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Value chain Management of Ethiopian garment companies

AASTU
Addis Ababa Science and Technology University
Value Chain Management of Ethiopian Garment
Companies:
The Case of Garment Companies in Addis Ababa

By Zerihun Abebe

A Thesis Submitted to School of Graduate Studies of Addis Ababa Science and


Technology University in Partial Fulfillment of the Requirements for the Degree
of Masters of Business Administration in Industrial Management

Advisor: Dr. Belete Mebratu

August, 2016
Addis Ababa, Ethiopia

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Value chain Management of Ethiopian garment companies

Addis Ababa Science and Technology University


School of Business management

Value Chain Management of Ethiopian Garment


Companies:
The Case of Garment Companies in Addis Ababa

By Zerihun Abebe

Approved by Board of Examiners:

_________________ ______________ ______________


Chairman, Signature Date
Dr. Alula

____________ ______________ ______________


Advisor Signature Date
Dr. Belete Mebratu
_____________ _____________ ______________
External Examiner Signature Date
Dr. Eshete

_____________ ______________ ______________


Internal Examiner Signature Date
Dr. Dugassa

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Value chain Management of Ethiopian garment companies

Declaration
I hereby declare that the work which is being presented in this thesis entitled “Value Chain
Management of Ethiopian Garment Companies (The Case of Garment companies in Addis
Ababa)” is original work of my own, has not been presented for a degree of any other university
and all the resource of materials used for this thesis have been duly acknowledged.

Zerihun Abebe ______________ ___________


Candidate Signature Date

This is to certify that the above declaration made by the candidate is correct to the best of my
knowledge.

Dr.-Belete Mebratu _________________ _______________


Advisor Signature Date

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Value chain Management of Ethiopian garment companies

ACKNOWLEDGEMENTS
Throughout the course of research leading to the completion of this thesis, I have gratitude
to many people, who have provided me with tremendous help and support in one way or another,
which I think I cannot possibly acknowledge in full measures. First and foremost, I express my
deepest gratitude to my advisor, Dr. Belete Meberatu, for his time and valuable advice and
comment throughout the development of this thesis. His experience, insightful guidance, and
encouragement provide me necessary ways and confidence to carry out and complete this study.
I also wish to express my sincere thanks to garment companies, executives and garment
experts, for their generous and valuable support information to my research. Likewise, I would
like to send my heartfelt thanks to my colleagues in ministry of industry, who gave me not only
considerable assistance but also significant support to help me conduct the study.
Finally, I have indebted to my respected wife for her immeasurable love and cares during
my life. This research is dedicated to my wife, Meseret Shiferaw and my little daughter, Yohana
Zerihun, with love.

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Value chain Management of Ethiopian garment companies

ABSTRACT

The objectives of this study are twofold: (1) To explore the value chain management of
Ethiopian garment companies and (2) To recommend the policies in both firm and government
level to improve the value chain management of garment companies. The research model used for
this study is adapted from the Value Chain Model of Michel E. Porter (1985) and garment
concepts of Gini Stephens Frings (2002). The study shows the value chain of garment companies
through management of 9 activities: Inbound logistic, operations, outbound logistics, marketing
and sales, services, technology development, infrastructures, human resource management and
procurements. The research is analyzed based on qualified 49 questionnaires that are collected
from garment companies in Ethiopia by using SPSS: percentage, frequency, mean, standard
deviation, and t-test. Secondary data also is analyzed.

The main finding of this study, regarding to the value chain management of garment
companies, indicates that there are 8 activities that are managed moderately effective in garment
companies in Ethiopia. They are inbound logistics, outbound logistics, services, technology
development, human resource management, infrastructure and procurement. Marketing activity is
managed not too effectively. Only one activity is managed effectively is production. The
importance of activities in the value chain was analyzed to find the difference between the
perceptions of respondents from garment companies and experts. The finding of this study leads
to recommend Ethiopia government should establish concentrated trade centers in potential
market, organize and provide funding to regular trade fair abroad, and support in human
resource training and legal aid. The government also should help textile and garment related
services, such as industrial software, equipment and parts supply, technical services, trade
promotion, trade mark development, franchise, design, training, quality control, management etc.
Finally, the government and institutes should play as the facilitators for the development of the
industry though provision of information, development of physical infrastructure, and
institutional support. Garment companies in Ethiopia should consider operation, marketing and
sales, HRM and technology development as their key activities and need to improve these
activities to improve the value chain management.

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Value chain Management of Ethiopian garment companies

Contents
ACKNOWLEDGEMENTS .................................................................................................................................... i
ABSTRACT ....................................................................................................................................................... iii
Appendix ....................................................................................................................................................... vii
List of Figure ................................................................................................................................................. viii
List of Tables .................................................................................................................................................. ix
Abbreviations .................................................................................................................................................. x
CHAPTER ONE .................................................................................................................................................1
INTRODUCTION ...............................................................................................................................................1
1.1. Background and Statement of Problems ........................................................................................1
1.2. Objectives of the Study ...................................................................................................................2
1.3. Research Questions .........................................................................................................................2
1.4. The Scope of the Study ..................................................................................................................2
1.5. Operational Definitions ...................................................................................................................2
1.6. Expected Benefits of the Study ......................................................................................................4
1.7. The Conceptual Framework ............................................................................................................4
1.8. Organization of the Study ...............................................................................................................4
CHAPTER TWO ................................................................................................................................................6
LITERATURE REVIEW ...............................................................................................................................6
2.1. The Theoretical Framework ............................................................................................................6
2.1.1. The Value Chain Model ...........................................................................................................6
2.1.2. The Linkages between Activities ..........................................................................................16
2.2. Overview of Garment Industry .....................................................................................................16
2.2.1. Introduction ..........................................................................................................................16
2.2.2. APPAREL ................................................................................................................................17
2.3. Related Literatures Reviews .........................................................................................................20
2.3.1. Important Concepts and Theories Used In Garment Business..............................................20
CHAPTER 3 ....................................................................................................................................................25
RESEARCH METHODOLOGY ..........................................................................................................................25
3.1. Conceptual Framework .................................................................................................................25
3.2. Sources of Data .............................................................................................................................26
3.2.1. Secondary Data .....................................................................................................................26

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3.2.2. Primary Data .........................................................................................................................26


3.3. Sampling, Design and Measurement of Questionnaire and Interview ..........................................26
3.3.1. Sampling, Design and Measurement of Questionnaire .........................................................26
3.3.2. Sampling, Design And Measurement Of Interview ..............................................................28
3.4. Data Collection Method ................................................................................................................28
3.5. Research Analysis, Statistics and Interpretation of Questionnaire ..............................................29
Chapter 4.......................................................................................................................................................30
RESULTS OF ANALYSIS ..........................................................................................................................30
4.1. Response Rate and Demographics of Garment Companies in Ethiopia .......................................30
4.1.1. Response Rate Summarization..............................................................................................30
4.1.2. Position of Respondents of Firms .........................................................................................30
4.2. Analysis of Value Chain Management of Garment Companies in Ethiopia .................................34
4.2.1. The primary activities management ......................................................................................35
4.2.2. Support Activities Management ...........................................................................................41
4.3. Comparison between Respondents and Experts’ Perceptions on Importance of Activities in the
Value Chain of Garment Companies ........................................................................................................45
4.3.1. Comparison between Respondents and Experts’ Perceptions on Importance of Primary
Activities in the Value Chain of Garment Companies in Ethiopia .........................................................46
4.3.2. Comparison between Respondents and Garment Experts’ Perceptions on Importance of
Support Activities in the Value Chain of Garment Companies ............................................................49
4.4. Opinions of Experts’ Summarization ............................................................................................52
4.4.1. Strengths and Weaknesses of Garment Companies ..............................................................52
4.4.2. Opportunities and Challenges of Garment Companies ........................................................53
4.4.3. The Policies that Ethiopian Government Should Implement to Help Garment Companies in
Ethiopia Improving Their Value Chain Management ............................................................................55
4.5. Second Data Analysis ....................................................................................................................56
CHAPTER FIVE ...............................................................................................................................................57
CONCLUSIONS, DISCUSSIONS AND RECOMMENDATIONS ...........................................................................57
5.1. The Results and conclusion of the study ......................................................................................57
5.2. Discussions ....................................................................................................................................58
5.2.1. Inbound Logistics ..................................................................................................................59
5.2.2. Operations.............................................................................................................................59
5.2.3. Outbound Logistics ...............................................................................................................60

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5.2.4. Marketing and Sales ..............................................................................................................60


5.2.5. Services .................................................................................................................................60
5.2.6. Infrastructure ........................................................................................................................61
5.2.7. Human Resources Management...........................................................................................61
5.2.8. Technology Development .....................................................................................................62
5.2.9. Procurement .........................................................................................................................62
5.3. Recommendations ........................................................................................................................62
5.3.1. Recommendations for the Government ...............................................................................63
5.3.2. Recommendations for the Firms ..........................................................................................65
5.3.3. Limitations of the Study ........................................................................................................67
5.3.4. Suggestions for Further Studies ............................................................................................68
BIBIOGRAPHY ................................................................................................................................................69

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Appendix
Appendix 1: Letter for Interview’s Appointment……………………………………….….72
Appendix 2: Topics for face to face interviews …………………………..............................73
Appendix 3: Letter for questionnaire survey………………………………………………...74
Appendix 4: Questionnaires …………………………………………………………………75
Appendix 5: List of garment companies in Ethiopia………………………………………....81
Appendix6: Ethiopia at a glance……………………………………………………………………….85

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List of Figure
Figure 2: 1 the value chain model ...................................................................................................................7
Figure 2: 2 inbound logistic model ..................................................................................................................8
Figure 2:3 operation managment model ........................................................................................................9
Figure 2:4 the supply chain in textile and clothing sector ............................................................................10
Figure 2:5 Marketing mix model ...................................................................................................................11
Figure 2:6 Decisions on price strategy ..........................................................................................................12
Figure 2:7 A fashion cycle ............................................................................................................................21
Figure 2:8 Apparel production process.........................................................................................................22
Figure 3:1 Value chain model of garment companies ..................................................................................25
Figure 4:1 Position of respondents ................................................................................................................31
Figure 4: 2 Firm’s experiences ......................................................................................................................32
Figure 4:3 Type of respondents’ company ....................................................................................................33
Figure 4:4 types of orders..............................................................................................................................33
Figure 4:5 Major markets of garment companies..........................................................................................34
Figure4:6 Inbound logistics management of garment companies .................................................................36
Figure 4:7 production management of garment companies ..........................................................................37
Figure 4:8 outbound logistics management of garment companies ..............................................................38
Figure 4:9 Marketing management of garment companies ...........................................................................39
Figure4:10 The sales management of garment companies ...........................................................................40
Figure 4:11 Services management of garment companies ............................................................................41
Figure4:12 Infrastructure management of garment companies in Ethiopia ..................................................42
Figure 4:13 Human resource management of garment companies ...............................................................43
Figure 4:14 Technology developments in garment companies .....................................................................44
Figure 4:15 Procurement of garment companies...........................................................................................45

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List of Tables
Table 2. 1 export trend .................................................................................................................................19
Table 3. 1 Likert's scale……………………………………………………………………………………………………………………………28
Table 4.1. 1 position of respondent…………………………………………………………………………………………………………31
Table 4.1. 3 Firms Experience in Garment industry ......................................................................................32
Table 4.1. 4 Type of respondents’ companies ...............................................................................................32
Table 4.1. 5 Type of order .............................................................................................................................33
Table 4.1. 6 the major market ......................................................................................................................34
Table 4.2. 1 width of class interval I………………………………………………………………………………………………………..35
Table 4.2. 2 inbound logistics management of garment companies ............................................................35
Table 4.2. 4 production management of garment companies .....................................................................36
Table 4.2. 5 outbound logistics management of garment companies .........................................................37
Table 4.2. 6 marketing management of garment companies.......................................................................38
Table 4.2. 7 the sales management of garment companies ...........................................................................39
Table 4.2. 8 Services management ...............................................................................................................40
Table 4.2. 9 infrastructure management of garment companies .................................................................41
Table 4.2. 10 human resource management in garment companies ...........................................................42
Table 4.2. 11 technology development in garment companies ...................................................................43
Table 4.2. 12 procurement of garment companies ......................................................................................44
Table 4.3. 1 width of class interval II…………………………………………………………………………………………….. 46
Table 4.3. 2 independent sample test of primary activities .........................................................................46
Table 4.3. 3 Group statistics of primary activities.........................................................................................46
Table 4.3. 4 inbound logistics........................................................................................................................47
Table 4.3. 5 Operations .................................................................................................................................47
Table 4.3. 6 outbound logistics .....................................................................................................................48
Table 4.3. 7 marketing and sales...................................................................................................................48
Table 4.3. 8 services ......................................................................................................................................49
Table 4.3. 9 independent sample test of support activities .........................................................................49
Table 4.3. 10 group statistics of support activities .......................................................................................50
Table 4.3. 11 infrastructure ..........................................................................................................................50
Table 4.3. 12 human resource management ................................................................................................50
Table 4.3. 13 technology development ........................................................................................................51
Table 4.3. 14 procurement ...........................................................................................................................51

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Abbreviations
CAD: Computer Aided Design
CAM: Computer Aided Manufacturing
CMT: Cutting, Making and Trimming
ETIDI: Ethiopia Textile Industry Development Institute
ETGMA: Ethiopian textile and garment manufacturer Association
EU: European Union
FDI: Foreign Direct Investment
FTA: Free Trade Agreement
HRM: Human Resource Management
MOI: Ministry of Industry

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CHAPTER ONE
INTRODUCTION

1.1. Background and Statement of Problems

In business, companies are paid to take raw inputs, and to “add value” to them by turning
them into something of worth to other people. This is easy to see in manufacturing, where the
manufacturer “adds value” by taking a raw material of little use to the end-user and converting it into
something that people are prepared to pay money for (Abrue, M de Palva, 1995). In most cases, the
more value companies create, the more people will be prepared to pay a good price for the product or
service, and the more they will keep on buying (Michel E. Porter, 1986). And in today’s business
climate, every company needs to maximize the value of every process in their business. This is where
the “Value Chain Analysis” tool is useful. Value Chain Analysis helps companies identify the ways in
which the companies create value for their customers, and then helps the companies think through
how they can maximize this value (Michel E. Porter, 1986).

In garment industry, value chain management becomes critical as the needs of customer
change very fast and production of customer value becomes more complex (Gini Stephens Frings,
2002). Buyer will expect from garment companies: A well maintained sample room and
fabric/accessory library, a constant supply of new fabrics and accessories, efficient communication,
fast and correct sampling, efficient order handling, competitive prices and good quality standard,
punctual and quick deliveries (45 to 60 days), a reliable, partnership-like business relationship (Till
Freyer, 2003).

In Ethiopia, there are currently 48 standalone garment manufacturers. According to ETIDI


(2014), this amount is expected to increase to 81 garment manufacturers in the coming years.
Standalone garment manufacturers are mainly involved in cut make trim (CMT) activities (ETIDI,
2013). Most of the apparel manufacturers make use of imported fabrics and produce both knitted and
woven apparel. The standalone garment manufacturers lack access to sufficient fabrics produced at
the local industry. This is due to lack of large standalone quality fabric producers in Ethiopia (ETIDI,
2013). The majority of the fabrics are produced in the integrated textile firms. These fabrics are not
sold at the local market as the integrated textile firms have the facilities to produce value added
products such as apparel products (ETIDI, 2013).
The textile industry is not yet producing at the high fashion level according to ETIDI (2013).
The garment manufacturers rather produce basic products such as shirts, sport wears and uniforms.

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Garment manufacturers lack access to sufficient quality fabrics in Ethiopia. Because of the limited
number of local producers capable of supplying export-quality fabric most apparel manufacturers
order fabric from Asian suppliers, (ETIDI, 2013). This indicated to take up to 20 to 30 days (World
Bank Group, 2011). As a result, the garment manufacturers are characterized by long order-delivery
times.
Mean-while, the Ethiopian government has spearheaded the sector as one of the key priority
sectors for the generation of future employment and to realize its aim to enhance foreign currency
earnings. This is supported by the creation of various industry policies and incentives to attract foreign
direct investors. Ethiopian textile- and apparel products have duty free access to the European Union
and the US market through the African Growth and Opportunity act ( AGOA) and are part of the
General system of preferences GSP+ and Everything but Arms (EBA). The sector is part of the
governments Growth and Transformation Plan (GTP) which started in 2010/2011 to transform the
nation from an agricultural dominated economy into a manufacturing economy with aspirations to
become middle income nation in 2025. The value chain management so will be very important to the
success of garment companies in the new environment.

1.2. Objectives of the Study


1. To explore the value chain management of garment companies in Ethiopia.
2. To recommend the policies in both firm and government level to improve the value chain
management of Ethiopian garment companies.
1.3. Research Questions
1. How is the value chain of garment companies in Ethiopia managed?
2. What activities should be considered as strategy activities in the value chain of garment companies
in Ethiopia?
3. How can garment companies in Ethiopia improve their value chain?

1.4. The Scope of the Study


The research is targeted to study non state own and FDI garment companies in the city of Addis
Ababa. The study shows the general picture of the value chain management of garment companies
in Ethiopia and it shows a number of significant findings.

