Future

Sources
KSA Dupont Textile Intelligence Textile Outlook 7/29/2013 Various

LEL/S&V

Trade and Development Act of 2000

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INTRODUCTION
producers face a period of great uncertainty.However good their business decisions, they will be affected by events beyond their control.
Robin Anson

Apparel

KEY ISSUES The Global Environment

Economic uncertainty, Asian crisis, exchange rate volatility Political uncertainty, instability Decisions made by politicians
Formation of regional trade blocs Negotiation of free or preferential trade agreements Chinas membership of the WTO End of quota restrictions after 50 years of managed trade Unforeseen events: September 11 and its aftermath

GLOBAL ENVIRONMENT The end of quotas after 50 years

Progress towards the elimination has been slow Importing countries have to eliminate quotas over a period of ten years but are free to choose the products affected In general most apparel quotas are the last to be phased-out

GLOBAL ENVIRONMENT The end of quotas after 50 years

Q: Do quotas matter any more? A: If quotas did not matter, developing countries would not be so keen to get rid of them But feelings in many developing countries are mixed
The MFA has provided stability and predictability and has helped to prevent competitors from swamping markets Many emerging economies fear the might of China and its ability to flood markets.

GLOBAL ENVIRONMENT The end of quotas after 50 years

Impact? The phase-out will have a major impact on:
where textiles and clothing are produced where textiles and clothing are sourced from existing trade patterns, many of which have been almost frozen for 25 years, and the prospects for production in all economies advanced, newly industrialising and developing.

GLOBAL ENVIRONMENT The end of quotas after 50 years

Major changes in global textile and clothing industry. unfreeze production and market shares quota holdings no longer a passport to Western Markets market shares will be gained more through international competitiveness

GLOBAL ENVIRONMENT The end of quotas after 50 years

New suppliers will enter the market Existing suppliers will go for products and markets from which they were previously excluded because they did not have quota The free for all will remove scarcity and put downward pressure on prices Industries in the greatest danger are those built on the strength of preferential access but with no locational advantages (eg Mauritius).

APPAREL INDUSTRY TRENDS

International prices are falling Margins are being squeezed!

I n d i a n e x p o r t s o f r e a d y m a d e g a r m e n t s : d i f f e r e n c e i n p r i c e b e t w e e n r e s t r a i n e d a n d n o n r e s t r a i n e d i t e m s , 1 9 9 1 / 9 2 1 9 9 8 / 9
U S $ p e r p i e c e 7 6 5 4 3 2 1 0 1 9 9 1 / 9 21 9 9 2 / 9 31 9 9 3 / 9 41 9 9 4 / 9 51 9 9 5 / 9 61 9 9 6 / 9 71 9 9 7 / 9 81 9 9 8 / 9 9 S o u r c e : T e x t i l e O u t l o o k I n t e r n a t i o n a l

R e s t r a i n e d i t e m s

N o n r e s t r a i n e d i t e m s

Trends in US textile and clothing import prices, 1983-2000

US$/sme
3

2.8

2.6

2.40
2.4

2.41

2.31 2.20

2.36

2.33 2.23 2.18

2.2

1.8

1.65
1.6

1983

1989

1994

1995

1996

1997

1998

1999

2000

NB: sme = square metres equivalent

Source: Textile Outlook International

APPAREL INDUSTRY TRENDS Why are international prices falling?

