Magazine article International Trade Forum

Clothing Goes Global

Magazine article International Trade Forum

Clothing Goes Global

Article excerpt

Today, the clothes we wear may have travelled more than us. The shirt below is a good example. Produced for a large retailer in the United States by a mega company based in Hong Kong (China) with branches in different countries, it embodies the globalizing nature of the textiles and clothing trade.

The shirt costs US$ 6.30 to produce up to the shipping point. With transport to the United States and duty, the cost is US$ 8.50. Bringing the shirt to the shop raises the cost to US$ 11.30. Finally, it is sold at a retail price of US$ 28.

Illustrating the changing roles of buyer and supplier, the clothing manufacturer has taken over management of supply and distribution as well as production. Through the retailer's "open books" practice, the manufacturer has access to information about stocks in the retailer's warehouse. When it sees stocks are low, it automatically increases production, ships the garments to the retailer and then sends an invoice.

Small producers in LDCs have an uphill struggle to compete against such suppliers. Individually, they cannot offer an integrated service. They need to build connections between themselves to develop economies of scale, identify complementary products and refine their skills in order to stay in this rapidly changing business.

Passport of a shirt

* Cotton: Pakistan.

Good-quality source, manufacturer trusts fabric mill with selection.

* Yarn: Malaysia.

Regional vertical integration with fabric mill.

* Fabric: Malaysia.

Choice of dyeing techniques and good relationship with main producing company.

* Interlining (collar and cuffs): Malaysia and Japan.

Interlining is a higher-value, capital-intensive product.

* Buttons: China.

The buyers specified the supplier for this component only - the manufacturer arranged everything else.

* Garment: China.

Company-owned factory puts the shirt together.

Recommendations for firms

Firms in Central America and North Africa that are near North American and European markets and benefit from preferential access could focus on products where speed to market and flexibility are important, provided they develop the necessary skills.

But LDC firms, far from their main markets, have to compete directly with the evolving mega companies over "traditional" products. Therefore, they need to make special efforts to increase competitiveness.

* Take part in developing a sector strategy. Firms, industry associations, governments and other trade support players, such as banks, port handlers and customs agencies, need to cooperate to develop a coherent strategy for the sector. Strategies should take into account cross-border cooperation with countries in the same region.

* Improve sourcing skills. Since sourcing materials is the most important skill that buyers demand, LDCs need to develop abilities in this area to be competitive. Integrated industry and supply chains don't exist in LDCs and investment to develop them is not forthcoming, so firms need to look for alternative solutions, such as regionally integrated value chains.

* Focus on higher-value products. LDC firms need to diversify their product mix away from commodity-type items. This involves knowing about the end buyer - it is only possible to develop successful designs if one fully understands the final consumer's tastes.

Most LDC clothing exports are made out of cotton, which is relatively less protected than man-made fibre apparel. The United States, for example, imposes an average 20% duty on imports of cotton-knit shirts, but 32% duty on shirts of man-made fibre.

To make the most of their duty-free access, firms should therefore develop clothing exports of man-made fibre and improve their sourcing skills to find man-made fabrics. Garment production skills are not very different whether using cotton or man-made fabrics.

LDCs could also explore markets for "ethnic" textiles of clothing. …

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