The garment industry in Laos has been on the decline. Share of garments in total exports declined from an average of 36 per cent during 2001–2005 to only eight per cent during 2011–2015. Foreign direct investment in the industry has also fallen significantly.

Declining global demand is one of the key reasons for the slowdown. Most Laos garment makers provide cut, make and trim services and are usually sub-contractors of other larger companies, often located in neighboring countries. The small scale of the Laos garment industry coupled with the lack of experience and capabilities in the private sector has locked Lao garment factories into simple services with little scope for them to integrate into regional and global supply chains.

Most of the country’s garment factories base production quantities on export demand. So the slowdown in European economies and other markets has led to a decrease in orders for Laos garments.

Labor shortage is another major bottleneck in the industry. A major increase in Thailand’s minimum wage has made the Thai labor market very attractive for workers from neighboring countries, including Laos. There has also been an increase in competition for labor from other sectors in the domestic economy, such as the booming services sector as well as other manufacturing sectors. This has made it difficult for the garment industry to find and retain labor, especially in major manufacturing hubs.