1.5. Operational Definitions


These are several definitions of international trade, economics, international business, fashion
and garment export related to the study as follow:

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Textile and garment Industry: Textile and garment industry is classified as the industry that
consisting of the companies which manufacture fiber, product of shuttle weaving, knitted weaving,
clothing product and accessories.
Garment companies: Companies that operate in the clothing sector are considered as
garment companies.
Export garment companies: Export garment companies are defined as garment companies
that appear on the list of Exporter,
Value: Value in organization is defined as any activity that increases the market form or
function of the product or service in garment companies.
The value chain: The value chain categorizes the generic value-adding activities of garment
companies. Activities compose of inbound logistics, operations, outbound logistics, marketing and
sales, services, firm infrastructure, human resource management, technology development and
procurement.
Value-chain management: The Value chain management is managing integrated information
about product flow from suppliers to end users to reduce defects and inventories, speed time to market
and improve customer satisfaction.
Inbound Logistics: Inbound logistics includes receiving, storing, inventory control,
transportation scheduling.
Operations: Operations includes machining, packaging, assembly, equipment maintenance,
testing and all other value creating activities that transform the inputs in to the final products.
Outbound Logistics: The activities required to get the finished products to customers:
warehousing, order fulfillment, transportation, distribution management.
Marketing and sales: The activities associated with getting the buyers to purchase product
including channel selection, advertising, promotion, selling, pricing, retail management, etc,.
Service: The activities that maintain and enhance product’s value including customer support,
repair service, installation, training, spare part management, upgrading, etc.
Procurement: Procurement of raw materials, servicing, spare parts, building, machine, etc.
Technology Development: Technology Development includes technology development to
support the value chain activities such as Research and Development, Process automation, design, and
redesign.
Human Resource Management (HRM): The activities associated with recruiting,
development (education), retention and compensation of employees and managers.

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Firm Infrastructure: Firm infrastructure includes general management, planning


management, legal, finance, accounting, public affairs, quality management, etc,
Export: The way that garment companies enter a foreign market by sending products and
selling them through international marketing intermediaries or through the company’s own
department, branch or sale representatives or agents.
CMT (Cutting, Making, Trimming): Oversea customers send fabric, accessories or sample
to manufacturer for cutting, making and trimming.
FOB operation: The manufacturer designs the sample, send it to the customer to get
approval, and then buy fabric and accessories to make the order or the manufacturer receive the order
with the sample from the buyer, buy fabric and accessories to make the order.
Fashion: Fashion is the style or styles most popular at a given time. The term implies three
components: style, change and acceptance.
Tariff: taxes imposed on imported garments or fabrics.
Quota: specifies a certain physical amount of garments will be allowed into a country during
the time period, usually one year. Quota and tariff can be used at the same time and also can create in-
quota tariff and out-quota tariff.
1.6. Expected Benefits of the Study
1. Give understanding of the present situation of Ethiopia’s garment export industry and
2. Identify how effectively the value chain of garment companies in Ethiopia is managing.
3. Recommend a new value chain management method that managers of Ethiopia garment companies
can use to improve their companies’ value chain.
4. Recommend policies to government’s policy makers which can be used as bases to construct
support policies to help garment companies in Ethiopia to improve their value chain.
5. Provide information and finding results for researchers for future studies.
1.7. The Conceptual Framework
The study is based on the Value chain model, which was described and popularized by
Michael Porter in his best-seller: Competitive Advantage: Creating and Sustaining Superior
Performance, 1985, New York, NY the Free Press. Other concepts and fashion marketing theories
will also be applied.

1.8. Organization of the Study


This thesis consist of 5 chapters: Chapter 1 describes the background and importance of
problems, the objectives and scope of the study, research questions, operational definitions, expected

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benefits and conceptual framework. Chapter 2 presents: the theoretical model, overview of garment
industry in Ethiopia, the related literature to understand the value chain of garment companies in
Ethiopia, Chapter 3 presents research methodology with conceptual frame work, sources of data,
sampling, design and measurement of question. Data analysis will be presented in Chapter 4 with
main parts are: response rate, and value chain management analysis, experts’ opinions summary and
secondary data analysis. Chapter 5 covers: conclusions, discussions and recommendations.

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CHAPTER TWO
LITERATURE REVIEW
The purpose of this chapter is to review theories and conditions of garment industry in Ethiopia.
Three following sections will be covered:
Section 1: The theoretical framework
Section 2: Overview of garment industry in Ethiopia
Section 3: Related researches

2.1. The Theoretical Framework


2.1.1. The Value Chain Model
The term ‘Value Chain’ was used by Michael E.Porter in his book "Competitive Advantage:
Creating and Sustaining superior Performance" (1985). In his opinion “The value chain disaggregates
a firm into its strategically relevant activities in order to understand the behavior of costs and the
existing and potential sources of differentiation. A firm gains competitive advantage by performing
these strategically important activities more cheaply or better than its competitors”. A firm is
profitable if the value it commands exceeds the costs involved in creating the product. Creating value
for buyers that exceeds the cost of doing so is the goal of any generic strategy (E.Porter, 1985).
According to the book a value chain is "a string of companies working together to satisfy market
demands." The value chain typically consists of one or a few primary value (product or service)
suppliers and many other suppliers that add on to the value that is ultimately presented to the buying
public. Value chain analysis describes the activities within and around an organization, and relates
them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value
each particular activity adds to the organizations products or services. The ability to perform particular
activities and to manage the linkages between these activities is a source of competitive advantage
(Arthur A. Thomson, 1998). Michael Porter proposed the value chain as “a tool for identifying ways
to create more customer value”. Every firm is a synthesis of activities that are performed to design,
produce, and market, deliver, and support its product. The value chain displays total value, and
consists of value activities and margin. Value activities are the physically and technologically distinct
activities a firm performs. These are the building blocks by which a firm creates a product valuable to
its buyers. Margin is the difference between total value and the collective cost of performing the value
activities. The value chain identifies nine strategically relevant activities that create value and cost in a
specific business. This nine value creating activities consist of five primary activities and four support
activities (E. Porter, 1985).

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The primary activities represent the sequence of bringing materials into the business (inbound
logistics), converting them into final products (operations), shipping out final products (outbound
logistics), marketing them (marketing and sales) and servicing them (service). The support activities:
procurement, technology development, human resource management and firm infrastructure are
handled in certain specialized department but not only there. The firm’s infrastructure covers the costs
of general management, planning, finance, accounting, legal and government affairs that are borne by
all the primary and support activities (E. Porter, 1985). To develop the value chain of garment
companies in Ethiopia, fashion and garment concepts of Gini Stephens Frings (2002) have been used.
The basic model of Porters Value Chain is as follows:

Figure 2:0:1 the value chain model

Source: Michael E. Porter, 1985


2.1.1.1. Primary Activities
There are five generic categories of primary activities involved in competing in any industry,
as show in figure 2-2. Each category is divisible into a number of distinct activities that depend on the
particular industry and firm strategy.
Inbound Logistics
The holding company of the two brands TNT and Royal TPG Post, a global leader in logistics,
mail and express defines “Inbound logistics is the management of a complex supply chain from
suppliers to manufacturers”. Goods are received from a company's suppliers and then stored until they

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Value chain Management of Ethiopian garment companies

are needed on the production/assembly line. Goods are moved around the organization (E. Porter,
1985,Alan Rushton, 2000, Lisa Harrington, 1995). Inbound logistics are described as following figure:

Suppliers

Bulk delivery

Raw material inventory

Transfer
Production

Transfer

Work in progress inventory


and assembly

Transfer

Ware housing
Finished goods

Figure 2:0:2 inbound logistic model

source: TNT N.V Cooperation (Year 2004)

Operations
Operation is the manufacturing or assembling of goods (Chase, 1998). Operation
management may be defined as the design, operation, and improvement of the production systems
that create the firm’s primary products or services. The head of operation management is the
management of production systems (Hiilier, F.S and Lieberman, 1990, Kogut, 1994). A
production system uses operations resources to transform inputs into some desired output
(Daniels, John D and L.H Radebangh, 1998). An input may be a raw material, a customer or a
finished product from another system. As indicated in the figure 2-3 operation resources consist
of what we term the five P’s of operation management: people, plants, parts, processes, and
planning and control systems (Richard B. Chase, 1998).

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Operations management
Operations management

people
People plant
Plant part
Part process
Process

input
Input output
Output

Planning and
Planning and control
controlsystem
system

Product system

Figure 2:0:3 operation management model

Source: Richard B. Chase, Production and Operations management, 1995

In this study, operation is one of 5 primary activities and under E. Porter’s concepts it
include every value creating activities that transform the inputs in to the outputs. And to avoid
double analyzed, this activity later on will be analyzed as production of a garment.
Outbound Logistics
The goods are now finished, and they need to be sent along the supply chain to
wholesalers, retailers or the final consumer (Chandra, Sameer Kumar, 2000). Outbound logistic is
also considered as physical distribution. Physical distribution is defined as all activities concerned
with the management of the flow of finished goods to consumers (Chandra, 1997). Physical
distribution has been expanded into broader concept of Supply chain management (SCM). It
involves procuring the right inputs (Raw materials, components, and capital equipment),
converting them effectively into finished products and dispatching them to the final destinations
(Poirier, C.C, 1998).
Physical distribution starts at the factory. Managers choose a set of warehouses (stocking
points) and transportation carriers that will deliver the goods to final destinations in the desired
time or at the lowest total cost (Arthur St. Onge, 1997). Physical distribution also includes
transportation, but this time outbound from the plant or storage facility to customers (Alan

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Rushton, 2000). The management of the finished goods inventory is included here, along with the
protective packaging of goods to reduce damage in transit (marketing handles the type of
packaging designed to attract purchasers and sell products), and storage and materials handling
(Carl M. Guelzo, 1986).
In textile and garment sector, the supply chain starts at raw materials to textile plant,
apparel plant and then distributed through distribution centers, retail store to customer (Gini
Stephens Frings, Fashion from concepts to consumers, 2002). Chandra and Sameer Kumar (2000)
also wrote about the textile supply chain in their journal “An application of a system analysis
methodology to manage logistics in a textile supply chain”. Textile supply chain is described as
figure 2-6.

Raw Textile Apparel Distrib. Retail Customer


materials plant plant centres store
-spinning
-weaving
-drying
-printing
Accessory

Figure 2:0:4 the supply chain in textile and clothing sector

(Source: Gini Stephens Frings, 2002)

Marketing and Sales


In true customer orientated fashion, at this stage the organization prepares the offering to
meet the needs of targeted customers. This area focuses strongly upon marketing communications
and the promotions mix. Marketing is typically seen as the task of creating, promoting, and
delivering goods and service to consumers and businesses (Phillip Kotler, 2003). Marketers are
skilled in stimulating demand for a company’s products; they are responsible for demand
management. Marketing managers seek to influence the level, timing and composition of demand
to meet the organization’s objectives.

10
Value chain Management of Ethiopian garment companies

Marketing mix
The marketing mix is probably the most famous phrase in marketing. The elements are
the marketing 'tactics'. Also known as the 'four Ps', the marketing mix elements are product,
price, place and promotion (Phillip Kotler, 2003).

Product Price Place Promotion

Marketing – mix

Figure 2:0:5 marketing mix model

(Source: Kotler Philip, 2003) Target


market

Product
The product is the heart of the marketing mix. If the product fails to meet the end-user or
the consumer’s needs no additional efforts on any of the other ingredients of marketing mix will
improve the product performance in marketplace (Phillip Kotler, 2003). It is important that the
product is changed as necessary to bring it up to date and prevent it from being overtaken by
competitors (Cavusgil, S. Tamer, 1993). In garment industry, the style of product is very
important and it changes very fast. The product not only is required good quality but also
fashionable. “In garment industry one of the most important things is fashion” Designer Karl
Lagerfeld (1996) said “What I like about fashion is change. There’s nothing safe forever in
fashion. Fashion is a train that waits for nobody. Get on it or it’s gone”. And it is true that if
fashion never changes public would not buy garment so often. Here are some examples of product
decisions to be made: Brand name, functionality, styling, quality, packaging, repair and support,
warranty.
Price
Changing the product to reflect the product's life cycle is only part of the essence of a well
balanced marketing mix, and so price enters the second important consideration of the marketing
mix. It is very important that the correct price is charged for a product. If the price is too high

11
Value chain Management of Ethiopian garment companies

consumers will avoid the product as they will believe it to be too expensive yet if the product is
priced too low they may believe that there is something wrong with the product for it to be so
cheap. Also if the company charges too low a price, it may not cover its costs (Phillip Kotler,
2003). There are many different pricing strategies that companies can use to decide on a price for
their product including market and psychological pricing methods (Cateora R. Philip, 2002).
MARKETING ANALYSIS

Financial objectives Cost analysis

DECISION ON PRICING STRATEGY

Figure 2:0:6 Decisions on price strategy

Source: Kotler Philip, 2003


When setting a price on a range for products, it is needed to ensure that price can recoup
any overheads, compete with rival companies and customers are willing to pay. There are many
pricing strategies that companies can use: low price, high price, value price, market-base price or
cost-plus profit. In garment business, price normally base on cost. Costing a garment will be
delivered in the related literature.
Place
Place decides where the product is to be sold. There are 3 main distribution channels to
choose from: Traditional (selling the product to wholesalers who will then sell the product on to
retail outlets), Modern (producers selling the product directly to the retail outlet.), Direct - the
producer selling directly to the consumer such as door to door sales or over the internet (Phillip
Kotler, 2003).
Marketing promotion mix
Once the product has been made and the price set, it is important that potential customers
are told about the product. Promotion can also be used for reassuring the consumer that the
product is of good quality and persuading them to purchase the product. Companies must allocate
the promotion budget over five promotion tools: advertising, sales promotion, public relations,
sales force and direct marketing (Phillip Kotler, 2003). Companies are always searching for ways

12
Value chain Management of Ethiopian garment companies

to gain efficiency by replacing one promotional tool with others. The substitutability and
effectiveness of the promotional tools depends on consumer values and attitudes (Phillip Kotler,
2003, Cavusgil, 1993).
Advertising
Advertising can be used to build up a long term image for a product (Coca-cola ads) or
trigger quick sales. Certain forms of advertising (TV advertising) can require a large budget,
whereas other forms (Web advertising) may not. Just presence of advertising might have effects
on sales: consumers might believe that a heavily advertised brand must offer “good value”.
Sales promotion
Companies use sales-promotion tools to draw a stronger and quicker buyer response. Sales
promotion can be used for short run effects such as to dramatize product offers and boost sagging
sales.
Public relations and publicity
The appeal of public relations and publicity is based on three distinctive qualities: High
credibility (News stories and features are more authentic and credible to readers than ads), ability
to catch buyers off guard (public relations can reach prospects that prefer to avoid salespeople and
advertisements), dramatization (public relations have the potential for dramatizing a company and
a product).
Personal selling
Personal selling is the most effective tool at later stages of buying process, particularly in
building up buyer preference, conviction, and action. Personal selling has three distinctive
qualities: personal confrontation (personal selling involves an immediate and interactive
relationship between two or more persons), cultivation (personal selling permits all kinds of
relationships to spring up ranging from a matter of fast selling relationship to a deep personal
friendship), response: personal selling makes the buyer feel under some obligation for having
listened to the sales talk.
Direct marketing
The many forms of direct marketing: direct mail, telemarketing, internet marketing-share
four distinctive characteristics. Direct marketing is: Nonpublic (the message is normally
addressed to a specific person), customized (the message can be prepared to appeal to the
addressed individual), up-to-date (a message can be prepared very quickly), interactive (the
message can be changed depending on the person’s response) (Phillip Kotler, 2003)
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Value chain Management of Ethiopian garment companies

Service
This includes all areas of service such as installation, after-sales service, complaints handling,
training and so on (E. Porter, 1985, Phillip Kotler, 2002). Each of the categories may be vital to
competitive advantage depending on the industry. In any firm, however, all the categories of
primary activities will be present to some degree and play some role in competitive advantage (E.
Porter, 1985).

2.1.1.2. Support Activities


Support value activities involved in competing in any industry, can be divided into four
generic categories, also shown in figure 2-1. As with primary activities, each category of support
activities is divisible into a number of distinct value activities that are specific to a given industry.
Firm Infrastructure
Firm infrastructure consists of a number of activities including general management,
planning, finance, accounting, legal, government affairs and quality management. Infrastructure,
unlike other support activities, usually supports the entire chain and not individual activities.
Depending on whether a firm is diversified or not, firm infrastructure may be self-contained or
divided between a business unit and the parent corporation. In diversified firms, infrastructure
activities are typically split between the business unit and corporate levels (e.g., financing is often
done at the corporate level while quality management is done at the business unit level). Many
infrastructure activities occur at both the business unit and corporate levels, however. Firm
infrastructure is sometimes viewed only as “overhead” but can be a powerful source of
competitive advantage (E. Porter, 1985)
Human Resource Management (HRM)
Employees are an expensive and vital resource (Gomez-Mejia and R. Luis, 1998). An
organization would manage recruitment and selection, training and development, and rewards and
remuneration. The mission and objectives of the organization would be driving force behind the
HRM strategy (Harrison, R,. 1993; Hendry, C. 1998; Leg, R. 1989). Human resource
management support both individual primary and support activities (e.g., hiring of engineers) and
the entire value chain (e.g. labor negotiations) (E. Porter, 1985). Human resource management
activities occur in different parts of a firm, as do other support activities, and the dispersion of
these activities can lead to inconsistent policies. Moreover, the cumulative costs of human
resource management are rarely well understood nor are the tradeoffs in different human resource

14
Value chain Management of Ethiopian garment companies

management costs, such as salary compared to the cost of recruiting and training due to turnover.
Human resource management affects competitive advantage in any firm, through its role in
determining the skills and motivation of employees and the cost of hiring and training. In some
industry it holds the key to competitive advantage (E. Porter, 1985).
Technology Development
Technology is an important source of competitive advantage. Companies need to innovate
to reduce costs and to protect and sustain competitive advantage (E. Porter, 1985). Technology
development consists of a range of activities that can be broadly grouped into efforts to improve
the product and the process (Daniels, 1985). Technology development tends to be associated with
the engineering department or the development group (Niebel, B.W, 1993). However, it occurs in
many parts of a firm, although this is not explicitly recognized. Technology development may
support any of the numerous technologies embodied in value activities. This could include
production technology, Internet marketing activities, lean manufacturing, Customer Relationship
Management (CRM), and many other technological developments (E. Porter, 1985; Sayer, A.
1986).
Procurement
Procurement refers to the function of purchasing inputs used in the firm’s value chain.
Purchased inputs include raw materials, supplies, and other consumable items as well as assets
such as machinery, laboratory equipment, office equipment, and buildings (E. Porter, 1985).
Though purchased inputs are commonly associated with primary activities, purchased inputs are
present in every value activities including support activities. Procurement tends to be spread
throughout a firm. Some items such as raw materials are purchased by the traditional purchasing
department; while other items are purchased by plant managers (e.g., machines), office manager
or salespersons. E. Porter, 1985). The cost of procurement activities themselves usually represents
a small if not insignificant portion of total costs, but often has large impact on the firm’s overall
cost and differentiation (Levy, 1993). Improved purchasing practices can strongly affect the cost
and quality of purchased inputs, as well as of other activities associated with receiving and using
the inputs and interacting with suppliers. The aim of procurement is to secure the lowest possible
price for purchases of the highest possible quality. They will be responsible for outsourcing
(components or operations that would normally be done in-house are done by other
organizations), and e-Purchasing (using IT and web-based technologies to achieve procurement
aims).
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Value chain Management of Ethiopian garment companies

2.1.1.3. Margin
The term “Margin” implies that organizations realize a profit margin that depends on their
ability to manage the linkages between all activities in the value chain. In other words, the
organization is able to deliver a product / service for which the customer is willing to pay more
than the sum of the costs of all activities in the value chain.

