Newsletter: May 2006  

NEW TRENDS IN THE
GLOBAL APPAREL MARKET PLACE

by A.H.H. Saheed

Textile and Clothing together with electrical and electronic goods, represent the two most dynamic sectors in the global trade.  Global export of textiles and clothing during year 2004 were US $453 bn. and of which clothing US $258 bn.   Clothing exports which was US $108 bn. in 1990 has increased by 138% during last 14 years.                     

The World Five leading exporters of clothing are China followed by Hong Kong Turkey, Mexico and India. These five Countries accounts for 43 percent of total global clothing exports.

The world five (5) leading clothing importers are European Union, United States, Japan, Hong Kong and Russian Federation. The above countries accounts for 94  percent of total global clothing imports.

With continued increases in world population and global incomes, the textile and clothing industries are expected to grow at 3.2% and 5.3% respectively over the next decade.  If the rates of growth are maintained, textile and clothing would be a formidable US $ 600 bn. industry by 2014. (estimates based on 1990-2002 trend by ITCB).  The growth promise a potential market share for all efficient producers, including smaller countries who have built reliable long term relationships with their intermediaries.                                                                                     

On 1^st of January 2005, the global apparel industry was freed from quota restriction after over 40 years. The elimination of quota also raised the bar, for suppliers, and ability to ship a quality garment on time at a competitive price has became only an entry – level requirement.

The initial trend in the quota free era –

-        Increased imports by USA and Japan however decline in EU market due to low consumer spending.

-        Continuous dominance of China in textile and apparel trade.

-        Emergence of South Asia as an alternative to China as a favoured sourcing destination.

-        Exporting from vulnerable countries like Bangladesh, Sri Lanka and Cambodia have increased.

-        Prices are down to an extent of 5-8% in almost all the categories.

-        Developed Asian countries like Taiwan and Korea and countries   dependent on quota have seen fall in exports.

-        Leading supply organization in China and selected other countries have seen growth in top line as well as bottom lines.

-        Uncertainties regarding safeguard quotas and trade agreements have resulted in buyers/brands, not changing their sourcing destinations to a very large extent.

-        Buyers are looking at working on long-term with their vendors than on pure transactional basis.

-        It has become a buyer’s market and under pressure from buyers the clothing suppliers are becoming more service providers and offer services that go far far beyond sewing garments.

-        Today buyers bring in manufactures of garments at early stage for sourcing to buyers.

The winners and losers in early trends

U.S.A Market

(1)     As predicted, China is the major gainer of quota abolishment.

(2)     South Asia also has gained market share.

(3)     Mexico, AGOA and developed Asian economics are the losers.

In the U.S.A Market, most of the Asian Countries namely China, India, Indonesia, Bangladesh, Pakistan, Sri Lanka, Vietnam, Cambodia etc. has increased their exports to U.S.A Market whereas the Central Latin American and Caribbean country’s, the exports to U.S. Market has decreased during first year of quota expiry. The main countries are Mexico, Honduras, Dominican Republic, Guatemala, El Salvador etc.

The detail imports between during quota year 2004 and first year after expiry of quota 2005 are as follows.

U.S.A Total Imports

Table 1

 (Source-OTEXA)

The East Asian countries – Hong Kong, Korea, South and Taiwan shows negative growth mainly because their shifting towards electronics goods as stated elsewhere in the study. 

EU Market 

(1)       China and India have increased their exports in decreasing market.

(2)       Turkey and Bulgaria have also increased their exports to E.U.

(3)       Countries like Morocco, Tunisia which at totally dependent on E.U Market   has lost its share.

In the E.U Market once again only China and India has shown large increases with 46.3% and 30.2% respectively.  Most of the other top exporting countries excluding Turkey with increase of 4.2%, Vietnam – 7.8% and Bulgaria mere 1.4%, has shown decline in exports.  China is the major supplier to E.U with a share 18.36, followed by Turkey with 8.74%. 

