China's Textile and Apparel Industry and the Global Market: Five Competitive Forces
McCann, Jack, SAM Advanced Management Journal
China's textile and apparel industry, the world's largest exporter in 2009, is a formidable competitor. Neverless, as production costs rise in China, some low-cost developing countries are making inroads in this export market. By analyzing this sector using Porter's five factors framework- threat of entrants and the determinats of rivalry, buyer power, supplier power, and substitution threats--the article assesses its outlook. The industry's "partnership" with the Chinese Government is key to maintaining this industry sector' s competitive position.
The anticipated boost from the progressive elimination of U.S. and European Union (E.U.) trade quotas over the past years has not materialized for the Chinese textile and apparel industry. Although, China's textile and apparel industry gained market share in the U.S. and E.U., it did not make significant gains in the rest of the world in 2009. China's share of the global market jumped from 38.8% in 2001 to 47.1% in 2005, but has not risen since that period. In fact, in markets other than the U.S. and E.U., its share actually declined from 71.3% in 2006 to 66.8% in 2008. China's share of the U.S. apparel import market rose from 19.9% in 2003 up to an expected 35.9% share in 2009, and its share of the E.U. import market rose from 21.8% in 2001 to 42.8% in 2008. Competition for global market share from emerging countries is increasing, as a reduction in prices in 2009 benefited low-cost countries like Bangladesh and Vietnam at the expense of the Chinese textile and apparel industry (China's textile comparative advantage, 2009; Report of Chinese apparel, 2009).
Clearly, it is important to understand the environment of the Chinese textile and apparel industry to establish strategy that will achieve further success in the global economy.
This research analyzes the Chinese textile and apparel industry through Porter's industrial competitive framework because it not only offers insights into the environment, but also influences the industry's strategy and competitive position in the global economy. After discussing the theoretical framework, the framework is applied to the Chinese textile and apparel industry in terms of the global economy. Finally, the competitive positions of the world's major textile and apparel exporting countries are compared.
The competitive advantage of a company or country reflects offensive or defensive actions to create a sustainable position in an industry or the global economy. According to Porter (1990), this requires the ability to maintain above-average performance within an industry. Strategy is the creation of a unique and valuable position, involving various activities (Porter, 1998). The success of a competitive strategy is a function of the attractiveness of the industries in which the firm competes and of the firm's relative position in those industries (Porter, 1980). According to Porter, competition in an industry depends on five forces, which ultimately determine profit potential:
1. Threat of potential entrants
2. Rivalry determinants (contending forces)
3. Determinants of buyer power
4. Determinants of supplier power
5. Determinants of substitution threats
There are two basic ways to create competitive advantage: cost leadership and differentiation. Either can be utilized in a broad or narrow approach, resulting in a focused competitive strategy.
Cost leadership is when a firm or country decides to become the low-cost producer in its industry or market. The cost leader usually achieves this competitive advantage by economies of scale. Differentiation is the decision by the firm or country to be unique in some factors valued by its customers. Differentiation factors include product, distribution, sales, marketing, service, or image and cost position. In a focused competitive strategy the firm or country sets out to be the best in market segment or group of segments. …