2.1.2. The Linkages between Activities


The linkages are flows of information, goods and services, as well as systems and processes for
adjusting activities. Their importance is best illustrated with some simple examples: Only if the
Marketing & Sales function delivers sales forecasts for the next period to all other departments in
time and in reliable accuracy, procurement will be able to order the necessary material for the
correct date. And only if procurement does a good job and forwards order information to inbound
logistics, only than operations will be able to schedule production in a way that guarantees the
delivery of products in a timely and effective manner – as pre-determined by marketing. In the
result, the linkages are about seamless cooperation and information flow between the value chain
activities. In most industries, it is rather unusual that a single company performs all activities from
product design, production of components, and final assembly to delivery to the final user by
itself. Most often, organizations are elements of a value system or supply chain. Hence, value
chain analysis should cover the whole value system in which the organization operates. This study
covers the value chain

2.2. Overview of Garment Industry


2.2.1. Introduction
At present the Ethiopian Textile and apparel (also used interchangeably with garments) is
rapidly growing. The country offer competitive prices in the international market and has
demonstrated to attract large new buyers such as Hennes and Mauritz (H&M). Early in 2012 UK
retailers such as TESCO, George (ASDA) Primark also began sourcing from Ethiopia. The
decision of these world famous global sourcing brands such as H&M and Tesco, who have
established and expanding their sourcing offices in-country, to start sourcing from Ethiopia
demonstrates the viable, commercial opportunities the textile and apparel industry has to offer in
Ethiopia based on financial and commercial analysis. The attraction to the industry seems from
anecdotal evidence to be based upon a number of reasons such as strong government support
through incentives, low interest loans for FDI operations matching (70:30), preferential trade
market access, cheap land, low labor costs, low utility costs and an enormous untapped potential
16
Value chain Management of Ethiopian garment companies

to link into the cotton value chain which utilize a very small (1-8% depending on source) of
current land available for its production. Most new investors in the market are viewing entry also
as a long term enterprise which means there are longer term benefits foreseeable and in addition
although an accounted for but valuable factors such as the stable politics, cost of living, quality of
life all bring together conditions conducive to investment. However as it will be discussed later
there are many structural and technical issues which are negatively affecting the industry at all
level from the seed quality to the labor skills to the customs and transport procedures.
The apparel value chain if considered from fiber to garment is long and consists of different
stages many of which are interlinked but may also be stand alone independent value chains. The
most important characteristics per stage of the value chains of the garment industries are
discussed.
2.2.2. APPAREL
In Ethiopia, there are currently 48 standalone garment manufacturers. According to ETIDI
(2014), this amount is expected to increase to 81 garment manufacturers in the coming years.
Standalone garment manufacturers are mainly involved in cut make trim (CMT) activities
(ETIDI, 2013). The annual production capacity is found to be 22 million pieces of woven garment
and 57 million pieces manufacturers and their production capacity as indicated by ETIDI (2013).
Most of the apparel manufacturers make use of imported fabrics and produce both knitted and
woven apparel. The standalone garment manufacturers lack access to sufficient fabrics produced
at the local industry. This is due to lack of large standalone quality fabric producers in Ethiopia
(ETIDI, 2013). The majority of the fabrics are produced in the integrated textile firms. These
fabrics are not sold at the local market as the integrated textile firms have the facilities to produce
value added products such as apparel products (ETIDI, 2013). In some cases international buyers
supply the standalone manufacturers with the needed quality fabrics, and accessories such as
trims and buttons (ETIDI, 2013).
The textile industry is not yet producing at the high fashion level according to ETIDI
(2013). The garment manufacturers rather produce basic products such as shirts, sport wears and
uniforms. Even H&M is currently demanding more basic products such as t-shirts (ETIDI, 2013).
Main products produced include t-shirts, polo shirts, lady tops, work wears, uniforms, overalls,
kids wear, under wear, sportswear, bed sheets, bed covers, pillows cases, table dresses, jackets,
skirts, and bags (ETIDI, 2013).

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Value chain Management of Ethiopian garment companies

Main Challenges
Standalone garment manufacturers lack access to sufficient quality fabrics in Ethiopia.
Most of the textile firms are integrated and consume their fabrics to produce finished products
(i.e. bed sheets and covers). In addition, integrated textile firms often directly export their fabric
to international markets rather than supplying local garment manufacturers. The local fabric
production industry lacks the capacity to produce the right variety, quality and quantity of fabrics
to supply standalone garment manufacturers. Because of the limited number of local producers
capable of supplying export-quality fabric most apparel manufacturers order fabric from Asian
suppliers, (ETIDI, 2013). This indicated to take up to 20 to 30 days (World Bank Group, 2011).
As a result, the garment manufacturers are characterized by long order-delivery times.
Other problems indicated include the inability to produce at full capacity due to the lack of
sufficient input materials such as fabric and accessories. There is not a sufficient local production
of accessories in Ethiopia and apparel firms are forced to import them (ETIDI, 2013). In addition,
the garment manufacturers face a lack of credit, low profit margins due their focus on CMT, high
overhead costs and high inland transportation costs (ETIDI, 2013; World Bank Group, 2011).
ETIDI plans to support garment manufacturers to become clustered so that they can share their
resources (ETIDI, 2013). Lastly, there is a lack of spare parts for the machinery used in the
factories. As the result the factories have to wait for spare parts imported from china and Indian,
which can take several weeks. The costs of apparel manufacturing are dominated by the cost of
fabric, which is 71.9 percent of the cost. No information is available on other major costs in
apparel manufacturing (World Bank 2006).
Ethiopia is a net importer in the textile and apparel sector. With net imports valuing 350
USD Million. In 2012 textile and apparel exports valued 70 Million USD Million, whereas textile
and apparel imports value 420 USD Million (Trade map, 2013). The share of textile and apparel
exports in the country’s total exports are 2 percent, while as share of textile and apparel imports
are higher at 3 percent (Trade map, 2013).
Due to a lack of local availability of quality fabrics, standalone garment manufacturers are
forced to import fabric from abroad (ETIDI, 2013). Major suppliers of textile and apparel
products are (1) China (2) India, (3) Ethiopia and (4) Thailand (Trade map, 2013).
Based on information from then ETIDI (2013) Ethiopia mainly exports yarn (21,536 USD
thousands) and garment products (61.485 USD thousands). As can be drawn from table 2.2-1 the
export of finished garments has increased in recent years. A shift has taken place in recent years
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Value chain Management of Ethiopian garment companies

from mainly exporting yarn to the exporting finished garment pieces. The main markets for
Ethiopia textile and apparel products are (1) Germany, (2) Turkey, (3) China, and (4) Italy
(ETIDI, 2013).
Table 2. 1 export trend

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


Yarn 3.718 8.301 6.209 8.388 21.536
Textile 3.564 6.373 14.916 7.415 9.009
Garment 6.625 6.715 19.824 62.587 61.485
Traditional clothes 497 1.729 2.513 4.913 5.193
Others 78 18.782 1.167 1.772
Total 14.404,81 23.195 62.244 84.469 98.995
Value in USD (‘000) Source: Ethiopian Textile Industry Development Institute, 2013/14

Regional market

The EAC and COMESA countries are minor export markets. Although the values are low,
the products that are exported to the EAC countries include woven apparel, cotton and second
hand clothing. Ethiopia exports mainly knitted apparel to the COMESA countries.

The EAC and COMESA countries are minor suppliers of textile and apparel products.
Ethiopia mainly imports cotton from EAC countries. Considering the COMESA countries
Ethiopia mainly imports woven apparel, knitted apparel and other textile and apparel products
such as tents and camping good sacks and bags for the packing of goods.

International market

The EU is largest market for Ethiopian textiles and apparel. The products exported to the
EU include knitted and woven apparel. A limited amount of knitted and woven apparel is
exported to the US as well. Ethiopia exports a limited amount of cotton and fibers to Asia.

Asia is by far the largest supplier of textile and apparel products. A diverse range of
products is sourced from Asia with the highest values for filaments and knitted and woven
apparel. In addition, the country sources cotton and other textile and apparel products such as
furnishing articles and bed, table and kitchen linens.

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Value chain Management of Ethiopian garment companies

2.3. Related Literatures Reviews


To understand more about the value chain in general and value chain in garment
companies, in this part of the research other theories are covered to support for the theoretical
framework.
2.3.1. Important Concepts and Theories Used In Garment Business.
In the Fashion from concept to consumer book, Gini Stephens Frings tells the whole story
of how the garment business works, in sequential order from concept to consumer. Among of
them, the following concepts and theories can be used to support the value chain methodology of
garment companies.

2.3.1.1. Fashion Cycle


Charu Chandra wrote in his article Supply chain management (2004): “One of the
common problems encountered in managing a supply chain is that of synchronization of activities
throughout the life cycle of its products”. With garment manufacturers fashion cycle is very
important factor because it helps manufacturers do the right action, at the right time to meet the
demands of customers (Gini Stephens Frings, 2002). Garment business is different compared with
other business. Fashion cycle now is changing very fast and this trend affect to the delivery lead
time. It requires a more effective fashion forecast in garment companies to catch the trend and
fulfill the needs of customers so it would affect to the value chain of garment companies. Fashion
cycle is usually depicted as a bell shaped curve encompassing five stages (Fig2:9).
Introduction of a style
Most new styles are introduced at a high price level. Designers who are respected for their
talent may be given finance to design with very few limitations on creativity, quality of raw
materials or amount of fine workmanship. They create new apparel and accessory styles by
changing elements such as line, shape, color, fabric, and details. Production costs are high and
only a few people can afford the resulting garments. New styles are shown to retail buyers and the
press at collection showings and market weeks. Some wealthy people are able to buy these
clothes because they want to wear them to important events. Some new styles are loaned to movie
and TV stars to wear so that they will be seen by many people.
Increasing in popularity
When new styles are seen worn by celebrities on television or photographed in magazines
they attract the attention of the general public. Viewers and readers may want to buy but perhaps
cannot afford them. Popular styles are copied by other manufacturers to make them available to

20
Value chain Management of Ethiopian garment companies

the general public. They use less expensive fabric and may modify the design to sell the style at
lower price.
Peak of popularity
When a fashion is at the height of popularity it may be in such demand that more
manufacturers copy it or produce adaptations of it at many price levels. Volume production
requires mass acceptance.
Decline in popularity
Eventually, so many copies are mass produced that fashion conscious people tire of the
style and begin to look for something new. Consumers still wear garments in the style but they are
no longer willing to buy them at regular prices.
Rejection of a style
In the last phase of the fashion cycle, some consumers have already turned to new looks, thus
beginning a new cycle. The rejection or discarding of a style just because it is out of fashion is
called consumer obsolescence.

Sales

Peak

Rise Decline

Introduction Rejection time


Introductory Acceptance phase Rejection phase

Figure 2:0:7 A fashion cycle

(Source: Gini Stephens Fring, 2002)

21
Value chain Management of Ethiopian garment companies

2.3.1.2. Garment production


Production process is so different between industries. In garment business production is
another of the three integral phases of fashion manufacturing: design, production and sales.
Apparel production process is described in figure 2-10.

Costing

Scheduling

Production pattern

Grading

Maker

Cutting

Assembly

Shipping
Figure 2:0:8 Apparel production process

Source: Gini Stephens Frings, 2002


Production scheduling
The production manager or merchandiser schedules cutting and garment assembly in time
to meet shipping dates (Arindam Das, 2001). A computer-generated production schedule or issue
plan is created to ensure that delivery dates are met. The first date on the schedule usually is a
shipping date that will meet the order requirements. The schedule progresses backward to include
completion dates, cutting dates and fabric delivery date. Production scheduling is very difficult
because it has to be organized to take maximum advantage of plant capacity as well as to meet
shipping date. Orders for each style must be complied to determine how many garments of each
size to produce (Gini Stephens Frings, 2002).
Pattern making
Accurate pattern-making is crucial for successful apparel production (Gini Stephens
Frings, Fashion from concepts to consumers, 2002) in garment companies, to make pattern the
production pattern makers do: draping, drafting or flat-patterning from standardized basic blocks.
In production, strict attention must be paid to company size specifications, which are standardized

22
Value chain Management of Ethiopian garment companies

measurements for each size. When using fabrics that shrink such as cotton, patterns have to allow
for that shrinkage. At most large manufactures, patterns are made on computer. With computer
aided design (CAD) systems, the pattern maker manipulates small graphic patterns on the
computer screen with a handheld control device.
Spreading and cutting procedures
Using the markers made from graded patterns, fabrics are cut to prepare for garment
assembly. Conventionally, a spreader machine is guided along a table, laying fabric on the cutting
table, the length determined by the marker. The fabric is cut at the, the machine returns to the
other end, and the next layer is laid face up on top of the first, in the same direction. Fabric is
spread on the cutting table with one ply on top of another so that many layers can be cut at the
same time. Then the marker is put on top of the layers of the fabric. A cutter follows the pattern
outlined on the marker, using a straight knife machine with a long and thin blade that vibrates
vertically as it is pushed through many layers of fabric (Gini Stephens Frings, 2002).
Garment assembly
The next step in production is the actual assembly or sewing of quantities of garments. No
two garment companies use all the same methods, but all follow the same basic order. A
supervisor analyses a garment’s construction to determine the best and fastest way to sew the
garment. An operation sheet is drawn up, listing all necessary operations in sequence. Nowadays,
most garment company uses Individual Incentive Systems (piecework) to improve productivity.
Sewing machine operators, finishers and pressers are paid on a piecework rate. That is they are
paid a set amount for each operation that they complete, rather than by the hour. Rates vary with
the difficulty of the operation. Actually, most companies pay a guaranteed wage (minimum
wage), with piecework acting as incentive for operators to work fasters and therefore earn more.
In USA and EU, most factories have installed automated systems for movement of goods and
sewing to speed up production and cut lead time. They also use computer technology in garment
assembly with Computer–aided manufacturing (CAM): applications include computerized cutting
and programmable sewing machine (Gini Stephen Frings, 2002).
Finishing
To ensure a perfect color match between garments to be worn together, manufactures can
dye the finished garments, which are in case made with greige (gray) fabrics. Washing sometime
required by customers.

23
Value chain Management of Ethiopian garment companies

Pressing
Pressing vastly improves the look of a garment. It can hind a multitude of imperfections
such as puckered seams and collars that do not lie flat. Garments are pressed during the course of
construction as well as at completion. Steam irons are used for areas not easily accessible.
Automated pressing is done by computer-controlled pressing equipment (Gini Stephen Frings,
2002).
Quality control
Quality control is the standardization of production sing specifications as guides. The last
garment sewn should be the same as the first garment. To ensure that production has been done
correctly and to prevent returns, both work in progress and finished garments are inspected
totally. Quality controllers not only check for poor sewing, but also spot check measurements
against original specifications. “Nothing to have beautifully designed garment if it is not produced
well” Karl Lagerfeld, 1990s international trendsetting designer, said. Besides construction
mistakes, reasons for return include poor fabric, fabric shading and broken needle still remain in
the garment.

24
Value chain Management of Ethiopian garment companies

CHAPTER 3
RESEARCH METHODOLOGY
The purpose of this chapter is to present the methodology of collecting and interpreting data. This
chapter is divided into 2 sections:
Section 1: Conceptual framework
Section 2: Methodology
3.1. Conceptual Framework
Based on the value chain model of Micheal E. Porter and garment concepts of Gini
Stephens Frings, the researcher have developed a conceptual model for garment companies in
Ethiopia as seen in Figure 3.1.

