The MFA has been revamped thrice since its creation, with each Indonesia Indonesia Netherlands

15 The MFA has been revamped thrice since its creation, with each Indonesia Indonesia Netherlands

renewal meant to increase the coverage and intensity of the restrictions (Goto 1989, 204). While the MFA sought to impose restrictions on the quantity of different apparel that can be

Source: Calculated from Ramaswamy and Gereffi 998, 124. imported from each country, price restrictions were also Table 10 reveals a number of interesting features. First, and the

imposed in the form of duties on other textile products. most obvious has been the rise of China to the status of

Discrimination was hierarchical. ‘Sensitive’ products, i.e., items world’s leading exporter in 1995 from its eighth rank in 1980.

with higher import penetration met with higher quantitative Further, its share of 15.2 per cent is the highest held by any

restrictions. There is a gradation in tariffs imposed as we move country during the entire period. A related observation is the

from processed to the final finished garment (Goto, 206-207). increase in shares of other low-income economies like India ,

The quota system that evolved under the MFA has exerted Indonesia and Thailand. The shares of ‘semi-peripheral

considerable influence on the structure of production of economies’, viz., South Korea, Hong Kong and Taiwan

apparel. While the main objective of the quota regime is to (Chinese Taipei), premier exporters in the 1970s, have declined.

restrict imports into the E uropean and US markets, it has set in On the other hand, importantly, despite decreases in their

motion a process, of quota imposed economies seeking to shares, core economies continue to have a significant presence in

avoid the restriction by shifting production to other low wage the global garment exports. In 1995, seven E uropean countries

economies that are yet to face quota restrictions. The rise of continued to figure among the top 15 exporters apart from the

Bangladesh as a garment exporter is a classic example of this USA. USA has not only increased its share during this period,

phenomenon (Rhee 1990). Many other Asian economies like but has also improved its rank. Moreover, many of these

China, Thailand and Indonesia too benefit from the relocation economies meet a substantial portion of their internal demand

of manufacturing by firms in NICs to these countries. for clothing through domestic production. USA, for instance,

While this process has definitely influenced the movement to still manufactures 50 per cent of its requirements domestically

relatively low wage cost countries, it has also helped to in 1990 though it had shrunk from the 70 per cent share it had

perpetuate market hierarchies in the industry. Manufacturers in in the domestic market in 1980 (Bonacich et al. 1994, 23). In

the quota-imposed countries are forced to move into more fact, between 1993 and 1995, the share of less industrialised

value added products whose competitiveness is not based on countries in global clothing trade declined from 65 per cent to

low wages but on quality and fashion. Since there are

53 per cent, indicating a gain for industrialised regions (Hale and restrictions on quantity, producers seek to increase their turnover Hurley, 7). To understand this apparent paradox, we have to

by enhancing the value added to each garment. Segmentation in comprehend other forces that impact on the geography of

the apparel market therefore, influences location of production. apparel production and hence, on the prospects of low-income

This is of course not to imply that the quota system is the key regions industrialising through exports of garments. Towards

determinant of market segmentation. Firms in these countries this, in the following sections, we highlight a few other

only seek to move up existing market hierarchies created on the important features of the apparel product market .

basis of quality, fashion and price.

CO

e.The fragmentation of the Apparel M arket M

industry. Another important explanation for the simultaneous

E Fashions have always influenced creation of demand in this

dispersal and concentration of apparel production takes into

industry, especially after the rise of retailers’ control of the

consideration the social embeddedness of production processes

A commodity chain. Given their closeness and greater and their part played in reducing transaction costs of firms in

T IO

understanding of the market than manufacturers, these traders

this sector.

