Global value chain – garment industry Essay

Global value chain – garment industryImpact of GlobalizationGlobalization has been described in various ways.

. “Globalization” in its modern form implies integrating geographically dispersed activities functionally. (Gereffi. Memedovic : 2003)  In as much as the textile industry is concerned, globalization entails efficient and low cost of transportation, efficient logistics from the point of production to the sales counter, adapting to new customer patterns and harmonizing with the evolving trade regulations.(Jens. Langkilde.

: 2003). A value chain is defined as a range of activities which are involved in the design, production and marketing of a product. Value chains are buyer driven and producer driven. (Gereffi. Memedovic: 2003).  A textile industry value chain is buyer driven. In the recent past Chinese manufacturers have closed the quality gap with American and other apparel manufacturers brought about through innovation, research and productivity. (Fong.

Wonacott. Aeppel. : 2004). The Chinese model thus needs close scrutiny.Changing Global External Environment _and Growth of Chinese Textile IndustriesChinese textile industry success has been due to factors which are related to the emerging global textile industry environment.

Over the years, textile industry has moved to low wage countries especially to those as China and other East Asian countries which have been able to evolve a more integrated and value added exporting model called as the OEM (original equipment manufacturing) model.  The textile OEM model entails commercial sub contracting. The supply firm produces the product based on the design which has been specified by the buyer which is then sold under the buyer’s brand name. Supplier and buyer thus are two different firms. (Gereffi. Memedovic: 2003).

A buyer driven value chain in the case of a textile industry is one in which large retailers, marketers and manufacturers of branded items set up decentralized production networks in a number of exporting countries particularly the low wage ones as China. This model is prevalent in labor intensive industries as garments. (Gereffi. Memedovic: 2003). A typical apparel value chain is organized in five parts, raw material supply which includes supply of natural and synthetic fibers, provision of components, production networks of garment factories, export channels by trade intermediaries and retail marketing networks. (Gereffi. Memedovic: 2003).

The difference between these parts such as location, labor skills, technology, scale and type of enterprises affects markets. Leading firms control access to major resources that is the product design, technologies, brand names and consumer demand, thereby gaining over the non lead firms. (Gereffi. Memedovic: 2003). Chinese manufacturers have gained control over design and technologies, established excellent rapport with the retail industry in the United States, which is the biggest apparel market in the World to establish an effective control over the value chain.  Since in the US, the apparel industry is concentrated in five of the largest soft goods chains, by trading with select number of outlets, it has been possible for these manufacturers to gain access to and dominate the apparel industry in the United States.Shift of Apparel Industry from the United StatesOver the years there has been a gradual shift of the textile industry from the United States to Western Europe in the first instance and to Japan and then China and other Asian countries. It is now seen to be graduating to other Asian, Caribbean and African countries as the impact of low wages comes into being.

Thus international manufacturers by gaining control over essential parts of the value chain as scale, labor skills and technology have gained against US rivals. (Gereffi. Memedovic: 2003). The emergence of clusters in supplementing the value chain is also an important factor for growth. (Jens. Langkilde. : 2003).

Chinese example is particularly illustrative in this sphere.  As Chinese economy opened in 1978, the initial model of sub contracting to state industries was replaced by out processing manufacturing, financial and commercial ventures. (Gereffi. Memedovic: 2003). China has also exploited the production systems most beneficial for US markets, initially OEM supply replaced by full package capability to gain a competitive advantage over US firms. (Gereffi. Memedovic: 2003). Chinese manufacturers have also developed global sourcing capabilities to fill up the US gap.

 Phasing out of apparel quotas in 2005 has liberalized the regime and hence made the task of penetration of US markets by Chinese and other garment manufacturers much easier.Chinese Impact on Garment Global Value ChainThe Chinese followed a policy of innovation and improved productivity to make an impact on the global value chain.  In a series of successive waves, the Chinese industry build up its manufacturing capability through the small and medium-sized enterprises (SMEs) which initially moved from Taiwan in early 1980s followed by the information, communications developments in the 1990’s which provided China the necessary impetus for growth of the textile industry. The Manufacturing-Based Development (MBD) model introduced by Taiwanese industrialists was appropriately supported by the  Top -Down Development (TDD) model, by the Chinese government which promoted marketization. Thus China became the factory of the World. (Sigurdson : 2003).Chinese have been able to achieve innovation through the innovation centers which acted as incubators and frequently imitated successful foreign examples. (Sigurdson: 2003).

 The innovation policy entailed knowledge creation and creating new technology based firms. (Sigurdson: 2003). The investment in infra structure and technology was also aided by rise of digitization. (The Digital: 2004). Design is also an important component and its role in progress up the value chain has been bully recognized. (The Digital: 2004).

All this is supported by foreign direct investment which is now exceeding the US. (Competitiveness Forum: 2003).  “Productivity Promotion Centers” (PCCs) were created to support innovations in the business sector. (Sigurdson: 2003).  Heavy investments were made by Chinese firms as Huawei Technologies, Haier, and Legend to establish R&D facilities in foreign countries. This has enabled the Chinese firms to expand their research base and concomitantly add to the value chain.

Technology exploitation research institutes are another form of typical Chinese impetus to research and development. (Sigurdson: 2003). US Council on Competitiveness has indicated on the other hand that a million factory jobs were lost during this period as there was no investment or innovation to stay competitive in a globalised World.

(Competitiveness Forum: 2003).Reference1.       Gereffi, Gary.

Memedovic, Olga.  (2003). The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries. UNIDO, Strategic Research and Economics Branch2.

       Sigurdson, Jon. (2003). Conference on China’s New Knowledge Systems and Their Global Interaction Summary of Papers. Swedish Agency for Innovation Systems (VINNOVA). The European Institute of Japanese Studies, Stockholm School of Economics. Centre for East and South-East Asian Studies, Lund University.

3.       The Competitiveness Forum 2003. Intertrade Ireland.

www.competitiveness2004.com. ( 30 April 2006).

4.       A Jens Nyholm. Lotte Langkilde. (2003). Et benchmarkstudie af innovation og innovationspolitik, Økonomi og Erhvervsmnistereit, FORA and Inside Consulting, September 2003.

5.       Fong, M., Wonacott, P. and Aeppel, T. (2004).

Chinese manufacturers are closing quality gap; Investments in technology brings gains in innovation, research and productivity. Wall Street Journal, October 14, 2004, p. A.17.6.

       The Digital and Design Industries in Context. (2004). Uk Trade and Investment 2004