Inbound logistics: Receiving fabric and


accessory from fabric suppliers, storing and
handling fabric and accessory, inventory control,
transportation scheduling.
Operation: Production scheduling,
patternmaking, spreading and cutting, garment Primary
assembly, finishing and packaging, machine activities
maintenance.
Outbound logistics: warehousing, order
fulfillment, transportation, distribution
management to bring products to customers.
Marketing and sales: product, price strategy,
place, promotion, retail management, wholesale The value
management chain of
Services: customer support, complaint handling garment
companies
in Ethiopia
Infrastructure: General management, planning
management, financial management, quality
management, etc.
HRM: Recruiting, worker training, Support
compensation of employees and managers activities
Technology Development: Research and
Development, Process automation, and design.
Procurement: Procurement of fabric and
accessory, servicing, building, machine, etc

Figure 3:0:1 Value chain model of garment companies

Source: Adopted from the value chain model of E. Porter (1985) and garment concepts of Gini
Stephens (2002) by researcher

25
Value chain Management of Ethiopian garment companies

3.2. Sources of Data


The study two main sources of data: secondary and primary
3.2.1. Secondary Data
The data of garment companies in Ethiopia were explored based on public databases like
annual reports of Ethiopian Textile & Apparel Manufacturer Garment Association (ETGAMA),
Ethiopian Textile industry development institutes (ETIDI), and Ministry of Industry (MOI),
3.2.2. Primary Data
This source includes two types: interviews and questionnaires: Interviews were
implemented 7 garment experts: two policy makers from Ministry of Industry, 1 expert from
Ethiopian Textile & Garment Manufacturer Association, 1 expert from Ethiopian Textile industry
development institutes, two garment experts and 1 chairman from big garment companies.
Questionnaires were developed and launched on the population of 38 garment companies in
Addis Ababa Ethiopia (The sample size is calculated in following part). Interviews and
questionnaires were designed to explore value chain management of garment companies in
Ethiopia base on the framework mentioned above. With the result from “added value” activities
analysis, the study analyzed to point out the value chain management of garment companies in
Ethiopia.
3.3. Sampling, Design and Measurement of Questionnaire and Interview
3.3.1. Sampling, Design and Measurement of Questionnaire
Sampling and sample size
The sampling to conduct questionnaire is the garment companies in Addis Ababa,
Ethiopia. Based on list of the Ethiopian Textile industry development institutes (ETIDI) and
Ministry of Industry (MOI), from 51 garment companies 42 garment companies are operate in
Addis Ababa. A random sample of companies was selected from 25 garment exporting
companies. Yamane (Israel 1973) recommended the formula for random sample as below.
N
n=
1 + N e2
Where, n is sample, N is population, e=level of precision (taken as 0.05 i.e. with 95% confidence
level). The sample size can be calculated according to the recommendation as follow.
42
n= 1+42(0.05)2 = 38

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Value chain Management of Ethiopian garment companies

With N = 42, e = 5% (95 percent confidence). Hence the sample size for conducting questionnaire
should be 38 companies.
Questionnaire design
Questionnaire was designed to match with the objectives of the study and conceptual
framework. A short questionnaire with conceptually clear and concise statements is judged to be
desirable for both the respondents and the researcher. The questionnaire consists of a series of
questions that shown in Appendix 4. To ensure the accuracy, the questionnaire was developing
through the process as following.
1. Specify information will be sought base on the objectives of the study, the value chain model
mentioned in chapter 2.
2. Determine type of questionnaire
3. Determine content of individual questions
4. Determine wording of each question
5. Determine sequence of questionnaire
6. Draft questionnaires based above factors
7. Submit the draft questionnaires to the advisor
8. Advisor check, correct and approves the questionnaires
Measurement of conducting questionnaire
The main type of questionnaire is questionnaire with 5 point rating scale. The
questionnaires with 5 point rating scale were used to measure respondents’ evaluation by asking
them the degree of performance with statements in the questionnaire that ranked from (1) not
effective at all (or not important at all) to (5) very effective (or very important). Each question
consisted of many activities that mentioned above based on literature review, especially the value
chain model to capture the construct of interest. The higher the score the better the activities are
done. 5 point scales will be used to measure activities in a way such that mean scores could be
calculated to show how the garment companies in Ethiopia manage activities in their value chain.
The researcher defines the criteria to measure level of variable according to the separate of five
levels following.

27
Value chain Management of Ethiopian garment companies

Table 3. 1 Likert's scale

Not effective at all Very effective


1 2 3 4 5
Not effective at Slightly Moderately Effective Very
all ineffective effective effective

3.3.2. Sampling, Design And Measurement Of Interview


Interview was implemented with 7 policy makers and garment experts of following organizations:
1. Policy makers from Ministry of Industry
Mr. Shibru Berga – advisor of the state Minister
Mr. Tewodros Awoke– Directorate Director under ministry of industry
2. Ethiopian Textile industry development institutes
Mr. Fekadu Fentaw – Textile Engineer from ETIDI.
3. Mr. Kidanae- Vestus Garment GM
4. Mr. Shiferaw Nigusse– operation manager/textile manager of
4. Ethiopian Textile and Garment Manufacturer Association
Mr. Agazi Hailemariam – Secretary
5. Expert
Mr. Solomon Girma quality supervisor from Jay Jay textile plc
Interviewing garment experts from many sources can help researcher have more clear and
reliable information to analyze and recommend suitable policies to both government and firm
level. Firstly, a formal letter was sent to every interviewer to introduce about interviewer and
purpose of interview after that the researcher called to interviewees to make appointment. The
interviews were done base on topic mentioned in appendix 2. Information of interviews was noted
and the result are summarized and analyzed in next chapter.
3.4. Data Collection Method
The primary data: Interviews were conducted with asking for assistance from Addis Ababa
Science and Technology University (AASTU) and Ministry of Industry (MOI). The time for
interview was from 10th to 20th of June 2016. The main topics for interview are shown in
Appendix 2. Questionnaires were sent directly by hand, and email to 38 garment companies that
located in every area in the city accompanied with the letter of recommendation of Addis Ababa

28
Value chain Management of Ethiopian garment companies

Science and Technology University (AASTU). The time for conducting questionnaires was from
20th may, 2005 to 25th June, 2016.
The secondary sources of data that the researcher used are different relevant books,
Journals, Articles, senior thesis work, manuals, available documents, Ethiopian textile Industry
Development Institute, Ethiopian Textile and Garment Association and electronic retrievals.
3.5. Research Analysis, Statistics and Interpretation of Questionnaire
With 5 point scales, the interval for breaking the range in measuring each variable is calculated
by: 5–1
------------- = 0.8
5
It means items with scores fall between the ranges of:
1.00 – 1.80: Not at all effective (or not at all important) level
1.81 – 2.60: Slightly ineffective (or slightly unimportant) level
2.61 – 3.40: Moderately effective (or moderately important) level
3.41 – 4.20: Effective (or important) level
4.21 – 5.00: Very effective (or very important) level.
Data from questionnaires were processed by SPSS program, Excel work Sheet in term of
frequency, mean, standard deviation (descriptive statistic) and t-test. The presentation of result
and data analysis is fully discussed in next chapter.

29
Value chain Management of Ethiopian garment companies

Chapter 4
RESULTS OF ANALYSIS
In this chapter, results of the data analyses are presented in 4 sections:
Section 1: Summarize the response rate and describe the demographic data of garment companies
in Ethiopia by using descriptive statistic (frequency, percentage, mean).
Section 2: Analyze the value chain management of garment companies in Ethiopia by using
descriptive statistic (mean, Standard Deviation).
Section 3: Compare means between data variables at significant level 0.05 by using t-test and
weighted average of two groups: respondents and experts.
Section 4: Summarizes the opinions of senior experts
Section 5: Analyze the secondary data.

Symbol of Data Analysis


N = Amount of the respondents
X = Mean
S.D. = Standard deviation
t = t-distribution.
Sig. = Data valuable significant level of 0.05

4.1. Response Rate and Demographics of Garment Companies in Ethiopia


4.1.1. Response Rate Summarization
Questionnaires were conducted from 20th may to 25th June, 2016, a peak time of every
garment companies so the response rate expected to be lower than normal. By seeing the
difficulty of low responses rate if conducted by mail, the researcher tried to distribute and collect
questionnaire directly from garment companies. The researcher also made appointment, came and
took questionnaire directly from the companies. After distributing 38 questionnaires based on the
number of population that the researcher already mentioned in chapter 3, 24 responses were
received, leading to a response rate of 63.15 percent. This response rate can be considered
satisfactory.

4.1.2. Position of Respondents of Firms


Data in this part have been organized into different types according to the distinctive
characteristics of the variables under consideration.

30
Value chain Management of Ethiopian garment companies

Table 4.1. 1 position of respondent

Frequency Percent

Director 11 23

Vice Director 6 12

Import-Export Manager 9 18

Marketing Manager 7 14

Production Manager 16 33

Total 49 100

postion of respondents
productio
n mgr
33%
director
23%
vice
director
12%
marketing import
mgr export
14% mgr
18%

Figure 4:0:1 Position of respondents

Table 4.1.1 shows the position of the respondents. Of the 49 qualified responses, the
majority of the respondent is the top management positions: production managers cover 33
percent with 16respondents and follow by director 23 percent and import export managers 18
percent respectively. Marketing managers occupy 16%, and vice director occupy only 12%.
Marketing manager and Vice director occupy the smallest percent of total respondents because
there are not many companies that have marketing Departments in their organizational chart.

31
Value chain Management of Ethiopian garment companies

Table 4.1. 2 Firms Experience in Garment industry

No of operating years frequency percent

Less than 5 years 10 42

5-10 years 8 33

More than 10 years 6 25

total 24 100

No of operating years
< 5 years 5-10 years >10 years

25%
42%

33%

Figure 4: 0:2 Firm’s experiences

Table 4.1.2 shows numbers of years that the companies operate in garment trade field.
Most of respondents have experience more than 5years (42 percent) follow by 5-10 years
experience (33 percent) and less than 10 years (25 percent). This indicates that the country is the
late comers for the garment industry.
Table 4.1. 3 Type of respondents’ companies

Type of respondents’ companies frequency percent

State owned 0 0

Private limited 18 75

FDI 6 25

total 49 100

32
Value chain Management of Ethiopian garment companies

Type of respondent
companies

FDI
25%
private
limitted
company
75%

Figure 4:0:3 Type of respondents’ company

Table 4.1.3 shows type of 24 respondents’ garment companies. There are 18 respondents
from private limited companies (occupy 75%), and 6 respondents from FDI garment companies
with percent = 25%.
Table 4.1. 4 Type of order

Percent of FOB Frequency Percent

FOB: 0-25% 10 42

FOB: 25-50% 8 33

FOB: 50-75% 4 17

FOB: 75-100% 2 8

Total 173 100.0

FOB:75-
100%(CMT types of orders
:0-25%)
8%
FOB:50-
75%(CMT:
25-50%) FOB:0-
17% 25%(CMT:
75-100)
42%
FOB:25-
50%(CMT:
50-75%)
33%

Figure 4:0:4 types of orders

33
Value chain Management of Ethiopian garment companies

Table 4.1.4 shows the types of orders. Of 24 qualify response, 10 companies has 0-25% of
their order is FOB (42%), mean that in those companies CMT order is 75- 100%. Follow by that
is the percent of FOB from 25 to 50 percent with 8 responses (17%), 4 response have FOB 50-
75% (17%), 2 responses have FOB 75-100% (8%).
Table 4.1. 5 the major market

Major market Frequency


local market 9
Oversea market 15
toatal 24

Major market local


market
21%

Oversea
market
79%

Figure 4:0:5 Major markets of garment companies

Table 4.1.5 shows the major market of respondents’ companies. There are 19 companies
have the major markets are oversea markets (79%), while only 5 companies concentrate on the
local market with 21% of 24 qualify respondents.
4.2. Analysis of Value Chain Management of Garment Companies in
Ethiopia
The perceived effectiveness of activities on the value chain management are measured on a five-
point Likert type scale (1 = Not effective at all; 5 = Very effective).
Very effective = (5)
Effective = (4)
Moderately effective = (3)
Slightly ineffective = (2)
Not effective at all = (1)

34
Value chain Management of Ethiopian garment companies

Table 4.2. 1 width of class interval I

Moderately
Not effective at all Slightly ineffective Effective Very effective
effective

1.00-1.80 1.81-2.60 2.61-3.40 3.41-4.20 4.21-5.00

4.2.1. The primary activities management

4.2.1. Inbound logistics


Table 4.2. 2 inbound logistics management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Moderately
Receiving fabric 9 20 20 3.22449 0.743452
effective

Storing 4 18 27 3.469388 0.648782 Effective

Moderately
Handling system 3 28 18 3.306122 0.584668
effective
Moderately
Inventory control 12 28 9 2.938776 0.658539
effective
Transportation Moderately
10 36 3 2.857143 0.5
scheduling effective
Inbound logistics Moderately
0 38 130 77 0 3.159184 0.667734
management effective

Table 4.2.2 shows respondents’ opinions on the inbound logistics management in the
value chain of garment companies. In this case, the respondents were asked to rate their inbound
logistics management from 1 (least effective level) to 5 (most effective level). The mean of the
opinions score for each variable indicates the effective level of inbound logistics management,
which the S.D indicates the deviation from the central value (mean score). Storing activity in
Garment Company is considered to be done efficiently with mean is 3.46 and S.D is 0.65. Others
are moderately efficient. They are receiving (mean = 3.22, S.D = 0.74), handling (mean = 3.30,
S.D = 0.58), inventory control (mean = 2.94, S.D = 0.66), transportation scheduling (mean = 2.85,
S.D = 0.5). In conclusion, inbound logistics is managed moderately efficient with mean = 3.15,
S.D = 0.66.

35
Value chain Management of Ethiopian garment companies

40

35
Reciving fabric and
30 accessory
storing
25

20 Handling System

15
Inventory control
10
Transportation scheduling
5

0
1 2 3 4 5

Figure4:0:6 Inbound logistics management of garment companies

4.2.1.1.Operation management
Table 4.2. 3 production management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Production Moderately
3.408163 0.70469
6 17 26
scheduling effective
Moderately
Pattern making 6 20 23 3.346939 0.69375
effective
Spreading and
1 18 30 3.591837 0.53690 Effective
cutting

Garment assembly 2 15 32 3.612245 0.57068 Effective

Finishing and Moderately


10 20 19 3.183673 0.75480
packaging effective
Machine
8 12 29 3.428571 0.76376 effective
maintenance

Production 0 33 102 159 0 3.428571 0.685119 effective

Table 4.2.3 shows respondents’ opinions on the production management in the value chain
of garment companies. In this case, the respondents were asked to rate their production
management from 1 (not effective at all) to 5 (very effective level).

36
Value chain Management of Ethiopian garment companies

The mean of the opinions score for each variable indicates the effective level of production
management, which the S.D indicates the deviation from the central value (mean score). In the
table 4-8 spreading and cutting (mean = 3.59, S.D = 0.54), garment assembling (mean = 3.61, S.D
= 0.57) and machine maintenance (mean = 3.428571, S.D = 0.76) are managed effectively
however their means only a little above the moderately effective level. While others are managed
moderately effective, they are Production scheduling (mean = 3.41, S.D = 0.70), pattern making
(mean = 3.34, S.D = 0.69), finishing and packaging (mean = 3.18, S.D = 0.75). In general,
production is managed effective (mean = 3.428, S.D = 0.685).
35
30
25
20
1
15
10 2

5 3

0 4
5

Figure 4:0:7 production management of garment companies

4.2.1.2.Out Bound Logistics Management


Table 4.2. 4 outbound logistics management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Warehousing 4 27 18 3.285714 0.612372 Moderately effective

Order fulfilment 17 28 4 2.734694 0.604687 Moderately effective

Transportation 15 27 7 2.836735 0.656599 Moderately effective

Outbound logistics 0 36 82 29 0 2.952381 0.665524 Moderately effective

37
Value chain Management of Ethiopian garment companies

Table 4.2.4 shows respondents’ opinions on the outbound logistics in the value chain of
garment companies. In this case, the respondents were asked to rate their outbound logistics
management from 1 (not effective at all) to 5 (very effective level).
The mean of the opinions score for each variable indicates the effective level of production
management, which the S.D indicates the deviation from the central value (mean score). The table
4-9 shows that warehousing (mean = 3.28, S.D = 0.61), order fulfillment (mean = 2.73, S.D =
0.60) and transportation (mean = 2.83, S.D = 0.65) are all managed moderately effective. In
general, outbound logistics is managed moderately effective (mean = 2.95, S.D = 0.66).
35

30

25
Product management
20
Price management
15 Place manegement

10 promotion management

0
1 2 3 4 5

Figure 4:0:8 outbound logistics management of garment companies

4.2.1.3. Marketing and Sales Management


Table 4.2. 5 marketing management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Product management 2 29 11 6 1 2.489795 0.844651 Slightly ineffective

Price management 3 13 26 7 2.755102 0.778102 Moderately effective

Place management 5 23 13 6 2 2.530612 0.981114 Slightly ineffective

Promotion management 2 25 17 3 2 2.55102 0.84314 Slightly ineffective

Marketing management 12 90 67 22 5 2.581633 0.864377 Slightly ineffective

38
Value chain Management of Ethiopian garment companies

Table 4.2.5 shows respondents’ opinions on the marketing mix in the value chain of
garment companies. In this case, the respondents were asked to rate their marketing mix
management from 1 (not effective at all) to 5 (very effective level) as following range. The mean
of the opinions score for each variable indicates the effective level of variables of marketing mix,
which the S.D indicates the deviation from the central value (mean score). The table shows that
three elements of marketing mix are managed slightly ineffective. They are product (mean = 2.48,
S.D = 0.84), place (mean = 2.53, S.D = 0.98) and promotion (mean = 2.55, S.D = 0.84). Only
price is managed moderately effective with mean = 2.75, S.D = 0.77. In general, marketing is
managed slightly ineffective with mean = 2.55.
35

30

25
Product management
20
Price management
15 Place manegement

10 promotion management

0
1 2 3 4 5

Figure 4:0:9 marketing management of garment companies

Table 4.2. 6 the sales management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Retail management 1.123610 Moderately


3 1 6 6 2.9375
effective
Wholesale management 0.845154 Moderately
10 10 16 3.166667
effective
Sales management 0.934305 Moderately
3 11 16 22 0 3.096154
effective
Table 4.2.6 shows respondents’ opinions on the sales in the value chain of garment
companies in Ethiopia. In this case, the respondents were asked to rate their sales management
from 1 (not at all effective level) to 5 (very effective level). The mean of the opinions score for

