Textile and Apparel GVC example

Textile and Apparel GVC (example, GVC terms are in quotes)
Overview: The clothing GVC is driven by “global buyers”: large retailers such as Wal-Mart and
branded merchansiders such as Nike. In a “buyer-driven” GVC (Gereffi, 1999) such as this,
“lead firms” focus on design, branding, and retail distribution. At the same time, they
significantly influence the way in which apparel GVCs are established and function, even though
they typically use an ”outsourcing model” and do not own any factories. Most often, garment
assembly has been ”offshored” to developing economies where labor costs are low and trade
agreements are favorable, with production is carried out by a network of garment assemblers and
sub-contractors (Gereffi and Memedovic 2003; Fernandez-Stark et al. 2011). The “global supply
base” for garment assembly is very fragmented and may even include some household
production. Because “barriers to entry” for clothing design and “supplier switching costs” are
both low, new entrants can use the same “global suppliers” and “regional and national supply
bases” used by established brands. Hence, the concentration of “buyer power” is constantly
under threat from new entrants. Lead firms also face greater “market segmentation”, selling a
greater variety of fashion-based products to wealthier and increasingly sophisticated consumers
in more “end markets” (Barnes 2005). As a result, changes in the fashion industry are frequent,
challenging the ability of manufacturers to meet buyer demands. These competitive pressures
place great pressure on lead firms and suppliers to lower prices, increase product quality and
variety, increase design/production/delivery cycle time, and decrease minimum quantities. Such
industry dynamics provide context for recent tragic accidents and poor working conditions seen
in places like Bangladesh.
GVC actors and linkages: There are five sets of key “GVC actors” in the textile and apparel
GVC including raw material suppliers (cotton, wool, synthetic stock such as nylon and rayon),
textile producers (i.e. yarn and woven and knitted fabrics), garment assemblers, “intermediary”
trading companies that arrange factory production for some lead firms (e.g., Li & Fung), and
retailers and branded merchandisers. While most “GVC linkages” in the apparel industry fall into
the “market” category (because product “complexity” is low and transaction “codifiability” high),
the type of GVC linkage between these actors varies according to geographic region, the type of
apparel being produced (e.g. basic menswear vs. fashion women's wear), and the strategies of
lead firms (e.g., “fast fashion” vs. “mass production”) (Gereffi and Memedovic 2003).
Lead firm market share and “sourcing strategies”: The majority of top apparel and footwear
brands are American-owned (i.e. Nike, Gap, Limited Brands, VF Corp), though Spain’s Inditex
(Zara) has used a fast fashion sourcing strategy to grow quickly into the number two position
(see Table 1). Most of the clothing and footwear products sold in the US is sourced from Asia
(China, Vietnam and Indonesia, in particular), complemented by more proximate, regional
supply-bases in Mexico, Central America and the Caribbean for “rapid replenishment” orders.
European companies also source heavily from Asia and to a lesser extent, from regional
production networks in Northern Africa, East Europe, and Turkey (see Table 2). Fast Fashion
retailers such as Zara source from fabric suppliers and apparel contractors in proximate
1 Textile and Apparel GVC (example, GVC terms are in quotes)
clusters/industrial districts (in places such as Spain) via “captive GVC linkages”, and export
worldwide to their network of stores, often using airfreight (Stevenson, 2012).
Table 1
Top$Global$Apparel$(and$Footwear)$Lead$Firms,$by$Revenue$2011$
Revenue 2011
Rank
Company Name
Ownership
(US$M)
1
Nike
USA
$19,014
2
Inditex (Zara)
Spain
$18,376
3
H&M
Sweden
$17,339
4
Gap
USA
$14,664
5
Adidas
Germany
$13,340
6
Limited Brands
USA
$9,613
7
Uniqlo
Japan
$8,800
8
VF Corp
USA
$7,703
9
Polo Ralph Lauren
USA
$4,979
10
PVH Corp
USA
$4,637
$Source:$Company$Annual$Reports$
In sum, global, regional, and local production systems co-exist in this industry, and can be used
in a complementary fashion by firms mixing the fast fashion, rapid replenishment, and mass
production models.
Importers and exporters: The United States is the largest importer of clothing, with a value of
$90.5 billion in 2011, while China is by far the largest exporter, with $164 billion in exports in
2011 (see Table 2).
