Surya Garment closure: was it a labor unrest or purely economic decision

November 20, 2011

Surya Nepal Garment Unit established in 2004 at Biratnagar, Morang with the investment of 700 million at the point when the country was in very critical junction with insurgency in peak period and the political environment was not so conducive for business has Permanently closed down its Garment factory unit on august 17, 2011 after seven years of operation following a disrupt by labor force which has forced to close the factory since June 15, 2011. The company was closed due to series of events like managerial staffs were padlocked in the room for 36 hours by the hooligan’s trade union activists in an inhuman condition including a pregnant woman in the team. Looking at a scenario it make a perfect sense that due to labor unrest the company was forced to shut down. At the same time when in November 1^st, 2011 just after couples of month it has announced to come with the noodles industry at Biratnagar sense that something is fishy.

At the closure of the unit it gave a hint to shift the garment unit to Bangladesh for higher productivity of Bangladesh worker to Nepalese counterpart. The MD of Surya Garment has mentioned that company’s eight-hour factory shifts have dwindled to seven or less with factory hands taking long breaks in between and at times not coming back to work. Same way he mentioned that Surya Nepal's tobacco factory in Birgunj in southern Nepal has been functioning smoothly with over 90 percent production, while the garments factory has been performing dismally, with production slumping to about 42 percent of capacity. So, a purely economic sense made it clear that the unit was less profitable and competitive than the option available.

Surya Nepal Pvt. a Indo-Nepal-UK joint venture company with 59% share held by ITC India Ltd. So, the question arises that the sole motive was a labor unrest or strategic shift of ITC to other diversified products range. As ITC has already shift its product to more of FMCG segment from sun feast biscuit, toilet soap, noodles, distributor channel (e-chaupal), businesses- sportswear, greeting cards, confectionery and branded staples- to reduce its dependence on its cigarette business.

The best thing to watch is the timing of decision; the garment unit closure was just 10 days i.e. August 7, 2011 after the smoking of cigarettes in public places was banned in Nepal as well as carrying a statuary graphic warning which comprises of 75 percent of the packing space. Does it applied as a bargaining chip because we know the implementation part about the banned of smoking in public. I believed not a single person has been fined due to smoking in public places and neither a statuary warning of graphical presentation is seen. The smoking in public is rampant as it is before even in the presence of police at local café, nearby school and colleges, hospital, constituent assembly, etc.

Despite its diversification in different segment still a huge chunk of profit for ITC comes from tobacco related goods, it is proved in India that the consumption of tobacco related goods have been decrease with the banned in advertisement. So, it make purely a economic sense that the company has well bargain with the government not to banned the smoking and when the government comes up the law it threatens with the closure of garment unit leaving directly 700 people unemployed and more than 1300 people indirectly associated either the unit. It’s make a economic sense to do it. It reminded me a situation in the Indian film “Corporate” by Madhukar Bhandarkar when the investor threaten to pull the investment and its effects in FDI s if the scenario is not change to the finance minister. Scenario could be something similar in Nepal case too.

So, can we infer that the Closure of Surya Garment Unit is not only by labor unrest as it is mentioned but a purely economic decision to shut down its unprofitable venture and save the prime business of the company or diversify to other possible alternatives?

The things mention here is mere my personal thought