39
Value chain Management of Ethiopian garment companies

each variable indicates the effective level of sales management, which the S.D indicates the
deviation from the central value (mean score).
The table shows that from 4 companies only 16 respondents have retail activity and the other 20
companies have wholesale activity. Retail management in these 4 companies is managed
moderately with mean is 2.94, S.D is 1.12 and wholesale management in 20 companies is
managed moderately (mean = 3.17, S.D = 0.84). In general, sale management of those companies
is managed moderately.
18

16

14

12

10
Retail management
8
Whole sales menagement
6

0
1 2 3 4 5

Figure4:0:10 the sales management of garment companies

4.2.1.4. Services Management


Table 4.2. 7 Services management

Activities 1 2 3 4 5 Mean S.D indicator

Customer support 4 27 18 3.285714 0.61237 Moderately effective

Complain handling 7 22 20 3.265306 0.70046 Moderately effective

Services 0 11 49 38 0 3.27551 0.65457 Moderately effective

Table 4.2.7 shows respondents’ opinions on the services in the value chain of garment
companies. In this case, the respondents were asked to rate their services management from 1 (not
at all effective level) to 5 (very effective level) on two variables: customer support and complain
handling. The mean of the opinions score for each variable indicates level of services
management, which the S.D indicates the deviation from the central value (mean score). The table

40
Value chain Management of Ethiopian garment companies

shows that services are managed moderately efficient (mean = 3.27, S.D = 0.65). Customer
support variable is managed moderately with mean = 3.28, S.D = 0.61 and complain handling
variable is managed moderately efficient with mean = 3.26, S.D = 0.70.
30

25

20

15 customer supports
complain handling
10

0
1 2 3 4 5

Figure 4:0:11 Services management of garment companies

4.2.2. Support Activities Management

4.2.2.1. Infrastructure Management


Table 4.2. 8 infrastructure management of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

General
1 25 23 3.44898 0.542418 Effective
management
Planning
16 27 6 2.795918 0.644838 Moderately effective
management
Finance
11 26 12 3.020408 0.691911 Moderately effective
management
Quality
21 17 11 2.795918 0.790031 Moderately effective
management

Infrastructure 0 49 95 52 0 3.015306 0.719523 Moderately effective

Table 4.2.8 shows respondents’ opinions on the infrastructure in the value chain of
garment companies. In this case, the respondents were asked to rate their infrastructure

41
Value chain Management of Ethiopian garment companies

management from 1 (not at all effective level) to 5 (very effective level). The mean of the
opinions score for each variable indicates effective level of that variable, which the S.D indicates
the deviation from the central value (mean score). In the table, all of four infrastructures are
managed moderately effective. They are general management (mean = 3.45, S.D = 0.54),
planning management (mean = 2.79, S.D = 0.64), finance management (mean = 3.02, S.D =
0.69), quality management (mean = 2.79, S.D = 0.79). In conclusion, the infrastructure is manage
moderately effective with mean is 3.01, S.D. =0.72
30

25

20
General management

15 Planning management
Finanace menegement
10 quality management

0
1 2 3 4 5
Figure4:0:12 Infrastructure management of garment companies in Ethiopia

4.2.2.2. Human Resource Management


Table 4.2. 9 human resource management in garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Recruiting 11 25 13 3.040816 0.70590 Moderately effective

Worker training 19 22 8 2.77551 0.71488 Moderately effective

Staff training 16 26 4 3 2.877551 0.80706 Moderately effective

Salary and
28 21 3.428571 0.5 Effective
compensation

HRM 0 46 101 46 3 3.030612 0.72965 Moderately effective

42
Value chain Management of Ethiopian garment companies

Table 4.2.9 shows respondents’ opinions on the human resource management in the value
chain of garment companies. In this case, the respondents were asked to rate their human resource
management from 1 (not at all effective) to 5 (very effective).
The mean of the opinions score for each variable indicates level of human resource management,
which the S.D indicates the deviation from the central value (mean score). In the table, salary and
compensation is managed effectively with mean = 3.42, S.D = 0.5. Recruiting (mean = 3.04, S.D
= 0.70) Staff training moderately effective and worker training (mean = 2.77, S.D = 0.71) are
moderately effective. In general, human resource management is at somewhat effective level with
mean = 3.01.
30

25

20
Recruiting

15 worker training
staff training
10 Salary and compensation

0
1 2 3 4 5

Figure 4:0:13 Human resource management of garment companies

4.2.2.3. Technology Development


Table 4.2. 10 technology development in garment companies

Activities 1 2 3 4 5 Mean S.D Indicator


Design and redesign 2 20 24 3 2.571429 0.677003 Slightly ineffective
Sewing machine 1 13 26 9 2.877551 0.725507 Moderately effective
Cutting machine 2 16 22 9 2.77551 0.79753 Moderately effective
Iron system 1 17 21 10 2.816327 0.781917 Moderately effective
Support equipment 1 22 22 4 2.591837 0.674486 Slightly ineffective
Technology
11 0.737401 Moderately effective
7 88 35 0 2.726531
development 5

43
Value chain Management of Ethiopian garment companies

Table 4.2.10 shows respondents’ opinions on the technology development in the value
chain of garment companies. In this case, the respondents were asked to rate their technology
development from 1 (not at all effective level) to 5 (very effective level).
The mean of the opinions score for each variable indicates level of technology development,
which the S.D indicates the deviation from the central value (mean score).
The table shows that design and redesign is slightly ineffective with mean = 2.57, S.D = 0.67.
Sewing machine (mean = 2.87, S.D = 0.72, Cutting machine (mean = 2.77, S.D = 0.79) and iron
system (mean = 2.81, S.D = 0.78) are somewhat good but support equipment is not good with
mean = 2.59, S.D = 0.67. In conclusion technology development is somewhat effective in garment
companies with mean = 2.73, S.D = 0.74.
30

25

20
1
15
2
10 3
4
5

0
Design and Sewing Cutting Pressing and Others
redesgin System System ironing support
Development managemnt system equipiment

Figure 4:0:14 Technology developments in garment companies

4.2.2.4.Procurement Management
Table 4.2. 11 procurement of garment companies

Activities 1 2 3 4 5 Mean S.D Indicator

Procurement of materials 1 24 18 4 2 2.632653 0.834013 Moderately effective

Procurement of machine 5 11 11 14 8 3.183673 1.252888 Moderately effective

Procurement of services 10 21 18 3.163265 0.745736 Moderately effective

Procurement of stationary 5 22 9 13 3.612245 0.996166 Effective

Procurement 6 50 72 45 23 3.030612 1.029586 Moderately effective

44
Value chain Management of Ethiopian garment companies

Table 4.2.11 shows respondents’ opinions on the procurement management in the value
chain of garment companies. In this case, the respondents were asked to rate their procurement
management from 1 (not at all effective level) to 5 (very effective level).
The mean of the opinions score for each variable indicates effective level of that variable, which
the S.D indicates the deviation from the central value (mean score). In the table, procurement of
stationary is managed effectively (mean = 3.61, S.D = 0.99). Others are managed moderately
effective. They are Procurement of materials (mean = 2.63, S.D = 0.83) procurement of machine
(mean = 3.18, S.D = 1.25), and procurement of services (mean = 3.16, S.D = 0.74). In conclusion,
procurement with mean = 3.03 is manage somewhat effectively.
30

25
procrument of fabric and
20 accessory
procrument of servicing
15
procrument of machines
10
procrument of stationary
5

0
1 2 3 4 5

Figure 4:15 Procurement of garment companies

4.3. Comparison between Respondents and Experts’ Perceptions on Importance of


Activities in the Value Chain of Garment Companies
Since the one of objectives of this study is to recommend policies to improve the value
chain management of garment companies in Ethiopia. The researcher asked respondents and
experts to rate the importance of primary activities and support activities on the value chain
management of garment companies in Ethiopian. T-tests analysis is utilized for comparison
between the importances of activities towards the value chain management. The perceived
importance of activities on the value chain management are measured on a five-point Likert type
scale (1 = Not important at all; 5= Very important).
Important = (4)
Moderately Important = (3)

45
Value chain Management of Ethiopian garment companies

Rather Unimportant = (2)


Least important = (1)
Table 4.3. 1 width of class interval II

Least important Rather Unimportant Moderately Important Important Most Important


(1) (2) (3) (4) (5)

1.00 – 1.80 1.81 – 2.60 2.61 – 3.40 3.41 – 4.20 4.21 – 5.00

4.3.1. Comparison between Respondents and Experts’ Perceptions on Importance of


Primary Activities in the Value Chain of Garment Companies in Ethiopia
A series of t-tests is conducted on the means of the two groups' ratings of the importance
of 5 primary activities (Inbound logistics, operations, outbound logistics, marketing and sales, and
services).
Table 4.3. 2 independent sample test of primary activities

T-test for Equality of Means


Mean
Std. Error
Df Sig. (2- Difference
T Difference
Tailed)

Inbound Equal variances Assumed 0.982 54 .779 0.28 0.285


Operation
Equal variances Assumed 2.935 54 .085 0.775 0.264

Outbound Logistics Equal variances Assumed 1.230 54 .707 0.347 0.282


Sales and
Equal variances Assumed -1.021 54 .229 -0.1696 0.166
Marketing
Services Equal variances Assumed -3.799 52 .000 -0.794 0.209
Table 4.3. 3 Group statistics of primary activities

Inbound Operation Outbound Sales and Service


Logistics Logistics Marketing
N 49 49 49 49 47
Mean 4.142 4.923 4.204 4.825 3.491
Respondents
S.D 0.736 0.277 0.763 0.391 0.804
N 7 7 7 7 7
Mean 3.857 4.142 3.857 4.857 4. 285
Experts
S.D 0.690 0.690 0.690 0.377 0.487

46
Value chain Management of Ethiopian garment companies

4.3.1.1. Inbound logistics


Table 4.3. 4 inbound logistics

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

Respondents Frequency 1 7 25 16 4.122449 0.807069 Important

Experts Frequency 2 4 1 3.857143 0.690066 Important

The table 4.3.2 shows that Sig (2-tailed) is 0.779, which is more than 0.05. It would be
concluded that there is not a statistically significant difference in the mean inbound logistics
scores for respondents from garment companies (X = 4.12, SD= 0.80) and garment experts (X =
3.85; SD = 0.69) (Table 4.3.4). The mean difference is 0.28 (table 4.3.2) It can be seen that both
respondents and experts considered inbound logistics playing an important role in the value chain
of garment companies. However, this variance is rated a little bit more important for respondents
than experts.

4.3.1.2. Operations
Table 4.3. 5 Operations

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

Most
Respondents Frequency 0 4 45 4.918367 0.276642
important

Experts Frequency 1 4 2 4.142857 0.690066 Important

The table 4.3.2 shows that Sig (2-tailed) is 0.085, which is more than 0.05. It would be
concluded that there is not a statistically significant difference in the mean operation scores for
respondents from garment companies (X = 4.92, SD= 0.27) and experts (X =4.14; SD = 0.69)
(table 4.3.5), the mean difference is 0.775. Table 4.3.2: shows that, operation is rated as very
important in the value chain of garment companies for both respondents and experts. However,
operation is evaluated more important for respondents from garment companies than experts.

47
Value chain Management of Ethiopian garment companies

4.3.1.3. Outbound Logistics


Table 4.3. 6 outbound logistics

Importance Level
Group
1 2 3 4 5 Mean S.D Indicator

4.204082
Respondents Frequency 1 7 22 19 0.763206 Important

Experts Frequency 2 4 1 3.857143 0.690065 Important

As Sig in Levene’s Test for Equality of Variances is 0.849 (table 4.3.2), which is more
than 0.05, it would be expected to use result in first line of the table.
The table 4.3.2 shows that Sig (2-tailed) is 0.707, which is more than 0.05. It would be concluded
that there is not a statistically insignificant difference in the mean outbound logistics scores for
respondents from garment companies (X = 4.20, SD= 0.76) and garment experts (X = 3.85; SD =
0.69) (table 4.3.6). The mean difference is 0.347 (table 4.3.2) It can be seen that both respondents
and experts considered outbound logistics playing an important role in the value chain of garment
companies in Ethiopia. However, this variance is rated a little bit more important for respondents
than experts.
4.3.1.4. MARKETING AND SALES
Table 4.3. 7 marketing and sales

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

4.6875 Most
Respondents Frequency 3 9 37 0.58913
important
Most
Experts Frequency 1 6 4.857143 0.37796
important
The table 4.3.2 shows that Sig (2-tailed) is 0.229, which is more than 0.05. It would be
concluded that there is not a statistically significant difference in the mean of marketing and sales
scores for respondents from garment companies (X = 4.68, SD= 0.58) and experts (X =4.85; SD =
0.37) (table 4.3.7), the mean difference is -0.1696 (table 4.3.2)

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Value chain Management of Ethiopian garment companies

Table 4.3.7 shows that, marketing and sales are rated as most important activity in the
value chain of garment companies in Ethiopia for both respondents and experts. However,
marketing is evaluated more important for experts than respondents from companies.
4.3.1.5. Services
Table 4.3. 8 services

Importance Level
Group 1 2 3 4 5 Mean S.D Indicator

3.387755 Moderately
Respondents Frequency 5 22 20 2 0.730762
Important

Experts Frequency 5 2 4. 285714 0.487954 Important

The table 4.3.2 shows that Sig (2-tailed) is 0.000, which is less than 0.05. It would be
concluded that there is a statistically significant difference in the mean operation scores for
respondents from garment companies (X = 3.38, SD= 0.73) and experts (X = 4.28; SD = 0.48)
(table 4.3.8), the mean difference is -0.794. Table 4.3.2 shows that, respondents rated service as
moderately important activity in the value chain of garment companies in Ethiopia but experts
rated it as an important activity.

4.3.2. Comparison between Respondents and Garment Experts’ Perceptions on Importance of


Support Activities in the Value Chain of Garment Companies
Table 4.3. 9 independent sample test of support activities

T-test for Equality of Means


Mean
Sig. Std. Error
Df Difference
T (2- Difference
Tailed)
Technology Equal variances
-1.744 54 .767 -0.347 0.199
Development Assumed
Infrastructure Equal variances
0.293 54 .680 0.082 0.280
Assumed
Human
Resource Equal variances
-1.635 54 .033 -0.367 0.225
Management Assumed

Procurement Equal variances


-1.044 54 .041 -0.285 0.273
Assumed

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Value chain Management of Ethiopian garment companies

Table 4.3. 10 group statistics of support activities

Human
Technology
Infrastructure Resource Procurement
Development
Management
N 49 49 49 49
4.367347 3.857143
Mean 3.938776 4.2040482
Respondents
S.D 0.528121 0.719032 0.691911 0.57735

N 7 7 7 7

Mean 4.714 3.857 4.571 4.142


Experts
S.D 0.487 0.690 0.534 0.690

4.3.2.1. Infrastructure
Table 4.3. 11 infrastructure

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

3.938776
Respondents Frequency 14 24 11 0.719032 Important

Experts Frequency 2 4 1 3.857142 0.690065 Important

The table 4.3.9 shows that Sig (2-tailed) is 0.680, which is more than 0.05. It would be
concluded that there is not a statistically significant difference in the mean infrastructure scores
for respondents from garment companies (X = 3.93, SD= 0.71) and garment experts (X = 3.86; SD
= 0.69). The mean difference is 0.0816 (table 4.3.9) It can be seen that both respondents and
experts considered infrastructure playing an important role in the value chain of garment
companies in Ethiopia. However, this variance is rated a little bit more important for respondents
than experts.
4.3.2.2. Human Resource Management
Table 4.3. 12 human resource management
Importance Level
Group 1 2 3 4 5 Mean S.D Indicator
4.020408
Respondents Frequency 11 26 12 0.691911 Important

Experts Frequency 3 4 4.571428 0.534552 Most important

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Value chain Management of Ethiopian garment companies

The table 4.3.9 shows that Sig (2-tailed) is 0.033, which is less than 0.05. It would be
concluded that there is a statistically significant difference in the mean HRM scores for
respondents from garment companies (X = 4.02, SD= 0.69) and garment experts (X = 4.57; SD =
0.53). The mean difference is 0.3673 (table 4.3.9) It can be seen that respondents considered HRM
playing an important role in the value chain of garment companies in Ethiopia but experts
considered HRM is one of the most important activities in the value chain management of
garment companies in Ethiopia.
4.3.2.3. Technology Development
Table 4.3. 13 technology development

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

4.367347
Respondents Frequency 30 19 0.528121 Most important

Experts Frequency 2 5 4.714285 0.487950 Most important

The table 4.3.9 shows that Sig (2-tailed) is 0.767, which is more than 0.05. It would be
concluded that there is not a statistically significant difference in the mean technology
development scores for respondents from garment companies (X = 4.36, SD= 0.53) and garment
experts (X = 4.71; SD = 0.48). The mean difference is 0.347(table 4.3.9) It can be seen that both
respondents and experts considered Technology Development playing one of the most important
role in the value chain of garment companies in Ethiopia. However, this variance is rated a little
bit more important for experts than respondents.

4.3.2.4. Procurement
Table 4.3. 14 procurement

Importance Level

Group 1 2 3 4 5 Mean S.D Indicator

3.857143
Respondents Frequency 12 32 5 0.57735 Important

Experts Frequency 1 4 2 4.142857 0.690065 Important

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Value chain Management of Ethiopian garment companies

The table 4.3.9 shows that Sig (2-tailed) is 0.041, which is less than 0.05. It would be
concluded that there is a statistically significant difference in the mean infrastructure scores for
respondents from garment companies (X = 3.85, SD= 0.57) and garment experts (X = 4.14; SD =
0.69). The mean difference is 0.2857 (table 4.3.9) It can be seen that both respondents and experts
considered procurement playing an important role in the value chain of garment companies in
Ethiopia. However, this variance is rated much more important for experts than respondents.