Barriers to entry in the industry are relatively low ... and will become even lower when quotas are eliminated... . so new suppliers (companies and countries) are continually entering the market there is always someone cheaper Depreciation of Asian currencies - especially after the Asian crisis, and the strength of the US dollar Retailers and import buyers in consuming countries have sophisticated sourcing systems and drive down prices when they negotiate with suppliers

SOURCES OF MARKET GROWTH

What are the sources of market growth? population increases rising incomes

SOURCES OF MARKET GROWTH Population growth

The more people on the planet, the more people to feed and clothe, the bigger the market

Populations are growing faster in emerging market economies

Consumption of textiles and clothing by selected region, 1980-2005

mn tons 12

10 7.9

9.6

1980
8.7

1995

2005
8.3 7.1

8 6 4.8 4

6.8 5.5 3.9

3.4 2.8 2.0

0 USA
Note: self-sufficiency = mill fibre consumption as a percentage of final consumption Source: Textile Outlook International

China

European Union

Japan

Production in 1000 tonnes 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
1900

World Man-Made Fibres Production

Raw cotton Raw wool Synthetic yarn Synthetic staple Cellulosique yarn Cellulosique staple

1910

1920 1930

1940

1950

1960

1970 1980

1990

2000

Year

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SOURCES OF MARKET GROWTH Income growth

When people earn extra dollars, they spend a certain proportion of those extra dollars on clothing.

SOURCES OF MARKET GROWTH Income growth

But how many of those extra dollars of Income go on clothing? In fact the elasticity of demand varies with income People in developing countries spend a greater portion of their extra dollars on clothing than people in industrialised economies

Final consumption of textile fibres per head 1992-2005

Developed countries (kg) 30 25 21.6 20 15 10.5 10 5 0 1992 1995 Source: Textile Outlook International 2000 2005 4.2 7.6 9.0 6.7 4.5 7.5 4.7 7.9 5.2 8.8 14.4 21.9 24.9 23.2 Eastern Europe Developing countries World

LOCATIONAL SHIFTS
The world market is growing
In 2005 the world will consume about 15 mn tons more apparel fibres than it did in 1995 This will require an extra 15 mn tons of output Almost all the extra output will be produced in developing countries

Location of extra production and consumption in 2005, compared with 1995

Developed countries (mn tons) 20,000 15,697 15,000 Eastern Europe Developing countries

14,660

10,000

5,000

0 Extra output Source: Textile Outlook International Extra demand

What are the driving forces behind this shift? differences in levels of skills and entrepreneurship differences in the availability of capital differences in natural resources - cotton, climate, water etc oil, differences in labour costs

LOCATIONAL SHIFTS Driving forces

Labour cost comparisons in the textile industry 2000

Japan Denmark Switzerland Belgium Netherlands Germany Norway Sweden Austria Italy Canada USA Finland France UK Australia Ireland Spain Israel New Zealand Greece Taiwan Malta Hong Kong Argentina South Korea Portugal Uruguay Brazil Venezuela Turkey Hungary Poland Mexico Czech Republic Colombia Morocco South Africa Peru Tunisia Slovakia Estonia Mauritius Thailand Malaysia Philippines Nigeria Egypt China India Sri Lanka Bangladesh Vietnam Pakistan Madagascar Indonesia 0 26.1 22.3 22.2 19.6 19.5 18.1 18.0 17.0 15.8 14.7 14.3 14.2 14.1 13.9 12.7 10.9 10.3 8.3 7.4 7.3 7.2 7.2 6.6 6.1 5.9 5.3 4.3 3.6 3.2 2.8 2.7 2.6 2.4 2.2 2.0 1.9 1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.2 1.1 1.1 1.0 1.0 0.7 0.6 0.5 0.4 0.4 0.4 0.4 0.3 5 10 15 20 25 30

US$/hour
Source: World Markets for Spun Yarns: Forecasts to 2010, from Werner data

INTERNATIONALIZATION THROUGH REGIONALISATION

Political motivations:
effectively protectionism by the importing countries encouraged by growth of preferential agreements such as those between the EU and countries on the Euro-periphery, regional trade blocs such as NAFTA gain sphere of influence - the Caribbean Basin Initiative (CBI) was established to thwart former Soviet Union and inhibit the spread of communism in the region