The detail imports between during quota year 2004 and first year after expiry of quotas (2005) are as follows. 

EU Total Imports

Table 2

(Source-Euratex)

Measures which will limit China growth in next few years

Post-ATC, China has increased it’s share from 14% to 22% in the USA market and from 12.82% to 18.36 % in the EU market during year 2005.

China is expected to gain a major share in world textile and apparel trade however this rapid growth will be hampered due to- 

-        heavy dependence on imports of raw material – MMF – Yarn and fabrics,

-        rapidly growing domestic market – which consumes about 70% of textile and apparel output by volume.  Domestic market growing at a rate of 10-12% per annum. 

-        No countries would depend only on one country for the sourcing requirements. 

The countries to benefit from China’s safeguard measures for USA market

Table 3

Categories             Countries to benefit from safeguards

Cotton Shirts             Mexico, Honduras,  El-Salvador, 
  (338/339)               Guatemala, India, Pakistan, Bangladesh,
                                Thailand, Sri Lanka, Indonesia and
                                Jordon.       

Woven Shirts           India, Bangladesh, Indonesia, Sri Lanka
Men/Boys                and Vietnam 
(340/640)

Cotton Trousers       India, Bangladesh, Cambodia, 
(347/348)                 Indonesia, Philippines Nicaragua,
                               Sri Lanka, Vietnam, Jordon, Honduras and
                               El Salvador.

MMF Knit Shirts       Guatemala, Jordan, Turkey, Honduras and
(638/639)                El Salvador                                                                                                           

MMF Trousers         Central American Countries, India,
(647/648)                 Bangladesh, Indonesia, Jordan, Thailand,
                               Philippines, Guatemala, and Mexico.

As a result of abolishing of quota on trade in textiles and clothing on 1^st January 2005, the prices are falling and major western buyers are narrowing their sources.  On a global scale, large Asian countries with vertically integrated industries are becoming the world’s leading suppliers.  China in particular can produce textile or clothing item, at any quality and cost.

A recent study reveals that in the post quota era, China and India will emerge as the biggest gainers in terms of international market share 50% and 15% respectively in the United States, 29% and 9% in the E.U. The rest of the world is striking, and now South Asia will be the world’s second most competitive region after China.

The study implies that Asian – LDC’s, who has an advantage of quotas will be hardly hit.  This implication for countries like Cambodia, Nepal, Bangladesh thus it is, projected to be difficult.

Another study assesses country situations by scrutinizing three forms of costs.  Direct Cost (fabric, labour), Indirect Costs (facilities a factory can offer on preproduction, technology aided design assists, sampling labs, efficient communication and sourcing information) and Country Costs (not having duty-free market access, proximity to customers, able human resources, business friendly environment and good logistics).   The combination of indirect and country costs is much more important than the direct costs advantages  on labour and other items.  The clear  winners in studies are those that enjoy indirect or country cost advantages or a combination of both (China, India, Turkey, Italy).  Potential country cost winners also are those that enjoy preferential access to major market. (Mexico, CAFTA).

Other Factors

Under  pressure from buyers the international garment industry is now moving towards as s service industry and what the buyer/retail companies- is used to do yesterday, the garment manufacturer has to do today.

Another country which benefited immensely from tariff preference is Jordon.  In year 2000, its apparel exports to USA was only US $ 42 mn. and after spinning the Free Trade Agreement with the USA in 2001, its exports to USA in 2005 has reached US $ 1,083 mn. making a growth of 2,578%.  This underscore the fact that countries enjoying preferences have a head start and Asian Countries that are nowhere near to enjoying comparative preferences are disadvantaged.  Although Singapore has recently signed on FTA with the United States, its Apparel Industry is insignificant.

The countries that are most competitive by Virtue of Scale, Cost and Capacities and that are vertically integrated with the rest of the production chain including the ability to offer supplementary services.