McCormick+Schmitz Handbook for value chain research on - PACA

piece rates increase their costs and harm their competitiveness. Indeed higher pay means
higher costs unless the workers’ per<strong>for</strong>mance improves as a result of the better pay. If
your <strong>research</strong> is to help negotiations, you need to know by how much costs would
increase if workers wages or piece rates were to be raised by, say, 10%. In order to
answer this question you need to know the share of labour costs in total costs.
A cost breakdown is a sensitive piece of in<strong>for</strong>mation <strong>for</strong> the manufacturer. Do not expect
to obtain it through a sample survey. In-depth interviews with a small number of
producers are more promising, but don’t start the interview with questions on costs and
profits! Once you have obtained the respondent’s trust it should be possible to fill in
Table 12.1. In the interview, there are two strategies you can follow: you ask the question
on percentages of costs and margins (last column in Table) and then apply these
percentages to one or two typical products made by the enterprise and then check that the
margins given ring true. Or you do it the other way round, you start with a typical
garment (ideally one that you have seen being made during the visit) and then work out
the percentages. Then do then the same with another product – or, at least, ask whether
the same percentages can be applied to many other products made by this firm.
Table 12.1 : Costs and profit margins (per unit of output)
Materials
Labour
Overheads (machines,
electricity, rent, etc.)
Costs of production
Profit margin
Selling price
Value in local currency
Percentages
Having obtained this cost breakdown, try to obtain an additional piece of in<strong>for</strong>mation,
namely the share of payments to homeworkers in total labour costs and in total costs.
Keep in mind that this can vary enormously. For example, a blouse with extensive
embroidery often absorbs a lot of homework, whereas the same blouse without
embroidery might be made entirely within the factory. In view of such product variations,
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