Table 2. Top 20 Clothing Exporters and Imports, 2011
Top Clothing Exporters 2011, Values in USD $M
Rank
Country
2011
1 China
$164,043
2 Hong Kong
$23,528
3 Italy
$21,764
4 Germany
$21,342
5 Bangladesh
$20,196
6 India
$17,324
7 Turkey
$15,236
8 Vietnam
$13,476
9 France
$10,910
10 Belgium
$9,473
11 Spain
$9,353
12 Netherlands
$9,210
13 Indonesia
$7,844
14 Pakistan
$7,425
15 United Kingdom
$7,331
16 USA
$6,276
17 Mexico
$5,223
18 Denmark
$4,521
19 Poland
$4,425
20 Sri Lanka
$4,026
Rest of World
$67,313
Top Clothing Importers 2011, Values in USD $M
Rank
Country
2011
1 USA
$93,355
2 Germany
$40,990
3 Japan
$34,421
4 United Kingdom
$30,366
5 France
$25,204
6 Italy
$18,607
7 Spain
$16,591
8 Hong Kong
$16,468
9 Netherlands
$12,043
10 Belgium
$10,328
11 Canada
$9,875
12 Russian Federation
$7,471
13 Australia
$6,351
14 Switzerland
$6,336
15 Austria
$6,285
16 South Korea
$6,089
17 Denmark
$5,029
18 Poland
$4,801
19 Sweden
$4,707
20 China
$3,962
Rest of World
$63,829
Source: UN Comtrade
2 Textile and Apparel GVC (example, GVC terms are in quotes)
Germany and Italy have the unusual position of being both large importers and exporters of
clothing. They have been able to sustain domestic production by focusing on high priced
segments of the market and making only selective use of regional and global supply bases.
Upgrading in the supply base: Assembly is commonly done in export processing zones (EPZs),
where woven or knitted fabric is cut and sewn, or apparel parts are directly knitted from yarn. In
mass production, intermediaries and garment manufacturers are often responsible for procuring
inputs, attaching tags and bar codes and shipping finished products directly to the distribution
channel. In this way, many apparel producers have been able to “upgrade” their capabilities to
include “full-package,” or turn-key” supply capabilities. Some, including Nien Hsing
International of Taiwan, have become “global suppliers” by establishing a worldwide network of
factories in places such as Nicaragua, Mexico, China, and Vietnam.
Policy, Regulation, and Activisim: The most important international policy development for
the apparel industry has been the liberalization of its trade. Most significantly, the quotarestricting Multi Fiber Agreement (MFA) was replaced by the WTO Agreement on Textiles and
Clothing (ATC) in 1995. The ATC was responsible for phasing out all trade quotas over a tenyear period, ending in 2005. This has increased the importance of regional and preferential trade
agreements such as the North American Free Trade Agreement (NAFTA), the African Growth
and Opportunity Act (AGOA), and the Dominican Republic-Central America-United States Free
Trade Agreement (CAFTA-DR). With these changes, traditional low-cost producers in China,
India and Bangladesh have retained the lower-value segments of the GVC (e.g. assembly), linked
to local production of fabric, while countries with smaller labor pools and markets such as Sri
Lanka and South Africa are being forced into niche market segments and the supply of fast
fashion retailers, if they manage to insert themselves into these very demanding value chains. In
this, management, technical, and operator skills are increasingly important to support more
product variety and r educed cycle time (Fernandez-Stark et al. 2011).
Pressure for sustainable and responsibly produced apparel is increasing, driven by consumers
and NGOs. In response, some retailers (e.g. H&M and Adidas) have set up corporate
responsibility programs (CSR) and now actively monitor and report progress on social, economic
and environmental sustainability in terms of fair wages, healthy and safe labor conditions, carbon
emissions produced in transport and environmentally friendly raw materials in their supply bases.
In a similar vein, Nike and Levi's have joined other large industry stakeholders such as CocaCola (which licenses its name for apparel), and NGOs in forming the Sustainable Apparel
Coalition (SAC). The SAC has worked to develop a sustainability tool called the Higg Index,
used by the industry to assess sustainability of brands, products and facilities (SAC 2012).
However, in an organizationally and geographically fragmented set of GVCs such as textile and
apparel, with its huge competitive pressures, companies regularly acknowledge the limits and
obstacles in balancing CSR with consumer price and shareholder profit expectations.
3 Textile and Apparel GVC (example, GVC terms are in quotes)
References
Barnes, Justin. (2005). A Strategic Assessment of the South African Clothing Sector. For the
South African National Economic Development & Labour Council.
Fernandez-Stark, Karina, Stacey Frederick and Gary Gereffi. (2011). The Apparel Global Value
Chain: Economic Upgrading and Workforce Development. Center on Globalization,
Governance and Competitiveness, Duke University.
Gereffi, Gary. (1999). International trade and industrial upgrading in the apparel commodity
chain. Journal of International Economics 48(1): 37-‐70.
Gereffi, Gary and Olga Memedovic. (2003). The Global Value Chain: What Prospects for
Upgrading for Developing Countries. UNIDO.
Gereffi, Gary and Stacey Frederick. (2010). The Global Apparel Value Chain, Trade and the
Crisis: Challenges and Opportunities for Developing Countries. In O. Cattaneo, G.
Gereffi & C. Staritz (Eds.), Global Value Chains in a Postcrisis World. Washington, DC:
World Bank.
Sustainable Apparel Coalition (SAC). (2012) The Higg Index.
<http://www.apparelcoalition.org/higgindex/>.
Stevenson, Seth. (2012) Polka Dots are In? Polka Dots It Is! How Zara gets fresh styles to stores
insanely fast – within weeks. Slate.
<http://www.slate.com/articles/arts/operations/2012/06/zara_s_fast_fashion_how_the_co
mpany_gets_new_styles_to_stores_so_quickly_.html>.
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