4.4. Opinions of Experts’ Summarization

4.4.1. Strengths and Weaknesses of Garment Companies


Strengths
1. Low cost labors are available in Addis and can be good skill labors if they are trained well.
Most of the workers in the apparel industry work hardly. They are extremely disciplined and
focused on their tasks. Most of the factories had clean working facilities and surroundings.
2. Technology in garment companies is much better than before. Sewing machines and other
equipments are new and modern.
3. The relationship with big salesmen in the world is enhanced.
4. Ethiopia is considered as a stable, safe, and attractive destination of overseas importers and
investors.
Weaknesses
1. Production (The average capacity utilization of garment factories however stands at 54%) and
technology management is not very effectively.
2. Weak forward- and backward linkages among textile and garment companies.
3. Lack of diversification in products.
4. All exports from Ethiopia go through the port of Djibouti. The main mode of transportation is by
trucks loaded with 20ft or 40ft containers. Due to the restraints at Djibouti port this also results in the
motto for production: “One container a day” Djibouti port can only ship containers- either 20 feet or
40 feet- and is not able to handle partial shipments or LCL shipments. Due to this restraint the
Ethiopian garment manufacturers have an odd rule: MOQ (minimum order quantity) as large as to fill
a container. In product terms this results in a minimum order of 20.000 pieces of T shirts or 25.000
meters of fabrics. Due to this logistic restraint the producers are focused on clients with large buying
volumes whereas most Ethiopian companies employ between 500-1000 workers and would be more
than able to produce more flexible and smaller order volumes.

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Value chain Management of Ethiopian garment companies

5. The average logistic prices are fairly high compared to other producing nations. As a comparison: a
20ft container in Bangladesh would cost an average of 1800 USD which is 800 USD less than in
Ethiopia.
6. Merchandising as a functional activity is largely missing in Ethiopia, although most garment
companies are beginning to realize the importance of merchandising as a nodal and important
function. Most companies have little or no experience in sourcing fabrics, trims or
accessories, sampling, price quotation.
7. With regard to Marketing, only some companies are consciously marketing its products, but
even here, the larger focus of marketing seems to be the domestic, and not the export market.
Only a small percentage of apparel companies participate regularly in international Trade
Fairs (about 3 per year) in Hong Kong, Taiwan, Singapore, Germany, USA, and Thailand.
Trade mark of Ethiopian garment companies are not yet well known in the world.
8. Most of the raw materials (fabrics and trimmings) are imported, mostly from countries such
as Indonesia, Malaysia, Japan, UK, Korea, Taiwan, China, and Hong Kong. Only a limited
quantity and type (such as cotton) of fabrics are sourced from within Ethiopia.
9. Low level of compliance and bad housekeeping in Ethiopian factories. Since domestic sales
are not bound to any legislation or environmental or chemical compliance those sales are fare
easier than exports. Easy to realize and easy to grow the domestic business since low level of
workmanship is required and the size of the market grows.
10. Low level of IT use or Cad/ Cam. Due to “infant” stage of the industry the products designed
and sold are of very low standards. Assembly is possible for simple products like T shirts
and companies do not make use of IT nor Cad/ Cam design aid to extend the product mix.
Most products in Ethiopian domestic market are of low assembly standards and not suited for
exports.

4.4.2. Opportunities and Challenges of Garment Companies


Opportunities
1. Moving production trend from developed countries to developing countries opening a new
opportunities for garment companies in Ethiopia. This trend will lead to transfer of equipment,
technology, and management and high qualify labors from developed country to developing
countries, including Ethiopia.

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Value chain Management of Ethiopian garment companies

2. Globalization brings to Ethiopia many new opportunities, including textile and garment. Textile
and garment companies in Ethiopia will have chance to expand their markets in COMMESA, US,
EBA and other markets.
3. Domestic market with a population of above 95 million persons and increasing GDP per capita
will be enough big and profitable market to serve.
4. Big interest of buyers like: Primark, Tesco, PVH group (Tommy Hilfiger and Calvin Klein), H&M
amongst others.
5. Government commitment to support the sector and to improve key Sector policies and regulations,
infrastructure projects in order to facilitate the textile- and apparel industry.
Main policies and regulations
- 100% Duty free importation of machineries, equipment,
- Duty free importation of spare part of 15% of capital goods for the first 5 years of operation.
- It is possible to hire international expatriates free from income tax as far as they stay for no more than
two years.
- Reconciliation of VAT for materials purchased locally during the project period is possible if declared in
6 months’ time.
- On site (factory) customs inspection/clearance of imported raw materials and exportable products.
- State owned logistics enterprises (Ethiopian Shipping Line, Ethiopian Airline, Dry Port Services and
Maritime) provide their services at breakeven price.
- Those who are engaged in export business they will be entitled for fast custom service (low risk level).
- Capacity building through MOI- Ministry of Industry, TIDI and consulting service
6. Regarding research and education, there are 34 public and 4 private universities in Ethiopia and
among them Bahir Dar University which has an enormous technology division and a complete set
up with textile machinery and Adama Science & Technology University. Further education of the
sector is provided by Ethiopian Institute of Textile and Fashion Technology.
7. The MOI, Ministry of Industry is charged with the development of the textile- and apparel
industry. For both domestic producers as for foreign investors this Ministry is the main actor to
deploy the governmental strategy of this key priority industry. Together with other institutes like
ETGAMA and TIDI the policy as described above is implemented, corrected and expanded.
Challenges
1. Efficiency factories in garment assembly cost argument: Efficiency is a slow as 40-45% in
production both in textile/ garment assembly units. This is mainly due to bad processes and
lack of education. The given SCM per minute would be on paper as competitive as

54
Value chain Management of Ethiopian garment companies

Bangladesh making Ethiopia just as compatible for 0,04 cents up to 0,05 cents a minute in
practice however the real number mounts up to 0,09 cents -0,10 . This is very uncompetitive
number once put in place to Cambodia- Ethiopia and Bangladesh.Workmanship is mediocre.
It is not easy for foreign Turkish investors to strive for improvement of efficiency since also
the backward and forward process in the industry can take as much as 3 months.
2. Cycle times and delivery: Cycle times with imports needed from abroad can be extended up to
150 days. Where companies make use of local Ethiopian cotton this can be reduced to 100 days on
average. The Ethiopian cotton can cover for 40% of the total need which leaves 60% of the need
unattended which inclines cotton has to be imported from either Turkey or India. Chinese fabrics are
generally heavily overpaid which makes the end product uncompetitive. Bureaucracy and lack of
foreign currency limit export growth considerably and make a future anticipation difficult. The cycle
time of production runs in that sense is 45 -60 days longer than in countries that offer comparable
products.
3. Power cuts, low penetration of telecom networks and use, low density and speed of internet
and the habit of Ethiopians to arrange things by phone rather than by email. Digital processing
in business will take another 3-5 years at least.
4. Strong competitiveness from China, India, Bangladesh, Srilanka, Ethiopia and Indonesia.
5. Low production of local cotton. Ethiopia cultivated cotton on 75,000ha of land in 2010/2011. It
planned to cultivate 265,000 ha by the end of 2014/2015.
6. Local production of cotton in 2010 was 2,500 ton which was equal to the demand of textile factories
and even had a surplus. The year after the production surged to 79,500 ton while the demand stood at
39,000 ton. Matching supply and demand has been a grant challenge for the industry up till date.
7. Average productivity capacity usage of the textile factories was 40% in 2010 with an aim to rise to
90% in 2015. The average capacity utilization of garment factories however stands at 54%.

4.4.3. The Policies that Ethiopian Government Should Implement to Help Garment
Companies in Ethiopia Improving Their Value Chain Management
Some of experts said that Ethiopia should pay much more attention to improving
management skills in product development, upgrading production and distribution channel,
training adequate human resources to carry out product design and development process, and, not
least important, expanding to highly-demanded domestic market.
Relating to development of upstream industries through actively investing in those, many scholars
keep their skeptical views on this strategy due to likely decline in the demand for domestic
textiles if import duties are reduced in 2006. By that time, the upstream industry may face with

55
Value chain Management of Ethiopian garment companies

difficulties. If the country insists on developing upstream industry, it should limit to areas leading
to enhancing quality and customer confidence. However, enhancing competitiveness of upstream
industry through selective investment is not enough for increasing the content ratio. Opportunity
for and facilitators of production linkage should also be established and enhanced. The issue of
what are the roles of the government in the development process of this industry is also debated.
Interviewees thought that the government and ETIDI should play as the facilitators for the
development of the industry though provision of information, development of physical
infrastructure, and institutional support. The role of ETIDI should be realigned to become an
agency providing services such as training, designing, testing and research to the enterprises.

4.5. Second Data Analysis


Due to the limitation of primary data about garment companies in Ethiopia, to help readers
have more clear picture about garment enterprises in Ethiopia in specific, the researcher also look
for good source of secondary data and try to analyze them. This part also considered as one of
bases for the recommendation part of the next chapter.

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Value chain Management of Ethiopian garment companies

CHAPTER FIVE
CONCLUSIONS, DISCUSSIONS AND RECOMMENDATIONS
This chapter includes three sections.
Section 1: The results and conclusions of the study.
Section 2: Discussions
Section 3: Recommendations

5.1. The Results and conclusion of the study


The study used both of the primary data and the secondary data to identify the value chain
management of garment companies in Ethiopia. The percentage and descriptive statistics were
used for analyze the primary data. The secondary data is processed by comparing through time
series and analyzing. In order to explore the value chain of garment companies in Ethiopia, the
questionnaire were sent to 38 garment companies. The 24 qualified returned questionnaires show
the executives’ opinions on the value chain of garment companies in Ethiopia in 9 activities. The
data collected through questionnaires were analyzed by percentage and descriptive statistics. By
descriptive analysis the effectiveness of every activity was evaluated in terms of mean and
standard deviation. Activities were rated from not at all effective (worst) level to very effective
(best) level.
In conclusion of 49 respondents, there are 8 activities that are managed moderately
effective. They are inbound logistics (mean = 3.15), outbound logistics (mean = 2.95), services
(mean = 3.27), technology development (mean = 2.73), human resource management (mean =
3.03), infrastructure (mean = 3.01), sales (mean = 3.09) and procurement (mean = 3.03). While
marketing activities are managed slightly ineffective with mean=2.58 and only one activity is
managed effectively is production with mean=3.428. To recommend for government policy
makers and firms, the researcher asked respondents and experts to rate the importance of primary
activities and support activities on the value chain management of garment companies.
The technique t-tests analysis is utilized to compare the perceptions of respondents from
garment companies and garment experts on the importance of activities in the value chain of
garment companies. Inbound logistics is considered as an important activity in the value chain by
respondents (mean = 4.14, S.D = 0.74) and experts (mean = 3.86, S.D = 0.69), the mean
difference is 0.28. There is no significant difference in mean score of operation between
respondents and experts. Respondents considered operation playing a very important role with

57
Value chain Management of Ethiopian garment companies

mean=4.92, S.D = 0.27 while experts considered operation have an important role in the value
chain of garment companies with mean 4.14 and S.D 0.69. The mean difference is 0.77.
Outbound logistics is considered as an important activity in the value chain by respondents (mean
= 4.20, S.D=0.76) and experts (mean=3.85, S.D=0.69), the mean difference is 0.35. Both
respondents and experts thought that marketing and sales playing very important role in the value
chain of garment companies with mean = 4.82 and 4.85 respectively. There is a significant
difference between rate score of respondents and experts about importance of service in the value
chain. Respondents considered service as a moderately important activities (mean = 3.49,
S.D=0.804) in the value chain of garment companies but experts thought that it is a very
important activity (mean = 4.29, S.D = 0.48). With support activities, both respondents and
experts considered technology development playing a very important role in the value chain of
garment companies in Ethiopia. Mean score of respondents is 4.36 and mean score of experts is
4.71. Infrastructure is considered as an important activity in the value chain of garment companies
by both respondents (mean=3.94, S.D=0.72) and experts (mean=3.86, S.D =0.69).
There is a significant difference in mean score of HRM between respondents and experts.
Respondents considered HRM is an important activity with mean=4.02, S.D = 0.69 while experts
considered HRM is a very important activity with mean=4.57, S.D = 0.53 in the value chain of
garment companies, the mean difference is 0.367. Even both respondents and experts considered
procurement playing an important role in the value chain of garment companies but there is a
significant difference between the mean score of respondents (mean = 3.85, S.D =0.57) and
experts (mean = 4.14, S.D=0.69), the mean difference is 0.285. Another purpose of the study is to
recommend the appropriate policy to improve the value chain of garment companies. In order to
improve the value chain management of garment companies in Ethiopia, recommendations are
needed for both government’s side and firms’ side. That one will be delivered in next part of this
chapter.

5.2. Discussions
This study found many interesting finding about the value chain management of garment
companies in Ethiopia. This investigation was conducted by questionnaire and interview. The
strength of this study can be considered not only primary but also secondary data. In this part the
results and findings from the study are discussed as following

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Value chain Management of Ethiopian garment companies

5.2.1. Inbound Logistics


It is the management of flow of materials from suppliers to raw material inventory to
production to working process inventory and finally in finished goods. The result of this study
actually comes from the primary data. By using t-test, result shows that both respondents and
experts considered inbound logistics playing an important role in the value chain of garment
companies in Ethiopia. However, this variance is rated a little bit more important for respondents
than experts. In experts’ perception, some activities of inbound logistics can be outsourcing. By
rating the efficiency of inbound logistics with some activities management of inbound logistic
such as receiving fabric, storing, handling, inventory control and transportation scheduling the
respondents show that inbound logistics are managed moderately efficient with mean = 3.15
(table 4-8). This activity may need some improvements and if technology and HRM of the
companies are improved it will lead to improvement of this activity.

5.2.2. Operations
A production system uses operations resources to transform input into some desired output
(Daniels, John D and L.H Redebangh, 1998). Operation management may be defined as the
design, operation and improvement of the production systems that create the firm’s primary
products or services. So operation is considered managing effectively when it has a good design
and operated at high productivity and save of inputs. Table 4.3.5 shows that, operation is
evaluated more important for respondents from garment companies than experts (mean of
respondents is X = 4.92, SD= 0.27 and mean of experts is X =4.14; SD = 0.69). There is a fact that
fashion now a day’s changing very fast; the delivery time is one of the most important factors to
get the order. Respondent from garment companies with doing CMT orders, still focus on
production, while garment expert more focus on marketing of view. On the other hand, the
finding in questionnaires shows that operation activities are manage somewhat between
moderately efficient and efficient with mean = 4.14 (table 4.2.4) by rating efficient level of
spreading and cutting and garment assembling, while production scheduling, pattern making
finishing and packaging and machine maintenance are moderately efficient. So it needs some
manages to be improved. Productivity in garment companies in Ethiopia is not high due to some
reason such as: slow material flow. In marketing point of view, if HRM and technology of
garment companies in Ethiopia is improved, the operation management of garment companies in
Ethiopia will be more effective.

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Value chain Management of Ethiopian garment companies

5.2.3. Outbound Logistics


Outbound logistics can be seen as a part of supply chain concerned with the management
of flow of finished goods to consumers (Chandra, 1997). It can be seen that both respondents and
experts considered outbound logistics playing an important role in the value chain of garment
companies in Ethiopia. However, this variance is rated a little bit more important for respondents
than experts (X = 4.20, SD= 0.76 compares with X = 3.85; SD = 0.69). The mean difference is
0.35 (table 4-19). The differences between finding of questionnaire and experts’ interview may
have the same reason as the researcher discussed in part 5.2.1.
By analyzing descriptive of questionnaires, outbound logistics is revealed as a moderately
effective activity with mean = 2.95(table 4.2.5).

5.2.4. Marketing and Sales


Table 4.3.7 of this study shows that, marketing and sales is rated as most important
activity in the value chain of garment companies in Ethiopia for both respondents and experts.
However, marketing is evaluated more important for experts than respondents from companies
(mean of respondents is X = 4.82, SD= 0.39 and mean of experts is X =4.86; SD = 0.38) (table 4-
3.7), the mean difference is 0.04 (table4.3.5). As mentioned above, in new trend of business,
experts considered marketing is very important in the value chain of garment companies in
Ethiopia. Due to lack of experience, marketing and sales are managed not very effective in their
companies, marketing had been rated at mean = 2.58 and sales had been rated at mean = 3.09.
Number shows that nowadays, garment companies in Ethiopia start to evaluate marketing and
sales as more important functions. Garment companies in Ethiopia have to start thinking to move
toward FOB orders. This trend requires garment companies in Ethiopia more efforts to improve
their marketing and sales skills.
Experts all agreed that this activity is quite weak in the value chain of garment companies in
Ethiopia and need to be improved.

5.2.5. Services
Table 4.3.8 shows that, respondents rated service as moderately important activity (X =
3.49, SD= 0.804) but experts rated it as an important activity (X = 4.28; SD = 0.488) (table 4.3.8),
the mean difference is 0.79. There are facts that garment companies in Ethiopia of doing CMT
order still focus on production. Even they start to consider marketing as an important function but
they still are weak at communication with buyer. When buyers come to their factories they still

60
Value chain Management of Ethiopian garment companies

don’t know how to make them feel good, and offer buyer efficient services (Till Freyer, 2004). In
their value chain this activities is managed moderately effective with mean = 3.27, in details
customer support and complain handling is managed moderately effective. This finding shows
that garment companies not yet have a clear business view in the new conditions. They may think
that services are not very important with manufacturers like them and garment products are
something that no needs to have service after sales. They may not see the fact that support
customer service can make their companies are different compare with their competitors.
This issue was discussed with experts and they suggest that the garment companies in
Ethiopia, especially state own and non state own enterprises should consider this activity is more
important and need to be improved because “nowadays, the customers will walked in to your
factory only they have good image about your service, both before and after sales”.

