Chapter 1
Differences between internationalization and globalization
"Internationalization" refers to the spread of economic activities across national boundaries, but this is not a new phenomenon. It has been a prominent feature of the world economy since at least the seventeenth century when colonial powers began to carve up the world in search of raw materials and new markets. "Globalization" is more recent, implying functional integration between internationally dispersed activities.
newly developing countries
Countries whose economic conditions fall well below the average in terms of GDP and other measures are identified as newly developing countries.
international trade
-Any exchange of goods involving two or more countries. -refers to the exchange of goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).
why US manufacturers are moving production back to the US
-shipment coming in late (School House, which designs and sells high-end university-licensed clothing, began routinely receiving shipments from a Sri Lanka factory one to three months late) -profit margins are higher(Besides eliminating late deliveries, she says she's saving $5,000 a month on staff to oversee production in Sri Lanka. And when neon T-shirts were suddenly in vogue last February, Weeks says she rushed more of them to university bookstore shelves within days. Although labor costs are still lower in Sri Lanka, she says profit margins are now 35% to 40%, vs. about 22% when the work was offshored) -deteriorating quality of some foreign-made apparel (Designer Karen Kane of Los Angeles began seeing more flaws in clothing shipments from China several years ago, including tears and slightly off colors, says marketing director Michael Kane.Because of long lead times from China)
trade deficit
A trade deficit is a negative trade balance and is usually regarded as unfavorable meaning that greater revenue is accrued to foreign countries.
Trade surplus
A trade surplus means the value of exports exceeds the value of imports. A trade surplus is generally seen as a positive because it means there is a revenue gain that can be invested in domestic resources.
importance of the different level of country development to the apparel/textile industry
Currently, developed and developing countries are important markets for products (consumption), while newly developing and least developed countries play critical roles in production.
role of Apparel contractors
Apparel contractors take orders for apparel products from the apparel firms and produce or arrange for production of the goods to the specification of the apparel firm. This process includes cutting, sewing, pressing, inspecting, packaging and shipping.
major nations that vowed to avoid protectionist steps did what?
At least 17 of the 20 major nations that vowed to avoid protectionist steps that could spark a global trade war have violated that promise, with countries from Russia to the United States to China enacting measures aimed at limiting the flow of imported goods, according to a World Bank report.
What transformed the apparel supply chain?
Changes in production, changes in trade policy, and the evolution of corporate policies have transformed the apparel supply chain over the last several decades and provided the conditions for innovation.
China and US trade deficit/surplus
China has a trade surplus in both textiles and apparel, while the U.S. has a trade deficit in both textiles and apparel. These deficits are a result of the rapid decline in textile and apparel production in the U.S. and the high rates of textile and apparel consumption by U.S. consumers. China has benefited more than any other country from textile and apparel trade.
manufacturing in the US
Chinese wages that used to be a sixth of U.S. pay are now a third to a fifth, thus reducing some of the competitive advantage--but there is still a cost differential. Manufacturing in U.S. factories can reduce the time from seven weeks to two weeks. Also, in some parts of the world, merchandise produced in the United States is perceived as a luxury item.
developed countries include:
Developed countries include the United States, Hong Kong, Australia, Canada, the UK, Germany, France, Japan, Italy, Israel, and Luxemburg
domestic trade
Exchange of goods/services within the boundaries of a specified state or country
global trade 2
Global trade implies a great integration in international trade including financial and investment, and labor transactions. Consider a pair of jeans that are designed in New York, made with fabric woven in India, from cotton fiber grown in Texas, and cut and sewn in China. People involved in the process in each country represented different cultures, spoke different languages, and had different competencies to perform their tasks.
Globalization
Globalization is the process of people around the world becoming increasingly connected and more interdependent than at any other time in our history. We are interconnected culturally, economically, politically, technologically, and environmentally.
growth in newly developing countries
Growth in these countries occurs as they find ways to overcome inadequate resources, poor education, and repression from government or other sources. In countries where unemployment and poverty are high, textile and apparel production is often the means to jobs and improving economic conditions. Start up costs for apparel production are relatively low and training time for factory workers is comparatively short. In most of these countries, production is for export rather than domestic consumption.
"reshoring strategy" for the US
However, apparel manufacturing, which left the U.S. in massive waves for more than two decades, is trickling back. There has been an increasing movement toward a "reshoring" strategy. Some major designers and retailers such as Brooks Bros. and Saks and many small companies have moved some production from foreign countries to the U.S. The result is the creation of approximately 1000 jobs. That is a small number compared to the 800,000 U.S. jobs lost to foreign manufacturers since 1990
international trade statistics
In 2010, the value of international trade reached 19 trillion (current US) dollars, i.e. about 30% of the world GDP. That is, about one third of the produced goods and services are exchanged internationally around the world.
