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The Clothing and Textiles Industries The Relevant Production Chain The World’s leading textile exporting countries, 1995 Country Germany China Italy Korea Taiwan Belgium-Lux. France USA Japan Share of World Exports (percent) 1980 1995 11.4 9.3 4.6 9.1 43% 7.6 8.3 4.0 8.1 3.2 7.8 6.5 5.1 6.2 4.9 6.8 4.8 9.3 4.7 Trade balances in textiles, 1995 Developed economies Italy Belgium-Lux. Germany USA UK Canada Japan $ millions +6,356 +3,672 +2,036 -3,069 -2,536 -1,831 -1,193 Developing economies Taiwan Pakistan India China Hong Kong $ millions +10,116 +4,134 +3,504 +3,004 -3,044 World’s leading clothing exporters, 1995 Country China Hong Kong Italy Germany USA Turkey France Korea Thailand Share of World Exports (percent) 1980 1995 4.0 15.2 11.5 6.0 11.3 8.9 7.1 4.7 3.1 4.2 0.3 3.9 5.7 3.6 7.3 3.1 0.7 2.9 Trade balances in clothing, 1995 Developed Italy $ millions +9,438 Developing China $ millions +24,049 (less imports) USA Japan Germany France UK -34,716 -18,228 -16,845 -4,664 -3,695 Hong Kong Portugal Taiwan Malaysia +8,634 +2,827 +2,374 +2,118 Shares of textiles and clothing in a country’s total merchandise exports, 1995 Country Bangladesh Pakistan Sri Lanka Turkey India China Portugal Textiles 13.6 53.3 4.1 11.7 Clothing 54.8 20.2 46.0 28.3 Combined 68.4 73.5 50.1 40.0 15.3 9.4 7.0 14.8 16.2 16.0 30.1 25.6 23.0 Explanatory Framework Textiles Demand Production costs/ technology Gov’t policy Corporate strategy Clothing SemiConsumer conductors electronics Demand • Demand for clothing is the key • clothing demand is roughly proportional to personal income • elasticity of demand < 1 • increasingly dominated by purchasing policies of major multiple retailing chains Production costs/technology • Labor costs. – labor intensive industries – substantial geog. variability • even if we control for productivity of labor Labor costs per standard minute in the clothing industry, 1995 Cost per std. Minute (DM) 0.10 to 0.15 0.15 to 0.20 0.20-0.25 0.25 to 0.30 to 0.35 to O.40 to 0.50 to > 0.60 0.30 0.35 0.40 0.50 0.60 Countries Mexico, Jamaica, Honduras, Guatemala, Dominican rep., China Vietnam, Russia, Sri Lanka Bulgaria, Romania, Slovakia, Malaysia, Czech rep., Estonia, Poland, Indonesia, Philippines, Pakistan, India, Tunisia Hungary, Slovenia, United States Hong Kong, UK. Taiwan Greece Italy France, Eastern Germany Western Germany, Denmark Sensitivity to labor costs depends on: • Kind of item being produced • possibility of substituting capital for labor Production Fibers Characteristics (synthetic) Textiles Clothing Capital Intensity High Low Labor Intensity Low High Material Costs High Low Av. Size of Production Unit Large Small Sophisticated Simple Technology Implications re. sensitivity to labor??? Government policies • Policies pursued by DEVELOPING countries to stimulate development • Policies pursued by DEVELOPED countries in response to competition Policies of DEVELOPED countries • Encouragement of restructuring and rationalization • protection from external competition – Multifiber Arrangement • reactions to protection – item switching – country hopping (Triangle Manufacturing) Recent Trends • MFA to be phased out over 1995-2004 period • but the integration is heavily backloaded – U.S. integration of 70% of imports by value is left to end of the transition period Corporate Strategies Textiles • World textile oligopoly of about 30 firms • implementation of Fordist methods to achieve scale economies • offshoring was pioneered by Japanese textile firms and general trading companies – to avoid U.S. quotas on imports from Japan • U.S. & European firms are less internationalized. Depend more on merger • exception is U.K. firms Clothing • Production is more fragmented • Retail chains and buying groups have enormous leverage over producers • Japanese general trading companies pioneered international subcontracting Response of U.S. producers • Concentrated on high fashion products • made investments to cut costs and improve worker productivity • increased own offshore processing via subcontracting • FDI in overseas subsidiaries directed at local markets Western Europe: the Italian Exception • Industrial district solution. – Large network of independent Italian subcontractors – strategy of product specialization and fashion orientation Jobs in the textiles and clothing industries Employment losses in textiles and clothing 1963-1987 U.K. 780,000 Germany 564.000 France 520,000 U.S. 470,000 Adjusted U.S. Penetration Ratios, Value Basis 1986 1984 1982 1980 1976-1979 1971-75 1966-70 Textiles Apparel 1961-65 35 30 25 Percent 20 15 10 5 0 Components of Employment Change---Textiles Percentage growth rates 1972-77 1977-82 1982-85 Consumption 1.44 -0.56 3.03 Exports 0.28 0.09 -0.51 Imports 0.21 -0.17 -0.65 Productivity -3.19 -2.70 -4.27 Total -1.25 -3.34 -2.40 Components of Employment Change---Clothing Percentage growth rates 1972-77 1977-82 1982-85 Consumption 3.31 1.86 5.99 Exports 0.20 0.15 -0.44 Imports -0.95 -0.98 -3.25 Productivity -3.05 -2.22 -3.79 Total -0.50 -1.20 -1.49