Page 1 of 25
706
Advances in Social Sciences Research Journal – Vol.7, No.9
Publication Date: September 25, 2020
DOI:10.14738/assrj.79.9138.
Aldaadi, S., & Basafar, A. (2020). Impact of Operating Cost Reduction on The Economic Challenges Facing Small-Size Clothing Factories
in Saudi Arabia. Advances in Social Sciences Research Journal, 7(9) 706-730.
Impact of Operating Cost Reduction on The Economic Challenges
Facing Small-Size Clothing Factories in Saudi Arabia
Sarah Aldaadi
College of Human Sciences and Design,
King Abdulaziz University, Saudi Arabia
Amal Basafar
College of Human Sciences and Design,
King Abdulaziz University, Saudi Arabia
ABSTRACT
The clothing manufacturing industry in the Kingdom of Saudi Arabia has
faced many challenges at the local and international level. The
implementation of the rules and regulations of the World Trade
Organization (WTO) and the Kingdom’s Vision 2030 have gained
particular interest and operating with minimum costs has become one
of the main objectives of small-size clothing factories. The impact of
operating cost reduction on economic challenges facing the clothing
factories has been studied with the aim to identify the challenges and
economic factors affecting operating costs. It was concluded that some
of the economic challenges are represented in the high operating cost
caused by the application of new taxes, including the value-added tax
(VAT), imposition of fees on non-Saudi workers and new amendments
to the trade law. Minimizing operating costs through cutting-edge
manufacturing technologies were found to be a key solution to ensure
factories’ survival and sustainability.
Keywords: operating costs; clothing factories; economic challenges; Saudi
Arabia.
INTRODUCTION
The global clothing industry has faced many challenges at the domestic and international levels over
the past decade. The implementation of the rules and regulations of the World Trade Organization
(WTO), and the trade arrangements between different groups of countries are of particular interest.
The clothing industry is viewed as an emerging non-oil business in the Kingdom of Saudi Arabia and
requires a rapid response and changes in order for it to grow and survive in the industrial sector.
New industrial regulations and laws in the Kingdom have posed some economic challenges on
small-size clothing factories, although the clothing industry has shown rapid growth at the
international level over the past few years.
(Caro and Martínez-de-Albéniz, 2015) stated that small-size clothing factories have a high potential
to grow in the international clothing business (Perera and Ratnayake, 2019). In order to remain
competitive in dynamic marketof fast fashion clothing industry, the clothing manufacturers are
Page 2 of 25
Aldaadi, S., & Basafar, A. (2020). Impact of Operating Cost Reduction on The Economic Challenges Facing Small-Size Clothing Factories in Saudi Arabia.
Advances in Social Sciences Research Journal, 7(9) 706-730.
URL: http://dx.doi.org/10.14738/assrj.79.9138 707
under immense pressure to achieve high degree of manufacturing flexibility (Jovanovic et al., 2014).
Low manufacturing cost is another important aspect that determines the competitiveness of
manufacturing industries (Khannan et al., 2016). Hence, it is essential to focus on improving
manufacturing flexibility while ensuring low manufacturing cost to survive under volatile market
conditions. Ensuring minimum manufacturing cost is vital to be competitive in volatile market
conditions (De Carlo et al., 2013).
Production/assembly department of clothing industry is known as highly labor-intensive (Guo et
al., 2015). Hence, minimization of changeover-related cost has become one of the primary objectives
of dynamic cellular layout designs. Furthermore, as stated by (Shafigh et al., 2017) about 20–50%
of the manufacturing cost is related to material handling. Minimization of material handling cost is
the most prominent cost function used in available studies and can be obtained by optimizing a
selected set of performance measures such as material handling cost, machine setup cost, grouping
efficacy and exceptional elements (Deep and Singh, 2015). Therefore, there is a need to study the
impact of operating cost reduction on the economic challenges facing small-size clothing factories.
For the purpose of this research, the following questions are introduced:
1. What are the economic challenges facing small-size clothing factories in the Kingdom of
Saudi Arabia?
2. What is the cost reduction strategy applied by small-size factories to deal with the economic
challenges?
