Regional Supply Chain Remains an Important Feature of Global Textile and Apparel Trade (Updated: November 2017)

Regional supply chain (or production-trade network, RPTN) or refers to a vertical industry collaboration system between countries that are geographically close to each other. Within a regional supply chain, each country specialized in certain portions of production or value-added activities based on their respective comparative advantages to maximize the efficiency of the whole supply chain.

There are three primary textile and apparel (T&A) regional supply chains in the world today:1

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Asia: within this regional T&A supply chain, more economically advanced Asian countries (such as Japan, South Korea, and China) supply textile raw material to the less economically developed countries in the region (such as Myanmar, Cambodia, and Vietnam). Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets around the world.

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Europe: within this regional T&A supply chain, developed countries in Southern and Western Europe such as Italy and Germany serve as the primary textile suppliers. Regarding apparel manufacturing in the European Union,  products for the mass markets are typically produced by developing countries in Southern and Eastern Europe such as Poland and Romania, whereas high-end luxury products are mostly produced by Southern and Western European countries such as Italy and France. Furthermore, a high portion of finished apparel is shipped to developed EU members such as UK, Germany, France, and Italy for consumption.

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America: within the region, the United States serves as the leading textile supplier, whereas developing countries in North, Central and South America (such as Mexico and countries in the Caribbean region) assemble imported textiles from the United States or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the United States for consumption.

Data from the World Trade Organization (WTO) shows that regional supply chain remains an essential feature of today’s global textile and apparel trade.  Notably, three trade flows are worth watching:

First, Asian countries are increasingly importing more textiles from within the region. In 2016, around 91.2% of Asian countries’ textile imports came from other Asian countries, up from 86.8% in 2006. This change reflects the formation of a more integrated T&A supply-chain in Asia. The more efficient regional supply chain also helps improve the price competitiveness of apparel made by “factory Asia” in the world marketplace. Particularly in the past few years, T&A exports from Asia is posting substantial pressures on the operation of the T&A regional supply chains in the Western Hemisphere.

Second, the intra-region T&A trade in EU remains stable. In 2016, 64.1% of EU countries’ textile imports and 55.6% of EU countries’ apparel imports came from within the EU region. Over the same period, 73.3% of EU countries’ textile exports and 81.6 % of their apparel exports also went to other EU countries.

Third, the Western-Hemisphere T&A supply chain, which involves countries in North, South and Central America, is facing substantial challenges from the increasing competition from Asian T&A exporters. In 2016, only 29.0% of North, South and Central American countries’ textile imports and 18.6% of their apparel imports came from within the region, a record low in the past ten years. Meanwhile, in 2016 Asian countries supplied 60.1% of textiles and 73.7% of clothing imported by countries in the Western Hemisphere, a record high in history. Understandably, if regional free trade agreements, such as NAFTA and CAFTA-DR, no longer exist, it would be even more difficult for the Western-Hemisphere T&A supply chain to survive. The potential losers of the collapse of the Western-Hemisphere T&A supply chain will include not only US textile exporters but also apparel exporters in North, South and Central America. Notably, in 2016, 89.3% of apparel exported by countries in the Western Hemisphere were destined for the region.  

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Data Source: World Trade Organization (2017)

by Sheng Lu

Author: Sheng Lu

Professor @ University of Delaware

23 thoughts on “Regional Supply Chain Remains an Important Feature of Global Textile and Apparel Trade (Updated: November 2017)”

  1. From these graphs, it seems that America is the only real country that’s losing out on T&A trade. It makes a lot of sense why supply chains are within the same or close by countries so that the amount of tariffs and quotas are minimized. Asia is doing well because they are abundant in labor so they can produce apparel quickly and at an extremely cheap cost. The EU intra-trade is remaining stable, so really only America is having issues. I find this interesting because I consider the EU and America to be closely related in terms of abundance of labor and capital because they have countries that are also considered global superpowers. In actuality, this is not the case. After our discussion about renegotiations regarding NAFTA, I feel it is clear more now than ever that getting rid of NAFTA or CAFTA would only severely hurt the T&A trade in America, rather than help it. More companies would just manufacture their products overseas and completely sever any production processes that used to take place in America.

  2. I agree totally! In my recent analysis, I found apparel from Mexico directly competes with similar products from Asia. Almost all top categories of Mexico’s apparel exports to the US are non-fashion-sensitive basic items, such as cotton men’s trousers, knit shirts and knit skirts. These not only have a high price elasticity of substitution but are also supplied in larger quantities to the US by price-competitive Asian countries such as China, Vietnam and Bangladesh. This partially explains why the regional supply chain in America is losing market shares when “made in Asia” is becoming more price competitive.
    https://www.just-style.com/analysis/which-products-would-be-hardest-hit-if-nafta-nixed_id132014.aspx

    1. Being born and raised in Thailand, one of the less developed countries in Asia, I’d say that our country’s economy depends a lot on the manufacturing segment. From an insider’s perspective, many teenagers from the low-income families choose to go to technical schools that specifically teach them specialized skills, typically for factory jobs. This culture explains why the developing countries in Asia are undertaking the most labor-intensive processes of apparel manufacturing. Though, trends have been changing. Traditionally, those from the rural areas would go to the cities for factory jobs to avoid agriculture jobs – but even in the less developed countries, the demand for cheap labor is still high. Factories start to look for immigrant workers from countries that are geographically close to each other, more specially from other ASEAN countries. This phenomenon may be the reason why Asia can afford to have such low wages, thus becoming more and more efficient in sending these products over to the more developed Asian countries. If this trend continues, with the contrast of the current administration’s perspective on immigrant workers in the U.S., Asia can potentially take the western-hemisphere supply chain place as the leading of T&A exports in the future.

