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