Research Objectives
1. Identifying the economic challenges facing small-size clothing factories in the Kingdom of
Saudi Arabia.
3. Identifying the cost reduction strategy applied by small-size factories to deal with the
economic challenges.
4. Determining the factors affecting operating costs in small-size clothing factories, particularly
the economic impacts.
5. Providing recommendations for future actions to deal with the economic fluctuations in the
clothing industry.
Research Importance
The research highlights the strategy applied by clothing factories to reduce operating costs and
examines the impact of operating cost reduction on tackling the economic challenges in the
Kingdom of Saudi Arabia.
Research Hypotheses.
1. A strategy of reduced operating costs in the clothing factories minimizes potential risks of
cessation of production due to economic challenges.
2. Industrial and commercial labor regulations and laws are among the most important
economic challenges facing the clothing industry.
Definition of Terms
Impact: Most definitions of research impact emphasized positive returns. While some definitions
used more neutral language, negative impacts of research were rarely mentioned. The issue from a
research governance standpoint is whether a focus on impacts defined in terms of non-academic
Page 3 of 25
708
Advances in Social Sciences Research Journal (ASSRJ) Vol.7, Issue 9, September-2020
benefits creates an incentive to skew results to demonstrate benefit, even where there is none. This
may create perverse incentives to implement ideas before they have been properly tested or their
implications fully thought through. Most definitions interpreted research impact as leading to
positive gains or the reduction in societal harms. However, there are several examples of research
that has had negative or, at least, contested impacts. Furthermore, a definition that encompasses a
clear ‘positivity bias’, as is evident in these definitions, may be limited in pursuing academic
understanding of how evidence impacts policy. A related concept to that of ‘research impact’ is that
of ‘knowledge valorisation’. Valorisation is a process by which academic knowledge is transformed
into social and economic value. (Alla et al., 2017)
Operating cost: the term in general includes every cost incurred in business operations. As per the
production process, operating cost include costs of manufacturing, and logistic activities which
includes receipt of raw materials at warehouses to delivery of final products. It also includes costs
of production planning and control, manufacturing processes, storing and material management
during the production process, supply of raw materials, spare parts, and components or goods,
purchase of materials used in the production process, transportation, storing, inventory
management and material management, (Wang et al., 2016)
Small-size factories: Given the term’s varied definitions, it is difficult to differentiate between small
and medium size factories, as the level between both types of factories is very close. Small factories
have been extensively researched and studied and are usually classified by developing countries as
per the number of workers. The size of workforce within small factories usually ranges from 20 to
99 workers, (Al-Tuni, 2014). In the European Union zone, small factories have less than 50 workers,
(Elasrag, 2007). In Saudi Arabia, a meeting chaired by the Minister of Trade and Investment and
attended by representatives of government agencies and the private sector has identified small
factories as entities which size of workforce ranges from" 6 to 49 workers or which makes sales
between SAR 3-50 million, (Ministry of Trade and Investment, 2017).
Clothing production: Clothing production is one of the most important national industries. Barriers
to entry are low, basic skills employed in the industry are widely distributed and raw material
inputs are widely available. Until recently, the process of clothing production was relatively
standardised, technologies were easily transferred from one region to another and the required
machinery (especially sewing machines) typically has a half-life twice as long as the working lives
of machine operators. As a result, the industry is one of the most globalised of all manufacturing
industries, providing employment, particularly for women, incomes and foreign exchange for
countries and workers around the world. The industry also fosters longer-term development effects
associated with industrial development, export divarication and linkages to other sectors,
particularly in developing countries. (Pickles et al., 2015)
Economic challenges: Are represented in the lack of diversity in the general economy of an entity,
fragile work and investment environment, taxation, as well as customs duties on import and export,
(Al-Obaidly and Al-Bastaki, 2014)
AN OVERVIEW OF THE SAUDI ECONOMY AND ECONOMIC CHALLENGES
The Kingdom of Saudi Arabia faces many social and economic challenges. However, the most
important challenges are related to diversifying its economy and creating job opportunities for