In contrast a trade deficit triggers
In contrast a trade deficit triggers repercussion during a recession. For instance, the US trade deficit pertaining to goods and services rose to $27.6 billion in March 2009. Japan is also combating high trade deficit. In January 2009, Japan's deficit of ¥952.6 billion indicated that the global recession had weakened the country's exports. A long-term trade deficit leads to an unstable economy, where unemployment and foreign debt become concerns.
global trade
Includes the potential interactive participation of many nations in the production & distribution of products
international trade origins
International trade has existed since camel caravans brought silk out of China into Europe and the Middle East where they were exchanged for other goods and services.
developing countries are no longer considered low wage countries for production
It should be noted that developing countries are no longer considered low-wage countries for production. Consider Costa Rica, once a low-wage country and now a successful export of quality natural fiber sweaters and other goods to the United States. These countries are in a transition phase as they move from production for export and to a focus on production for domestic consumption. At this level, imports from other countries increase because of the growing consumer market.
characteristics of least developed countries
Least developed countries are largely agrarian economies impacted by a cycle of low productivity and low investment. They rely on the export of few primary commodities as major source of export and earnings, which makes them highly vulnerable to external terms-of-trade shocks. Only a handful has been able to diversify into the manufacturing sector, though with a limited range of products in labor-intensive industries, i.e. textiles and clothing. The first step in improving economic conditions is business activity that provides jobs, and textile and apparel production is often that first industry.
Organization of the Apparel Component of the Textile Complex- level 1
Level 1: Textiles and findings manufacturing that include natural and synthetic fibers. Findings are all the materials used in apparel products in addition to fabrics. Major categories are thread, closures, support materials, trims, and labels.
Organization of the Apparel Component of the Textile Complex- level 2
Level 2: This level includes all the processes related to producing yarns, fabrics, fabric finishing and production of findings (e.g., zippers, thread, closures). China is a major producer of textiles. In the late 1940s, the Communist government took ownership of the industrial development with goal of making China a major industrial power. The textile factories that were once government owned are now being privatized.
Organization of the Apparel Component of the Textile Complex- level 3
Level 3: Apparel manufacturing includes all the processes involved in merchandising, design, product development, production and wholesale marketing. Companies involved at this level are apparel manufacturers, apparel production contractors, and retail product developers. Today few apparel manufacturers complete the process from beginning to end as these companies typically engage in the design or product development and the wholesale marketing aspects. The production process itself (i.e., cutting, sewing, and finishing) is outsourced to a contractor that can be located anywhere in the world that has access to power, relatively low-cost labor, and transportation. The term apparel manufacturer has evolved into the term apparel firm (or company) or brand manager.
Organization of the Apparel Component of the Textile Complex- level 4
Level 4: Retailing is the sale of goods and/or services to the ultimate consumer. The retail scene is changing dramatically with the expansion of digital retailing to include online retailing, mobile commerce, social media, etc. Of course, the driving force behind the textile an apparel business is consumer demand that keeps the cycle of production and distribution turning. Consumers almost anywhere in the world see designs in movies, videos, and television at the same time. This type of access has shortened the lift cycle of fashions and created a homogenization of fashion as people around the world are exposed to the same designs and have acquisition access.
other issues to be concerned about
Other issues that must be considered are fluctuating currency, protection against acts of terrorism, threats of transnational disease, and continuing political uncertainty among trading partners.
the least developed countries that play a role in the textile and apparel industries are
Pakistan, Cambodia, Bangladesh, Haiti, Burma/Myanmar, and Zimbabwe (the least developed country in the world).
countries threaten a move toward protectionism as countries rush to
Periodically, countries threaten a move toward protectionism as countries rush to shield their ailing domestic industries during the global economic crisis. This happened in 2009 when Mexico vowed to force new restrictions on 90 U.S. products in retaliation against Washington for canceling a program that allowed Mexican truck drivers the right to transport goods across the United States. Watch the media for news of current barriers.
US went from exporting more to importing more
Prior to 1959, the United States exported more textile and apparel products than it imported,but since that time, we have had a trade deficit.In the early 1980s, US exports of textile and apparel products fell dramatically, as the current exchange rate made US products significantly more expensive. At the same time, imports from low-wage countries were flooding the U.S. market with products for relatively lower prices.
product characteristics are also a concern
Product characteristics must also be taken into account when making sourcing decisions. A product's fashion content, which is highly correlated with its level of replenishment, is a very influential factor in manufacturers' production decisions.
retail product developers role
Retail product developers also operate in Level 3. These are individual or teams of individuals that create designs and merchandise plans and specifications for a retailer's private label brands, which are ultimately sources to CMT or full-service contractors.
Using sourcing as a solution to high fashion demand
Retailers have moved the greater risk inherent in product variety demand to supply chain partners. This strategy forces suppliers to balance the direct costs of sourcing against the indirect consequences of being left bearing the cost of excess inventory.
Seven similarities among developing countries
Seven similarities among developing countries are considered, with considerable emphasis being placed on the first two: Low levels of living. Low levels of productivity. High population growth and dependency burdens. Dependence on agriculture and primary exports. Imperfect markets and incomplete information. Dependence and vulnerability in international relations.