M f. High Transaction Costs W ork against Dispersion

sought to compete through market innovations like new

A designs and fashion marketing rather than through cost

A key factor that works against greater dispersion of garment

reductions by innovations in production techniques. Here again,

production globally is the amount of transaction costs involved

G there are differences across various segments. Women’s and in co-ordinating a global network of decentralised producers

children’s wear is subject to more fashion based design changes and traders. The high vertical and horizontal disintegration in

EN

as compared to men’s wear (Fine and Leopold 1993, 109). this industry increases the volume and rapidity of inter-firm

Further, socio-economic and related cultural changes have transactions. The location of production will therefore be also created a general trend in clothing towards more informal and

influenced by geographical proximity to suppliers, contractors casual wear since the 1970s. Consumption based identities have

and final markets, particularly when transactions are “small scale, begun to play a bigger role in marking one’s position in the

irregular and involve production for quickly changing niche social hierarchy, thereby facilitating the creation of market niches

markets” (Storper and Scott 1990, cited by Christerson and (Underhill 1998, 77). All these factors have led to the rise of

Appelbaum 1995, 1364).

distinct segments in the apparel market. In a cluster of firms in a region, the social embeddedness of This trend has accentuated in recent years, when it is said that

production organisation creates extra economic ties that facilitate the recession in advanced capitalist economies has led to a more

transactions. Community and ethnic relationships provide skewed distribution of income, creating two distinct market

certain regions with economic advantages in such a milieu. This segments (Mody and Wheeler 1987; Hoffman 1985). Others

is more relevant to the garment sector dominated by vertically point to the rise of post-Fordist life-styles, with consumption

disintegrated firms. Firms tend to cluster in regions that have a being an important marker of one’s identity, as responsible for

common ethnic or communal identity that enable entrepreneurs this phenomenon (Underhill 1998; Lash and Urry 1987). The

to enter into long term contracts with less risk. Christerson and causes notwithstanding, the apparel industry has been divided

Appelbaum’s study on location of garment industry in E ast into two key segments with different characteristics; i.) a vibrant

Asia provides empirical support to this argument (1995). It has and growing upmarket fashion segment and ii.) a relatively

also been observed that it is easier for Taiwanese and Hong stagnant, low priced and standardised segment.

Kong firms as compared to the Korean firms to enter into The former market is highly volatile and characterised by short

contracts with overseas Chinese businessmen because of these production runs, fast changing fashions and designs, aggressive

social networks (Bonacich et al. 1994, 138). marketing and higher mark-ups. In response to market

Given the high transaction costs involved, it may not be too instability, firms target smaller, more rapidly changing market

feasible for buyers to shift their point of sourcing too often niches, which require quick alteration of product designs. Here,

taking into consideration only the labour cost advantage. In fact, cost advantages do not matter as much as in the mass-market

studies point to the fact that buyers increasingly prefer to segment. More important is the ‘quick response’ factor (QR),

negotiate with more reliable but lesser number of importers the ability to deliver in time and adjust production to changing

rather than many importers (E gan and Moody 1992). Further, designs and quantities. In other words, ‘flexibility’ becomes an

the costs of finding and entering into a long-term relationship essential characteristic of production for this segment. Thus, the

with new suppliers too would deter buyers from shifting cost advantage gained in dispersing production to low wage

points of sourcing. Given these factors, established suppliers areas tends to be offset by slowness in supply response.

may continue to manufacture for importers even if they lose the Production in distant locations is not suited for such markets,

labour cost advantage over time. This is likely to be true in the where reorders 14[15] and fashion obsolescence are common. 15[16]

mid-price segment where production costs are a lesser source of Further, the quality requirements of the fabric meant for such

competitiveness.

up-market garment production necessitates confinement of To sum up, though there are various forces at work in production to countries with better processing technologies.

influencing the location of garment production, it is still Nevertheless, garments of certain segments that are relatively

possible to envisage a hierarchy of producers, hierarchy defined less intensely driven by fashion and requiring lesser quality may

by levels of development, wage levels and quality of garments continue to be sourced from distant regions, as the semi-

produced. E lson presents six tiers of garment producers, with fashion segment to which Indian apparel exports caters.

each country trying to move into the tier above them (1994, In sum, despite dispersal to low wage economies, the

194). Gereffi’s depiction of the sourcing of different products fragmentation of the apparel market into fashion-determined

from different regions by American retailing firms reproduced smaller and smaller niches has enabled the core economies to

below is also very useful to understand this hierarchy (Table 11) retain their competitive edge in these segments of the apparel

C Table 11 Types of Retailers and Major Global Sourcing

that these variables can be captured by various quantitative

OM

measures of competitiveness, we use a few such measures to

understand India’s competitiveness in apparel exports.

