The Global Industry of Apparel

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Overview

The Apparel industry has been used as a stepping stone by countries to pursue export-oriented industrialization across the globe since the 1970’s. It is a labor intensive global industry with its production bases mostly concentrated in Asia, mainly in China, the South Asian Region (SAR) and the South East Asian Region(SEAR). Due to their well established retail chain,the biggest importers of ready made apparel are concentrated in the European Union (EU) region and the United States (US). As the Multi-Fiber Agreement (MFA) was phased out by the World Trade Organization (WTO) between 1995 and 2005, removing quotas and preferential tariff offered to countries exporting to the US, and EU, developing countries with its low wage workforce became more competitive in the production segment of the industry, while the design, marketing, distribution and sales of the product were still mostly done by large, powerful retailers in the importing regions. You can find out more about the structure of the global apparel industry in the page Global Value Chain, and an overview of the trends within the industry to understand what drives sustained international competitiveness within the industry. 

Key Takeaways

  • The Global Value Chain segmentation is mainly divided into production(includes sourcing of raw materials and assembly)and retailing (includes design, branding, distribution, marketing, and sales) although with ongoing technological developments and shifting consumer preferences towards 3D printing and wearable technologies, research and design component of the industry might become a larger part of the chain in the future.
  • Key Industry Players in terms of Manufacturing include countries like China, Bangladesh and Viet Nam, and large multinational specialty retailing firms such as Inditex, H&M, and Nike in terms of Importing and Retailing . Though these companies collectively account for a large portion of the overall industry,a significant amount of it is also retailed through departmental stores such as Macy’s and Walmart. These stores have been losing market share however, as more and more customers choose to buy their clothes online through portals like Amazon and such.
  • Geographically, the market is divided primarily into 5 regions: The largest importers being in United States(US)and the European Union (EU), and the manufacturers in  China, the South Asia Region (SAR) and the South East Asian Benchmark countries (SEAB). More liberalized trade policy has helped developing nations in Asia with lower labor cost to outcompete its high wage counterparts in the western developed nations. In the future years, there is a chance of a larger shift in the apparel industry as the wages in the current world leader in apparel exports, China, increases. This would make China less cost competitive, and its share of the market might move either to the SEAB or the SAR countries. The seems to be very little change in the world’s largest importers, although developed nations that are not in the US or the EU have been importing more apparel than in the past .
  • Trade Policies and Politics have played a significant role in shaping the global value chain of apparel as we see it now, as well as how competitive the countries are within the industry. The international fragmentation of the apparel supply chain had significant contributions from trade restrictions, such the the ones imposed by the Multi Fibre Agreement (MFA)/ Agreement on Textiles and Clothing (ATC). Along with trade agreements, governmental policies on imports and tariffs significantly effects how a country fares in the global apparel industry. Several governments have reduced import taxes on textiles for apparel production, allowing countries to diversify the type of materials used, as well as setting up Export Processing Zones(EPZs), bonded warehouses, duty drawbacks, cash subsidies, etc.  to make the process of export smoother. Political actors such as lobby groups, workers parties, and NGOs have proven to be the greatest drivers behind political change within the industry in recent times.
  • Social issues arise over  poor working conditions, low wages, child labor, job security for increasing number of temporary workers and long hours of work. There are several environmental factors influencing the global industry as well. Finding solutions to these problems would involve the various political actors, governments as well as the lead retailing firms to work together.
  • What will happen in the future?
    • As consumers grow more aware of social and environmental issues pertaining to the apparel industry and shift their preferences, the niche market of fair trade apparel will continue to rise, allowing for more production and high value-added segments in the global value chain.
    • There might be significant shifts as China upgrades to the production of more technologically challenging products and out of the apparel industry, leaving space for other countries to become the largest exporter.