5.2.6. Infrastructure
Both respondents and experts considered infrastructure playing an important role in the
value chain of garment companies in Ethiopia (mean of respondents is X = 3.94, SD= 0.719 and
mean of garment experts is X = 3.86; SD = 0.69). However, this variance is rated a little bit more
important for respondents than experts. The mean difference is 0.082 (table 4.2.9). By rating the
effective level of general management, planning management, finance management, quality
management, all of these activities are somewhat effective. In conclusion, infrastructure is
managed somewhat effective with mean = 3.01. This activity needs some more efforts to be
improved because nowadays, the top management of garment companies is still weak and trapped
in a bulk and ineffective administration system (Duc Vuong, 2001).

5.2.7. Human Resources Management


It can be seen from table 4.2.10 that respondents considered HRM playing an important
role in the value chain of garment companies in Ethiopia ( X = 4.02, SD= 0.69) but experts
considered HRM is one of the most important activities in the value chain management of
garment companies in Ethiopia ( X = 4.57; SD = 0.53). The mean difference is 1.18 (table 4.2.7).
The findings show that it is managed moderately effective with mean = 0.367 (table 4.2.10). In
fact, workers in Ethiopia are considered work hard and skillful if they are trained well. Human
resource management includes many activities such as recruitment, training, retention and
compensation etc. There is lack of vocational schools around the companies and good students
don’t like to study in vocational schools. Most of workers and staffs work for garment companies

61
Value chain Management of Ethiopian garment companies

in Ethiopia are not trained well before working. Moreover, most of garment companies in
Ethiopia pay workers by pieces not by working hours, but there is a waste of time in material
flows so productivity in garment companies in Ethiopia is still low.

5.2.8. Technology Development


Both respondents and experts considered Technology Development playing one of the
most important role in the value chain of garment companies in Ethiopia (mean of respondents is
X = 4.36, SD= 0.51and mean of garment experts is X = 4.71; SD = 0.488). However, this variance
is rated a little bit more important for experts than respondents (the mean difference is 0.347). By
rating the effective level of activities, in conclusion, technology development is managed
moderately effective (mean = 2.72). In fact most of garment companies in Ethiopia are using
modern sewing machine system. With plenty of labor and with a labor intensive industry like
garment if the technology development is managed well, the productivity in garment companies
in Ethiopia would be higher (Arindam Das, 2001). However the finding shows that experts are not
very satisfy with technology development of garment companies in Ethiopia.

5.2.9. Procurement
It can be seen that both respondents and experts considered procurement playing an
important role in the value chain of garment companies in Ethiopia. However, this variance is
rated much more important for experts than respondents (mean of respondent is X = 3.85, SD=
0.57 and mean of garment experts is X = 4.14; SD = 0.69). The mean difference is 0.02 (table
4.2.7) Procurement is built up by many activities. By rating the effective level of those activities,
procurement of materials, machine, and services are managed moderately effective. Procurement
of stationary is considered efficient with mean = 3.61 (table 4.2.12). In conclusion, procurement is
managed moderately effective in garment companies in Ethiopia. In experts’ perception, in
procurement, procurement of material is very important and there is a fact that one of weak points
of garment companies in Ethiopia is input. Most of fabric and accessories are imported but most
of garment companies in Ethiopia are weak of buying materials (Till Freyer, 2003).

5.3. Recommendations
Garment is a consumer-oriented industry employing standard, 'mature' technology.
Significant capital investment is not required; what is highly important is knowledge of
international marketing channels, attention to quality control, management of stocks, and a
capacity to deliver reliable supply.

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Value chain Management of Ethiopian garment companies

The mission formed the view producers in the industry tend to adhere to a
'production/engineering approach' rather than a 'market/efficiency approach'. Both approaches of
course are needed, but in such labor-intensive consumer-oriented industries, the latter is arguably
more important. The overwhelming impression of the mission is that Ethiopia's industry is almost
entirely passive in its marketing approach - firms are adept at producing products efficiently and
reliably for buyers, but the initiative to seek out new buyers, understand and engage international
marketing networks, and experiment with new designs and products is rarely taken. There is
concern that firms are producing low value added products, and that they are to some extent at the
mercy of international buyers, particularly at present following the sharp devaluations in some
competitor countries. As long as this passive approach persists, Ethiopia's firms are likely to be
locked into a low value added production cycle, with little scope to upgrade.
There is no simple solution to overcome this problem, but the key general point to
emphasize is that the country will need to strengthen its international connections in a variety of
ways.
First, 'country reputation' is important. As Arkebe Oqubay (May, 2015) and others have
demonstrated. Ethiopia is in the early stages of creating such a reputation, but its reputation is still
very much that of a late-comer, and much needs to be done to cement its place.
Secondly, it needs to be emphasized that the establishment and strengthening of
international linkages is not a large-scale, one-off process. The channels consist of many, often
small-scale, commercial agents, involving repeat transactions. Third, it makes sense for a country
to exploit whatever international connections it possesses to facilitate commercial success.
Ethiopia's international exposure is still quite limited, but it is not entirely absent. Besides that,
there are many works to do with the government as well as the firms to maintain and improve the
value chain of garment companies in Ethiopia.

5.3.1. Recommendations for the Government


For firms to be internationally competitive, they need not only supportive macroeconomic
but they also need a conducive microeconomic environment. Wherever there are obstacles to
efficient business practice, which prevent firms from achieving best-practice standards of
management and production, commercial opportunities will be missed, production will be less
than it otherwise could have been, international competitiveness will be harmed, and Ethiopia's
capacity to deliver productive employment will be diminished.

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Value chain Management of Ethiopian garment companies

Governments can assist the process of shifting to best-practice, higher value added activities
by overcoming problems of market failures in the provision of key inputs. These initiatives need
to be linked to - and indeed will only work if accompanied by - enterprise and institutional
reforms. The issue is not so much the government itself undertaking a major modernization and
re-equipment of the industry, but rather in creating a commercial environment in which firms
have the incentive and capacity to undertake these themselves. In such an environment, the
government could make a great contribution through facilitating the establishment of industry-
driven research institutes which quickly disseminate the latest information on global trends in
markets, fashion, and design, together with more technical production know-how. In order to
maintain and improve the value chain of garment companies in Ethiopia, Ethiopian government
should have proper policy for development of the industry. Some recommends are as following:
1. Design a proper strategy for development of the textile and garment industry. Key target
should be the expansion of the garment sector by strengthening backward integration.
2. Import protection for the industry should take the form of lower tariffs and be consistent
with Ethiopia's obligations under WTO.
3. Through budget funded or foreign aid projects, help enterprises in technical assistance to
implement agreements, such as trademark registration, research and development, and
training.
4. Establish concentrated trade centers in potential market in order to support enterprises in
marketing, exhibition and show, trademark advertisement, organize and provide funding
to regular study tours, trade fair abroad for enterprises.
5. Support in human resource training and legal aid: • The government needs to have a policy
for training of human resource for the textile and garment industry, using the budget or
foreign aid • expand TVET institutes around the new industry parks • Establish
representative office abroad to provide legal counsel to local enterprises in doing business.
6. The government should help textile and garment related services, such as industrial
software, equipment and parts supply, technical services, trade promotion, trade mark
development, franchise, design, training, quality control, management etc. to get the
foreign investment.
7. The government should play as the facilitators for the development of the industry though
provision of information, development of physical infrastructure, and institutional support.

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Value chain Management of Ethiopian garment companies

The role of ETIDI should be realigned to become an institute providing services such as
training, designing, testing and research enterprises.
8. If import duties are reduced it will be likely decline in the demand for domestic textiles.
By that time, the upstream industry may face with difficulties. If the government insists on
developing upstream industry, the government should have policies to enhance
competitiveness of upstream industry through selective investment and opportunity for
and facilitators of production linkage should also be established and enhanced.

5.3.2. Recommendations for the Firms


Garment companies should pay much more attention to improving management skills in
product development, distribution channel, training adequate human resources to carry out
product design and development process, and, not least important, expanding to highly-demanded
domestic market. In order to improve the value chain management, garment companies in
Ethiopia should look back their value chain management. They should know which activities in
their value chain are strategic and then focus on those activities, trace cost to those activities
efficiently and use cost information to manage their activities. As finding in section 2 of chapter 4
and discussion in section 2 of this chapter: operation, marketing and sales, HRM and technology
development should be considered as key activities of garment companies in Ethiopia and should
be improved. Following strategies can be applied:
1. More flexibility, dynamism, cooperation and clear policies are needed. Both, the Garment
and Textile Industry (production of fabric- dying – finishing) have to build up close
relationship to design a strategy for further development and to establish a strong Textile-
Garment Association as a channel of communication and pool for information for
international customers as the result from the research shows that the upstream linkage
between garment enterprises and textile firms is weak.
2. Following aspects of production are related and must be counted and improved together:
• Accuracy on cutting
• A clear concept and divide the job between making of ' 'Spare parts" and
"Assembly Parts into a garment".
• Provide a suitable handling environment for a particular sewing operation
• Reduce the time of material flow.

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Value chain Management of Ethiopian garment companies

3. Invest in marketing Garment companies in Ethiopia should more focus on marketing for
example: Having a close look and constant research to overseas/global markets and
customers and getting started to use all kind of sources of information frequently, for
example visit of international Textile fairs. Brand name, fashion cycle, and labeling are
mentioned as important factors to be successful in garment business in Chapter 2 (Gini
Stephens, 2001).
4. Improve service by improving office image and sample room. The appearance of the
entire office, workplace and personality leave a lasting impression on customers. They are
very much part of a company image. Most buyers are likely to come from Europe or the
USA and are used to modern surroundings. Garment companies in Ethiopia so should
welcome them in a similar atmosphere and make them feel “at home”. Normally, the
visitor looks around as soon as he enters the office. He makes a “quick inspection” of
working desks, samples on tables, shelves (and sometimes floor) whether it is orderly or
messy and thinks “this is an efficient (or inefficient) operation”. The result will influence
his decision to make the order or not (Till Freyer, 2004). So a neglected, dirty building
needing repairs and painting puts off a visitor immediately. It is worthwhile to invest in
the reception and give it a modern look. The sample room is a very vital facility in
garment exports. It allows a visiting buyer to choose a fabric for a desired style (Gini
Stephens, 2001). So garment companies in Ethiopia should keep shown samples up-to-
date and keep the room clean and in good order. Each hanger should describe the quality,
width, supply source (coded), price. Normally buyer comes from a modern, affluent
country with excellent facilities including shops. So it is necessary to make it easy for him
to imagine what products will look like in his retail outlets. The ideal showroom is set up
like a retail outlet. It should provide space for both hanging and folded garments. Up-to-
date styles, fabrics and colors should be present to prove that the company is following
fashion trends. Full information therefore needs to be shown on hangtags on each style.
5. Improve Human resource of their companies, should invest in training of personnel (in
terms of marketing, merchandising, design, production management and selling) because
the study (primary data and secondary data) shows that human resource of garment
companies in Ethiopia is weak. Human resource management should deal with all human
aspects of an organization in accordance with Management’s directives and Government
rules with wide ranging responsibilities.
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Value chain Management of Ethiopian garment companies

6. Technology and Development: Ethiopia is a labor intensive and capital scarce country,
enterprises should invest in appropriate technology. Even plentiful labor resources cannot
substitute state-of-the-art machinery to increase added value and backward integration.
The industry needs a strategy how to upgrade technological standards and use new
technology more effectively. Fashion is the expression and preference of a specific target
group’s approach towards life (Gini Stephens, 2001). So garment companies in Ethiopia
should invest to have a design team, which have the task of accurately forecasting and
recognizing future trends and translating them into wearable fashion garments. Design
teams obtain their inspirations from international “Trend Shows”, magazines, talking to
sales staff in shop and closely follow what their target group” wears in the street, office
and at home. They then should produce sketches and propose fabrics and colors of what
will – hopefully – be “fashion” and in demand next.
7. Finally, Garment companies in Ethiopia should try to manage the value chain via
intranets, extranets and proprietary networks to reduce time of information flows. As Till
Freyer in his research (2005) suggested: computer software are very much part of every
days’ work. Special programs, developed for the specific tasks of each department support
and speed up the work process and control of deadlines. Most work procedures and
control systems incl. communication (e-mail) can be supported by computer programs.
Information Department or Administration Department or Technical Department can be
responsible for the networks. The managers so can use these networks to manage the
information flow.

5.3.3. Limitations of the Study


Even though the study shows the general picture of the value chain management of
garment companies in Ethiopia and it shows a number of significant findings but due to time
constraints it also has some limitations. Firstly, the primary data from the study was just analyzed
based on data of 24 garment companies in Addis Ababa, Ethiopia. The picture about the value
chain and the margin of garment companies in Ethiopia will be clearer if the upstream linkage
between textile firm and garment firm is analyzed so questionnaires with textile firms in Ethiopia
also need to be conducted. Secondly, the topic and concepts of this research are almost new in
Ethiopia. The researcher had to try his best to explain about these concepts. To be afraid that the
questionnaire is too long for respondents to answer, especially with busy top managers, company

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Value chain Management of Ethiopian garment companies

profile in questionnaire was limited. The rating score of respondents from garment companies,
especially for production activity may not very reliable.

5.3.4. Suggestions for Further Studies


This study provides a lot of facts and findings about the value chain management of
garment companies in Ethiopia. The suggestions for further studies are as follows:
Firstly, it is needed to expand the respondents of the primary research into the whole textile and
garment industry in Ethiopia. The research about the upstream linkage between textile and
garment firms should be conducted to analyze the whole value chain. Thanks to this the readers
will have clearer picture about the value chain management of garment companies, what the
garment companies in Ethiopia can and should do to improve their value chain management.
Secondly, next studies should test hypothesis to measure the relations among activities in the
value chain of garment companies and the affects of activities to the margin of the value chain by
using more advanced technique to analyze the primary data such as: Pearson Correlation,
Correlation Coefficient, and effect size.
Thirdly, the next study should show how the total cost can be traced to key or strategic activities
in the value chain of garment companies in Ethiopia and how this cost information used to
manage the strategic value chain activities.

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Value chain Management of Ethiopian garment companies

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and Services, Richard D. Irwin, Homewood, IL.
 Duc Vuong. 2001, May 21. “Textile and Garment Exports Have to Overcome many
challenges” Economics Times: 6.
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and Operations, USA: Addison Wesley-Longman.
 Francois. J.F., Glisman, H.H. and Spinanger, D., 2000, "The cost of EU protection in
textiles and clothing", Kiel Institute of World Economics, Working Paper no 997.

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 Gini Stephens Frings, 2002, “Fashion from Concepts to Consumers”.


 Gereffi, G., hnology and Management, 2, 1: 1-5.
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Apparel, Tec. International Trade and Industrial Upgrading in the Apparel Commodity
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competitive Advantage, Barrett-Koehler Publishers, Sanfancisco, CA.164
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Value chain Management of Ethiopian garment companies

 TIDI (2015) pre-publication of GTP 2 plan


 TIDI (2015) Textile presentation
 World Bank group.(2015) 4Th Ethiopia Economic Update: Overcoming constraints in the
manufacturing sector

Links
http://www.investethiopia.gov.et/why-ethiopia/economic-indicators
http://www.ethiopians.com/Ethiopia_GTP_2015.pdf
http://www.enlba.org/index.php?option=com_content&view=article&id=1491:bottlenecks-in-the-
textile-industry-should-be-adequately-abated&catid=46:news-feed&Itemid=249
http://addisfortune.net/columns/textile-puzzle/
http://addisfortune.net/articles/textiles-exports-fail-gtp-i-targets-by-more-than-half/
http://www.capitalethiopia.com/index.php?option=com_content&view=article&id=5357:export-
targets-missed-throughout-gtp-i&catid=35:capital&Itemid=27

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Value chain Management of Ethiopian garment companies

APPENDIX 1
LETTER FOR INTERVIEW’S APPOINTMENT
Date:
To whom it may concern:
My name is Zerihun Abebe, a team leader for Garment monitoring and evaluation directorate
under ministry of industry. I’m studying MBA in industrial management at University of Addis
Ababa Science and Technology University (AASTU) Addis Ababa, Ethiopia. I am conducting a
research on the topic entitled “Value chain management of garment companies in Ethiopia” to
fulfill my MBA degree. The main purpose of my research is to describe the value chain of
garment companies in Ethiopia and how effectively are activities in the value chain managed. I
would be very grateful if I could have a depth interview with you about your opinion and work
experiences in order to complete the research process. I will give you a call to discuss with you
about appointment. I promise that your information will be treated confidentially and will only be
used for academic purpose.
My contact number is 0967281622; email address: zersh2016@yahoo.com
Sincerely yours,
Zerihun Abebe
MBA, Master of Business Administration
Addis Ababa Science and Technology University

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Value chain Management of Ethiopian garment companies

APPENDIX 2
TOPICS FOR FACE TO FACE INTERVIEWS
Topic title: “Value chain management of garment companies in Ethiopia”
Profile of interviewees:
Name of interviewee: --------------------------------------------------------
Position: ----------------------------------------------------------------
Organization: ----------------------------------------------------------------------
Contents of the interview: --------------------------------------------------------------
Introduce and explain the purpose of the interview, explain about value chain model and value
chain management.
1. How do you evaluate the importance of primary activities and support activities in the
value chain of garment companies in Ethiopia, explain why?
No. Activities in the value Least important Most important
chain 1 2 3 4 5
1 Inbound logistics
2 Operations
3 Outbound logistics
4 Marketing
5 Sales
6 Service
7 Infrastructure
8 Human Resource
Management
9 Technology
Development
10 Procurement
2. What are strengths and weaknesses of garment companies in Ethiopia?
3. Policy regime for garment trade in Ethiopia.
4. Opportunities and challenges of garment companies.
5. The policies that Ethiopian government should implement to help garment companies in
Ethiopia improving their value chain.