Competitiveness of Indian Garment Exports

AT IO

Representative Type of retailer

While garment exports has registered impressive growth relative N firms

Main global

Characteristics

sourcing area

of buyers

to the rest of manufactured exports from India, as we saw in an

orders

earlier section, India’s relative performance vis a vis its

AN

Fashion Armani, Donna

First and

E xpensive

oriented Karan, Polo,

second rings

designers'

competing nations have not been too well. India, as depicted in A

Companies Ralph Lauren,

products

table 5, falls under ring 3 along with a few other Asian

Boss, Gucci

M and new computations, we seek to measure the competitiveness high levels of E N

requiring

peripheral economies. In this section, based on existing studies

craftsmanship;

of India’s exports. With the withdrawal of quota and price

orders are

restrictions from 2005, India, despite having unrestrained access

in small lots

to global markets, may face tougher competition from similar

Department Bloomingdale's,

Second, third

Top quality,

countries seeking to expand their market shares. Hence, it is

stores Saks fifth

& fourth

high priced

imperative that measures are taken to meet the possible increase

Avenue, Neiman

rings

goods sold

Marcus

under a variety

in competition.

of national brands and

Competitiveness, in existing studies, has been measured

private labels

primarily by a comparison of market shares (Chatterji and

(i.e. store brands)

Mohan; E xim Bank of India 1995; Ramaswamy and Gereffi 1998). Alternately, as an input measure, labour costs corrected for labour productivity can be used. However, given the high

Speciality stores Macy's,

Second, third

Medium to

presence of production in the informal sector, data on labour

brand named Norstorm, J.C.

& fourth

large sized

companies Penny, The Gap,

rings

orders, often

use is insufficient to use. Further, this measure is also difficult

The Limited, Liz

to be used as a comparative measure given the impact of

Claiborne, Calvin

co-ordinated by

Klein

exchange rates on wage costs. Given the importance of non-

department

store buying

price factors like quality in influencing the competitiveness of

groups (such as

garments, unit value realisation may be a better indicator as a

May department

measure of competitiveness. This measure, once again, is

store company

problematic given the highly fragmented nature of the apparel

and Federated

A rea

market. Higher unit values may probably indicate a foothold in

department

store)

a different market segment rather than competition in a similar market. Nevertheless, higher unit values indicate an ability to

&n bsp;

upgrade, which would be a critical factor in sustaining or

&nb sp;

&nbs p;

improving competitiveness over time. Lastly, given the

importance of many non-price factors like quick response,

Mass Sears Roebuck,

Second, third

Good quality,

merchandisers Montgomory

& fourth rings

medium priced

quality of fabric and processing, no single indicator can reflect

Ward, J.C.Penny,

goods

the extent of competitiveness of Indian garment exports.

Woolworth

predominantly sold under

Consequently, in this section, we draw upon a multitude of

private labels;

indicators to understand this dimension of Indian apparel

large orders

exports. To begin with, we compare the market shares of India in the

Discount chains Walmart, Kmart,

Third, fourth &

Low-priced,

product categories that it exports. The following table (Table

Target

fifth rings

storebrand products; giant

12) depicts the product-wise composition of India’s exports.

clearly points to the dominance of core and semi-peripheral economies in the premium up-market segment (Rings one and two), leaving the rest to compete for shares of the lower end of the market segment. Further, the table reveals differences even among the peripheral economies in niches that they cater to, in the global garment market. These differences, it is reasonable to argue, are conditioned by variations in technology and skill levels, and level of control over product markets. To the extent

CO

M Table 12

Table 13

Market Share in 16 Categories of MF A Imports of the US, N

P E Itemwise Composition of India’s Garment E xports