INTERNATIONALIZATION THROUGH REGIONALISATION

For manufacturers, offshore manufacturing, outward processing or delocalisation to nearby countries :
provides a way of defending market shares against Asian low cost competition provides security and reliability - security and reliability of delivery, political stability, currency stability facilitates manufacturing closer to market: production control, quality control, quick response

EU apparel imports: biggest ten suppliers, 2000

Euro bn Thousands 10

7.8

Value (Euro bn)

5.3

4 3.1 2.5 2 2.5 2.5 2.4 2.0 1.8 1.8

0 Hong Kong Romania Morocco Indonesia Turkey Tunisia Bangladesh India Poland NB: leading ten suppliers by value
Source: Textile Outlook International from Euratex data

China

EU apparel imports: fastest growing major suppliers, 1998-2000

% growth 50 44 40 40

% growth Asian countries recover ground lost to Eastern Europe

22 21 16 12 12 7 1

30

28

20

10

0 Bangladesh Indonesia India Kong Tunisia China Romania Turkey Morocco Poland NB: fastest growing suppliers among leading ten by value in 2000
Source: Textile Outlook International from Euratex data

US apparel imports: trends in imports from biggest ten suppliers, 1997-2000

bn sme 3.0 2.5
2.3 2.5

billion square metres equivalent

2.0
1.6

2.0

1.5
1.0

1.0
0.7 0.8

0.9 0.7 0.7 0.8

1.0

0.9 0.9 0.9 0.9 0.7

0.9 0.8

0.9 0.8 0.8

0.9 0.8 0.7 0.6 0.4 0.5 0.3 0.6 0.6 0.6 0.7 0.5 0.5 0.6 0.4 0.4 0.4

0.5 0.0

0.5

Mexico Bangladesh Hong Kong El Salvador South Korea Honduras China Dom Rep Taiwan Indonesia NB: leading ten suppliers in 2000 by volume
Source: Textile Outlook International from US Dep of Commerce data

US apparel imports: fastest growing major suppliers, 1997-2000

% change 100 83 80 66 60 44 40 42 33 24 20 14 5 0 -2 South Korea Mexico Honduras Hong Kong Dom Rep El Salvador Bangladesh Indonesia Taiwan China NB: fastest growing suppliers among leading ten by volume in 2000
Source: Textile Outlook International from US Dep of Commerce data

% growth
62

SOURCES OF U.S. APPAREL SUPPLY CHANGES RAPIDLY

100%

80%

US Production

MEXICO
60%

CBI
40%

ASIA
20%

ROW

0%
1992 1993 1994 1995 1996 1997 1998 1999

Source: KSA

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TRADE BLOCS AND PREFERENTIAL TRADE AGREEMENTS

EU: Nearby countries: Eastern Europe Middle East Mediterranean rim, including Turkey (customs union) EU: More distant regions: ACPs (African, Caribbean and Pacific) Lom countries South Africa Mexico

TRADE BLOCS AND PREFERENTIAL TRADE AGREEMENTS

USA: Nearby countries Mexico Caribbean Andean Pact
USA: More distant regions: Sub-Saharan Africa (AGOA) Middle East (Israel)

TRADE BLOCS AND PREFERENTIAL TRADE AGREEMENTS

The result: stimulate trade within the trade bloc or between members of the free agreement... usually at the expense of countries outside - especially Asian countries in the case of Western developed nations

APEC - FREE TRADE IN 2010/2020

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Free Trade Area of the Americas Unites Western Hemisphere - 2006

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TDA Act of 2000

Trade & Development Act of 2000, effective October 1, provides
Duty and quota free treatment of woven garments made with US formed fabrics Duty free imports of knit garments made from CBI fabrics with U.S. yarns

Annual quota of 250M SMEs, growing 16% per year (knit fabrics) Annual quota of 4.2M doz. T-shirts

Define manufacturing approaches

Flexibility Cost Verticalization
Product development Cutting and finishing Network of materials suppliers

