at the government’s table in matters related to labour, trade agreements and manufacturing legislation.
Many public and private sector organisations already currently support the garment sector with a variety of micro and macro-level interventions. Pursuing clear communication and coordination of activities with these existing interventions would ensure added value to additional interventions.
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