The textile complex
The combination of textile-related businesses that supply soft goods to the world population. -incorporates firms around the world to accomplish textile fiber production and manufacturing, apparel manufacturing, retailing, and product consumption
Trade balance
The difference between imports and exports is called trade balance
the economic base for developed countries are
The economic base of these countries was industrialization, and the textile and apparel industries were the foundation for their economic development.
The global textile industry statistics
The global textile and apparel industry is worth over US$ 4,395 billion, with clothing accounting for 60 percent of the market. Global trade in this industry is expected to be US$ 800 billion by 2014 with the bulk of the increase in clothing. The USA and European Union (EU) together are the major consumers of textiles and accounted for nearly 64 percent of clothing and 39 percent of textile consumption in 2004.
growth in international trade is due to
The growth in international trade of textiles and apparel products is due to companies in developed countries sourcing their products in developing countries to keep costs as low as possible to benefit consumers and to compete with other companies. Importers and exporters engage in international trade.
developed countries focus on
The shift from production to consumption occurred late in the 20th century as the economic status of each country improved. Textile and apparel production has moved to other countries, while developed countries focus on the creative and technological aspects of product development to meet the rapidly changing wants and needs of consumers. Developed countries have moved into less labor-intensive industries such as technology, communication and services.
Global textile and apparel industries must consider
The study of global textile and apparel industries also must consider the social concerns of fair labor practices, environmental issues, and fair trade practices balanced against the economic necessity of conducting a profitable business
2 types of apparel contractors
There are two types of apparel contractors: CMT (cut, make, trip) and full service contractors. CMT contractors provide the machines, labor and thread to sew the garments. The apparel firm provides product specification and fabric. Full-service contractor provide production expertise, product development, and materials sourcing. These contractors source services all over the world—for the same product.
more characteristics of least developed countries
These constraints result in low economic management capacity, chronic external deficits, high debt burdens and heavy dependence on external financing that inhibit their progress. Least developed countries are typically poor because ongoing political disruptions discourage business development that could result in jobs and economic improvement for the citizens. Textiles and apparel are often the first forms of business and critical for growing wealth in these countries.Least developed countries that play a role in the textile and apparel industries are Pakistan, Cambodia, Bangladesh, Haiti, Burma/Myanmar, and Zimbabwe (the least developed country in the world).
trade barriers
Trade barriers are government imposed restrictions placed on the international exchange of goods and/or services. These generally include: (1) tariffs, other import charges, quotas, import licensing, and customs practices, (2) testing, certification, labeling, (3) lack of copyright protection, and (4) limits on foreign direct investment.
effects of trade deficits/surpluses to GDP
Trade deficits can occur in both developing and developed countries. The United States, for example, has been running a trade deficit for many years. While a trade surplus contributes to the GDP of a nation, a trade deficit will reduce GDP.
How is trade measured?
Trade is measured in terms of exports (goods shipped to other countries in exchange for goods and/or services) and imports (goods brought into the country for consumption by consumers)
newly developing countries include:
Ukraine, Jordan, Honduras, Indonesia, and India.
economists opinions on trade deficits
While economists state that a controlled short term trade deficit is manageable and in some cases necessary for growth and development, they consider a long-term trade deficit to be an wealth destroyer that can trigger job losses, increase debts and lead to possible speculative attacks on currency
wholesale marketing
Wholesale marketing links level three with level four - retailing. This level of marketing takes place during market weeks around the world where fashion shows and personal presentations take place for retail buyers seeking inventory for their companies. Apparel production typically does not begin until the retail buyers place orders. Generally a design must generate a certain number of orders before it will be "put into production."
The apparel industry is best described as
a buyer-driven value chain of companies that produce apparel, such as branded apparel companies and retailers that are engaged in the production of apparel.
developing world differs in:
developing world differs in: Population and geographic size, language and religion, levels of education, natural resources, types of industry, role of government and degree of democracy, and degree of dependency in international economic and political affairs.
imports
goods brought into the country for consumption by consumers
exports
goods shipped to other countries in exchange for goods and/or services
the developing countries include:
hungary, russia, chile, mexico, bulgaria, romania, costa rica and turkey
A growth-oriented economy focuses on
imports to provide price competition, which in turn limits inflation
Developing countries are classified as
low-income or middle-income, newly-industrialized, and oil-exporting. The economic conditions in these countries is greatly improved over the newly developing countries and significantly increased their GDP. The textile and apparel industries are often the doorway to developing nations to move from an agrarian-based economy to one of industrialization.
production and consumption take place in what levels of development?
most textile and apparel production occurs in countries at the newly developing or developing levels, and most consumption takes place in the developed countries.
Countries identified as the least developed tend to be those that have
suffered from governmental exploitation, tribal wars, lack of education, and cultural conditions that inhibit change. Most of the populations of these countries live in extreme poverty, have low levels of income, high unemployment, high rates of illiteracy, high infant mortality, and low life expectancy.
Indicators of a country's level of development include
unemployment rate, literacy rate (male and female), infant mortality, and life expectancy at birth.