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Value chain Management of Ethiopian garment companies

APPENDIX 3
LETTER FOR QUESTIONNAIRE SURVEY
Date:
To whom it may concern:
My name is Zerihun Abebe, a team leader for Garment monitoring and evaluation directorate
under ministry of industry. I’m studying MBA in industrial management at University of Addis
Ababa Science and Technology University (AASTU) Addis Ababa, Ethiopia. I am conducting a
research on the topic entitled “Value chain management of garment companies in Ethiopia” to
fulfill my MBA degree. The main purpose of my research is to describe the value chain of
garment companies in Ethiopia and how effectively are activities in the value chain managed. I
would be very grateful if you fill in the questionnaire in order to complete the research process.
There will be no right or wrong for the answers as they depend on each applicant’s opinion and
experience. Your responses will be treated confidentially and this will only be used for academic
purpose. Please answer all the questions and return it back as soon as possible. If you have any
question please feel free to contact me at 0967281622 or email me at: zersh2016@yahoo.com
Thank you for your participation in this questionnaire.
Sincerely yours,
Zerihun Abebe
MBA, Master of Business Administration
Addis Ababa Science and Technology University

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Value chain Management of Ethiopian garment companies

APPENDIX 4
QUESTIONNAIRES
Research title “The value chain management of garment companies in Ethiopia”
Thank you very much for spending your time and effort to fill this form.
The questionnaire is divided into 3 parts:
(I) Company profile
(II) Primary activities management
(III) Support activities management.
The value chain management means managing integrated information about product flow from
suppliers to end users to reduce defects and inventories, speed time to market and improve
customer satisfaction.
Part I: Company profile
1. Company’s name: ………………………….
2. Your position:
[ ] Director
[ ] Vice Director
[ ] Import export manager
[ ] Marketing manager
[ ] Production manager
3. Number of year that the company operate in garment trade field (check one)
[ ] < 5 years [ ] 5 – 10 years [ ] >10 years
4. What type of your company?
[ ] State-owned enterprise
[ ] Limited liability company
[ ] Joint stock company
[ ] Private company
[ ] FDI
6. What was the main type of your orders in the year 2015/16?
[ ] FOB: 0 - 25% (CMT: 75 - 100%)
[ ] FOB: 25 – 50% (CMT: 50 - 75%)
[ ] FOB: 50 – 75% (CMT: 25 – 50%)

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Value chain Management of Ethiopian garment companies

[ ] FOB: 75 – 100% (CMT: 0 – 25%)


7. What is your major market in this year?
[ ] Local market [ ] Oversea market

The value chain includes 5 primary activities (Inbound logistics, operations, outbound
logistics, marketing and sales, service) and 4 support activities (Firm infrastructure,
human resource management, technology development and procurement).
Inbound logistics: receiving, storing, handling, inventory control, transportation
scheduling of fabric and accessory
Operations: cutting, making, trimming, packaging, equipment maintenance, and testing
Outbound logistics: warehousing, order fulfillment, transportation, distribution
management to bring products to customers
Marketing: channel selection, advertising, promotion, pricing
Sales: Selling, retail management, wholesale management
Service: customer support, complain handling
Infrastructure: general management, planning management, legal, finance, accounting,
public affairs, quality management, etc,.
Human Resource Management: recruiting, development (education), retention and
compensation of employees and managers
Technology Development: Research and Development, Process automation, design,
and redesign
Procurement: Procurement of raw materials, servicing, spare parts, building machine,
etc.

8. How do you evaluate the importance of following activities in your company’s value chain?
No. Activities in the value Least important Most important
chain 1 2 3 4 5
1 Inbound logistics
2 Operations
3 Outbound logistics
4 Marketing
5 Sales

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Value chain Management of Ethiopian garment companies

6 Service
7 Infrastructure
8 Human Resource
Management
9 Technology
Development
10 Procurement
From question 9 to question 18, you can skip activities that not exist in your company. In 5
point rating questions you can compare your company’s performance with your competitors’ if
it is necessary.

Part II: Primary activities


9. How are inbound logistics activities managed in your company?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Receiving fabric and accessory
2 Storing
3 Handling system
4 Inventory control
5 Transportation scheduling
6 Inbound logistics
10. What do you think about your production management?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Production scheduling
2 Pattern making
3 Spreading and cutting
4 Garment assembly
5 Finishing and packaging
6 Machine maintenance
7 Production

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Value chain Management of Ethiopian garment companies

11. How are outbound logistics activities done in your company in 2015/16?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Warehousing
2 Order fulfillment
3 Transportation
4 Outbound logistics
12. What do you think about marketing management strategy of your company?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Product management
2 Price management
3 Place management
4 Promotion management
5 Marketing mix management
13. How is your sales management?

No. Activities Not effective at all Very effective


1 2 3 4 5
1 Retail management
2 Whole sales management
3 Sales management
14. How is your service managed?

No. Activities Not effective at all Very effective


1 2 3 4 5
1 Customer supports
2 Complain handling
3 Services management

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Value chain Management of Ethiopian garment companies

Part III: Support activities


15. How is your technology development management?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Design and redesign
2 Sewing system development
3 Cutting system management
4 Pressing and ironing systems
5 Other support equipment
6 Technology development
16. How is Human Resource Management in your company?

No. Activities in the value chain Not at all effective Very effective
1 2 3 4 5
1 Recruiting
2 Worker training
3 Staff training
4 Salary and compensation
5 Human Resource Management

17. How is your Infrastructure managed?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 General management
2 Planning management
3 Finance management
4 Quality management
5 Infrastructure management

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Value chain Management of Ethiopian garment companies

18. How is procurement managed in your company?

No. Activities Not at all effective Very effective


1 2 3 4 5
1 Procurement of fabric and
accessory
2 Procurement of servicing
3 Procurement of machines
4 Procurement of stationary
5 Procurement management

Thank you very much for your help!


MBA student Zerihun Abebe
Addis Ababa Science and Technology University

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Value chain Management of Ethiopian garment companies

APPENDIX 5
List of garment companies in Ethiopia

year no.of export


s. of employ destinati contact
n name of the comp est. ees main products capacity on location person
1 Abem Garment 2008 120 T-shirts, polo,shirts 811000 Addis Ababa Burhanu
plc Nifas silk lafto Sahle(GM)
Tell +251 114
1976 97/98
2 Addis Garment 1965 510 Woven shirts, 421000 Italy Addis Ababa kolfe Mrs.
S.C (Augusta) blouses& work wear US,UK keranyo woreda Giuliana
09 tell +251 Zuccato(G
11371191 M)
3 Adugna Kebelay 2000 35 Woven garmemnt( Oromiyaa sebeta Mr.
General Trading work wear,school +251911524736 Adugna
plc uniform) knitted Belay
garment(Tshirt,polo,
shirt)
4 Akakai Garment 1971 470 Shirts, Trousers 2144000 Addis Ababa Mr.Getach
S.C Akaki kality tel ew Biratu
+251114344863
5 Ambassador 1989 771 Clothing and Addis Ababa Bole Mr. Seid
Garment & trade Fashion/ Men’s suit HAya Hulet Tel Mohamme
plc +251 116 461 427 d(GM)
4 Arvind Life style 2014 1500 Denim Bottoms for EU and Addis Ababa bole Mr.
plc women/essentials USA lemi industry park Rajarshi.du
for men +251912504308 tta(GM)
5 Asbem industrial 2006 240 Tshirt, lady top, 1997000 East Oromiya Sendafa Mr.Abiy
plc Kids wear, under Africa tel+251 116 189 Gidey(GM)
wear,packout and 189
work wear
6 Ashton Apparel 2014 230 Woven and knit 5472000 Addis Ababa bole Mr Utam
manufacturing garment lemi industry park Kumer
tel +251 116 394
263
7 Berhanu Tsehay 2010 73 Polo t-shirt, short 864000 Addis ababa akaki Mr.Birhanu
Garment cotton kality tel +251 912 Tsehay
699 343 (owner)
8 BIG M Apparel 2011 408 Uniform, Suit cloth, 2500 saudiara Addis Ababa Mr.Elias
and garment plc work wear pcs/day bya akaki kality tel. Meshesha(
+251 114 42-35- GM)
56
9 BM Ethiopia 2011 841 Garment 1152000 Addis Ababa Mr.
Garment & 0 Nifas silk lafto hwanryu
textile S.C saris tel +251 (Ma.Dir)
114420618
10 C and H Garment 2014 80 Woven shirt and 2500000 US,Euro Addis Ababa Bole Mr. malou
pants pe, East lemi industry park Sanfilano
AFrica +25191431

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Value chain Management of Ethiopian garment companies

4157

11 CBA Garment 2005 140 Shirt 250 per Oromiya Gelan tel Mr. Bilal
Factory plc day +251 114 713 145 Sabri(GM)
12 Concept 2006 239 Woven and knit 2916000 Addis Ababa nifas Mrs. Lily
International garment silk lafto tel +251 Betru
Ethiopia plc 114 422 602 (ma.Dir.)
13 Desta plc 2009 254 Woven and knit 3026000 Addis Ababa Gerji Mr. Eyob
garment tel +251 16299951 Bekele(GM
)
14 EDE Garment 2013 40 Overcoats, jacket, 19700 Addis Ababa kolfe Mr. Eyasu
and Textile poloshir t-shirt Rain pcs keranyo woreda Ermiyas(G
Engineering plc coats 01 tel +251 tel M&
+2510 105 254 owner)
15 Edget Garment 1996 100 Uniform, gowns 250pcs/ Addis Ababa Mr.Birhanu
plc shirts readymade day Shiro meda tel Degefa
cloth +251 111 236 320 (MGR)
16 Eltex Textile & 2004 1150 Knitted garment 5000000 US and Addis Ababa Mr. Eliyas
Garment fatory UAE Kality tel +251 Tesfayae(G
114 390 464 M)
17 EMD Garment 2004 63 Suit 100ps/d Addis ababa nifas Mr. Elias
ay silk lafto Mulugeta
mekanissa tel (GM)
+251 113 212 907
18 Feleke Garment 2006 210 Knitted and woven 899 000 USA& Addis Ababa nifas Mr.
plc garment EU silk lafto lebu Mahitsentu
industry zone Feleke
(Ma. Dir.)
19 Getachew 2011 65 Polo shirt, t-shirt, 240000p - Addis Ababa Mr.
Ayinalem and work wear, bags cs Mekanissa tel Getachew
Yeshareg towels +251 911113344 Molla
partenership
Garment and
textile factory
20 GG Super 2005 240 t-shirt polo shirt, top 1812000 USA, Oromya Liyu zone Mr.
garment plc tank EU Bishoftu tel +251 Getachew
114 337 502 Biratu(GM
)
21 GMM garment 2004 120 Home textiles 234000 German Addis Ababa Mr. Zewlde
plc , Italy Nifas silk lafto Tekleab(G
USA lebu industry M)
zoneTel +251114
197 374
22 Gullele Garment 1983 100 Polo shirt, t-shirt, 2700000 Addis Ababa Mr. Berihu
S.c work wear, night Kolfae keranyo Leake (Ma.
wear, jeans Tel +251 112 702 Dir.)
266
23 Hay garment 2012 142 Pajamas, Shirts Addis Ababa gerji Mr.Zelale
Manufacturing m
plc Belay(G>

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Value chain Management of Ethiopian garment companies

M)

24 Haibo 2015 440 Kids and ladies 4000 Oromiya Dukem Mrs. Mr
Manufacturing garment pcs kids industry zone Haybo Zou
plc per day
25 HG Garment plc 2006 97 Woven garment , 790,000 Addis Ababa nifas Ato Haile
uniform, kids wear silk lafto lebu Ghebreegz
industry zone abher
26 HIrdaramani 2015 300 Sammar garment ( 3243000 SNNPRS, Mr.
Garment plc polo shirt) HAwassa industry Channa
park Gunawarda
na
27 Hua Xia 2015 16 T-shirt, sports pants, Addis Ababa nifas Mrs. XU
Technology Plc underwear, leggings silk lafto saris
industry zone
28 ISIK textile 2014 230 Garment products 250,000 Oromiyaa Mr.
factory plc Legetafoo Nejashi
(owner)
29 Jay Jay Textile 2014 649 Kids wear, Woven 9,472,00 Addis Ababa bole Mr.
plc garment 0 lemi industry park Alberto(G
M)
30 KEI Industrial 2014 54 Uniform, shirts, 1,550,00 USA, Addis Ababa Bole Mrs. Chang
Engineering plc trousers 0 EU & lemi industry park Rang
middle Koong
east (GM)
31 Knit to Finsh 2004 400 Knitted and sport 3744000 Oromia Liyu Zone D/r Worku
wears) Akaki near to Zewde(GM
Gelan )
32 Linda Ethiopia 2014 400 Trouser, short, suit, 1472000 Oromya Liyu zone Mrs.Jerry(
Garment plc coat eastern industry GM)
zone, Dukem
33 Lucy Garment 2011 133 Shirting Fabric, Addis Ababa nifas Mr.
Industry plc interlining material silk lafto saris Mikiyas
industry zone Hailu
+251114426188 (Man. Dir.)
34 Mantel Garment 2007 45 Knitted and woven 529920 Addis ababa kality Mr.Aleheg
plc garment ne
Assefa(GM
)
35 Nazarthe 1991 500 Pants, Shirts,overall 540,000 USA, Oromyaa, east Mr. Avi
Garment S.c showa Adama Manes(GM
)
36 New Wide 2014 352 Garment 60,000,0 USA, Addis Ababa bole Mr.
Garment 00 lemi industry park sanjay
(operationa
l manager)
37 Novastar 2005 635 Knitted and woven 1997000 USA, Oromiyaa Gelan Mr.
Garment Factory garment mohammed
plc Umer
(ASS.GM)

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Value chain Management of Ethiopian garment companies

38 Oasis Abyssinia 2007 118 Knitted and woven 1560000 Addis Ababa nefas Mr. Yilkal
plc silk saris industry bisenebit(G
zone M)
39 Rainbow 2013 440 Polo shirt, t-shirt USA, Addis Ababa lebu Mr.
Garment plc and uniform industry zone Solomon
Hailu
40 Shints ETP 2014 1629 Woven and knitted German Addis ababa bole Mr. Kim
Garment plc jacket, motor cycle , Italy lemi industry park Dongsan
jacket USA,
41 TOTO Garment 2008 100 Knitted 1,750,00 Oromiya liyu zone Mr.
plc garment(lady’s 0 sebeta town Getenet
body, tshirt..) Aregawi(A
.Gm)
42 Vestes Garment 2013 900 Garment export 2500000 Addis ababa bole Mr.
plc world wide lemi industrial Kidanae
park Woldegi.(
GM)
43 Village industry 2009 150 Shopping bags, 750000 Italy,Du Addis Ababa nefas Mr. camillo
plc pilot bags bai and silk lafto addis calamai(G
canvass,jackets… USA industry zone M)
+251 114 404 864
44 Vitcon plc 2005 50 Home textile and 340000 Addis Ababa Bole Mr. Goshu
apparel of shirts sub city Gerji Negash(G
M)\
45 Wosssi Garment 2007 32 Ladies wear, blouse 152,000 USA, Addis Ababa nefas Mrs.
Design factory skirts,tousears,.. itaky silk lafto saris Wossen
plc German industry zone Hailu
y,
England
46 YAbets textile 2005 80 Knitted Addis Ababa Mr. Adane
factory fabric/jogging nifasi silk lafto Egata(GM)
cloth,childeren lebu industry zone
47 Yonis Garmenet 2004 130 Woven and knitted 3120000 Addis ababa nefasi Mr.
plc garment silk lafto saris Solomon
industry zone Debebe(G
+251114403450 M)

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Value chain Management of Ethiopian garment companies

APPENDIX 6: Ethiopia at a glance

ETHIOPIA AFRICA
OFFICIAL NAME: Federal Democratic Republic of Ethiopia
POLITICAL SYSTEM: Federal with multi-party system
CAPITAL CITY: Addis Ababa, which is also the seat of the African Union
(AU) and United Nations Economic Commission for Africa (ECA).
LOCATION: Ethiopia is located in the North-Eastern partof Africa known as
the “Horn of Africa”. It enjoys a unique location at the crossroadsbetween
Africa, the Middle East and Asia.
AREA: 1.14 million square kilometers
ARABLE LAND: 513,000 square kilometers (45%)
IRRIGATED LAND: 34,200 square kilometers (3%)
POPULATION: 96.6 million (2014/15)
POPULATION DENSITY: 74.4 per square kilometer (2012/13)
LANGUAGE: Amharic is the working language of the federal government, while Oromiffa and Tigrigna are widely
spoken. English is taught in schools and is the main business language.
EDUCATION: Primary school enrolment rates have reached 85.7% in 2012/13. By 2009/10 there were 200,000
students enrolled in higher education institutions, proportionately twice the number enrolled in universities in Kenya
in 2012 Deloitte, 2014).
GDP PER CAPITA US$575(2014/2015)

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Value chain Management of Ethiopian garment companies

BIOGRAPHY
Zerihun Abebe was born on July 12, 1972 in Oromia Region, Town of Adama.

He received his Degree of Bachelor of Textile Engineering at Bahir Dar University of Technology in
1995.
He also holds a Certificate of Clothing and Garment Design for Developing Countries sponsored by
the Ministry of Commerce, organized by Fujian Foreign Trade and Economic Cooperation Officials,
The People Republic of Chaina, on June 2nd, 2016.
And also holds certification upon the successful completion of Market System Development
Approach on August 5th, 2016 from Ethiopian Management Institute.
He is working for Ministry of Industry Department of Textile and Garment Sector as a Team leader.

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