Compatibility
Product uniformity e-links

FREE TRADE RAPIDLY ALTERED SOURCING

Mexico & CBI Overtake Far East for U.S. Imports

100%

FAR EAST

MEXICO & CBI

0% 80 85
CBI

90

NAFTA

95

99

Percent of Apparel Imports

Excludes Indian Subcontinent

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CHINAS ACCESSION TO THE WORLD TRADE ORGANISATION

Chinese quotas will be eliminated at the end of 2004, the same as other WTO members This means a five year phase-out, rather than the ten years for other WTO members Many industrialists quake at the thought of unrestricted Chinese imports: low wages, and even then prices do not always reflect the cost of production Chinas ability to swamp markets, China also obliged to open its market, but how quickly? Safeguards until 2008, but dispute over reapplication

CONCLUSIONS 1
Why do quotas have to go? Lowering the barriers to world trade will benefit everybody: If people are left to focus on what they do best, the world economy will grow faster So successive Gatt rounds have aimed to lower tariffs Textile and apparel quotas have got in the way of this

CONCLUSIONS 2
But will trade be truly free and fair when quotas have gone? Many developing countries have long time frames for opening their markets Tariff barriers remain high even in developed economies The success of Nafta may encourage me-tooism

CONCLUSIONS 3
The success of Nafta may encourage me-tooism The following are not beyond the bounds of possibility in the 21st century: A Free Trade Area of the Americas? An Indian subcontinent trade bloc: India, Pakistan, Nepal, Bangladesh and Sri Lanka? a revived Comecon - former Eastern bloc countries left out of the EU? East Asian trade bloc - Japan, a reunified North and South Korea, a reunified China and Taiwan?

CONCLUSIONS 4
The conflict between regionalisation and multilateralism Regionalisation: danger: large trade blocs with unreasonable market power... ...in conflict with... Multilateralism the WTO multilateral approach: generating wealth for the very poor as well as the very rich

CONCLUSIONS 5 A lesson from September 11?

The West lost interest in Afghanistan after the Russians left. If the worlds leaders continue to ignore the problems of emerging market economies, the impoverished and the dispossessed, they do so at their peril!

CONCLUSIONS 6 Time for a rethink?

Problem: quotas will end but protectionism will continue in other ways

An opportunity a new round of global trade talks starts at Doha in

Qatar on under the WTO Help developing countries to develop by letting them do what they do best Result? All countries will become richer - the rich and the not so rich

NEW Trends and Change After 200 Years

Genetically modified Cotton

FUTURE

Thematic e-commerce companies

High St company Contract buyers Niche mail older companies Eco-companies

Eco-Cotton

Polypropylene
Branded MMF Commodity MMF 7/29/2013

Purpose builds supply LEL/S&V chain

WHAT & HOW

48

New supply chain management concept: leading players at different levels of the value chain work together to increase competitiveness and speed to market.

Fiber

Fabric

Garment

Brand & Retailer

Global sourcing

Product innovation

Elastification efficiencies

Brand value

Quality, Competitiveness and speed under partnership

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NEXT WTO ROUND - EXPECT MORE LIBERALIZATION

Qatar, November 2001 Developing countries are asking for

Accelerated quota growth/removal Reduction in Duties

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What does it take to win?

Quality, Innovation and Product uniqueness Cost competitiveness of entire supply chain Cycle time and delivery (speed and flexibility) Ability to move with/anticipate the trade flows Speed and flexibility Global Alliance & Partnership

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Should the War escalate??

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Possible scenarios
USA market is nervous. UK and EU will be in turmoil. Shoppers will be reluctant to go to shopping malls. Shipping will be affected. War risk?? Customers will change priorities. Orders may get cancelled or held back.
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There could be positives too

Some countries may stop dealing with US and UK Internal turmoil in countries like Bangladesh, Pakistan,India,Indonesia, Turkey etc. Those countries that does not support US and UK may be subjected to embargos.
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