The chart below depicts the main segments of the apparel Global Value Chain which will help us analyze all the activities that are required to get apparel from its conception, through stages of its design, raw materials and intermediate inputs, marketing, and distribution to the final consumer.
The Apparel chain usually starts with large retailers with established brands and distribution channels in the importing countries coming up with designs of clothing they would like to sell in the upcoming season, and then outsourcing the manufacturing portion of the chain to developing countries to keep the cost of production low. Since the apparel manufacturers do not have the brand or distribution channel to access the end markets directly, they are very much dependent on the retailers, that is the lead firms dominating the industry. For apparel, innovation lies more in product design and marketing than manufacturing know-how, making it is relatively easier for lead firms to outsource production and reserve more power in the value chain, illustrating why this industry is deemed to be a “buyer-driven” chain.
The production process starts with sourcing either Natural Fibers or Synthetic Fibers that are made into fabric through spinning, knitting, weaving, etc. for the final assembly stage. Although the countries performing the final assembly stage of taking the fabric and making into clothes might not be the same country from which the fabric is sourced from, there is a significant overlap between the two. It is important to distinguish the textile industry, that encompasses the production of such fibers and making them into fabric, from the apparel industry, that takes the products of the textile industry to make it into finished wearable products. In this website, we are concentrating on the Apparel industry. The main product segments within the apparel industry can be seen in the the chart below. You can find the details and trends in the main producers of apparel in the page Key Industry Players in Manufacturing.
After the production process is finished, either the brand name retailers themselves or intermediary overseas buying offices proceed to the distribution stage, bringing them back to the retailers who initially designed the clothing and outsourced the manufacturing. Those retailers then utilize their access to distributions channels, brand name and marketing specialties for the marketing and sales of the product to the end customer. The image below is the smile curve, which depicts how much economic value is added in each of the different stages of the apparel chain. We see that most of the value addition is done by the lead retailing companies, and they also keep most of the profits generated in the industry as detailed in the page Key Industry Players in Design, Marketing and Sales.
If we look at the GVC, we can also see that there is not much vertical integration in the overall industry as much of the production process is outsourced to separate company/companies in a different region of the globe by large retailers. However, we do see some vertical integration in the industry in terms of apparel producing companies catering to the demands of their domestic/local market as detailed in the International Trade Patterns: The Shifting Geography of Global Industries, but that market has thus far been significantly smaller than the export market to the US and the EU. Since the key players of the apparel industry and their activities in the apparel GVC can roughly separated into two groups, the manufacturers and the retail importers, we will be using those two segments in order to better understand the overall global chain of apparel. In terms of consolidation of the industry, we see a pattern of consolidation both in retailers sourcing apparel, as well as the countries they are sourcing from, as detailed in the pages Key Industry Players in Manufacturing and Key Industry Players in Design, Marketing and Sales.