  3. This graphs give a greater understanding into how the various countries are importing and exporting. I found it interesting that Asian countries and importing more textiles within their region. It went up significantly in the past 10 years and they import such a small amount from countries outside their region. On the other hand, countries in the Western Hemisphere such as the U.S., are importing a very small amount of textiles from their region. Since both these regions are taking opposite approaches, I wonder who is going to benefit from this more in the long-run, and who it will affect negatively.

    1. Given the fact that US no longer makes a lot of apparel and the US is one of the very few textile producers and exporters in the Western-Hemisphere, then why should the US import a lot of textile from within the region?

      What is of concern to me personally is if NAFTA no longer exists, the western-hemisphere supply chain may be over…

    2. I was wondering the same thing. I found it interesting that the US is said to be a leader in textile manufacturing, but here the charts and statistics are showing me otherwise. How harshly is this affecting the US when it comes to our economic growth and is it something we need to be concerned about? What happens when or if regions start advancing in our said biggest advantages and we are left with no real advantage in anything?

  4. In class, we have touched on the topic apparel companies choose to hire textile workers over seas due to the cheap labor and efficiency. We also learned that many US factories do not have workers that are skilled enough to handle specific projects. The article states “high-end luxury products are mostly produced by Southern and Western European countries such as Italy and France.” If these developed countries have workers that have the skillset to develop luxury goods, why are only high-end apparel pieces developed in these countries?

  5. These graphs provided a great visual representation of the supply chains in various countries because in class and in our past readings it is clear that the United States has been struggling the most because of the skilled workers and cheap labor across seas. Seeing the numbers in these graphs was pretty shocking. These graphs also showcase that Asia and the EU are importing textiles which in their own regions which I think could be correlated to the huge reason to why the US is struggling because this is something that the US is lacking.

    1. Indeed, an interesting question to think about is why can Asian and EU countries maintain their regional supply chains whereas the western-hemisphere supply chain is in decline? Also, a good proportion of apparel “Made in Asia” and “Made in EU” are exported to the Western-Hemisphere, but the majority of apparel made by Mexico and countries in South America end up shifted to the US. Why cannot apparel exporting countries in the Western-Hemisphere diversify their export market?

      1. Your final thought in this comment was very interesting to me, Dr. Sheng Lu! The proposal of why Western-Hemisphere exporting countries can’t seem to diversify their export market is a great question, because from these graphs we see that the majority of these other hemisphere’s exports into their own regions, so that would mean their in-region imports will remain high as well. It may be to their benefit to keep their trading within region, based on facts such as: shorter lead times, less costs incurred from shipping, and maintaining employment levels and stable economies within their regions. Essentially all of the reasons pro-NAFTA constituents agree this agreement is so important for our nation, particularly those thinking about our individual sector. Regarding our question of why Western-Hemisphere countries are struggling to diversify their export market, it seems that an extreme barrier of entry to these countries such as North, South and Central America could essentially be merely the intense competition. How are we expected to maintain greater export rates to these other hemispheres when they are already doing it so well themselves, smartly sourcing from their neighbors. This brings me to another point you have made throughout the comment chain, about what the potential termination of NAFTA would mean for our hemisphere which already does not engage in a substantial amount of textile production. It seems that notion would totally abolish the very themes we are seeing in many other successful hemispherical economies across the globe. Thank you for this great explanation of our stance and other nations’ stance in the global trade economy. I now have a much better understanding of another aspect of why NAFTA is so crucial to our economy.

  6. Asia’s region textile and apparel supply chain falls in line exactly with what were discussing in FASH455 – the flying geese model. The flying geese model is a dynamic regional division of labor in manufacturing based on the hierarchy of economic development in the region, so for the textile complex, more advanced economics will undertake more capital/technology-intensive production processes. In the case of this article, economically advanced countries such as Japan, South Korea and China are producing and supplying textile raw material to less economically developed countries like Cambodia and Vietnam. These countries are undertaking more labor-intensive processes of apparel manufacturing. This is the most efficient means of producing apparel, and as long as these countries remain in the economic status that they are in, in my opinion nothing will change in the way that apparel is manufactured in this supply chain. Additionally, based on this article it appears that it is in the United States’ best interest that NAFTA and CAFTA remain as regional free trade agreements. I completely agree that if these were to no longer exist, it would be extremely difficult for the Western hemisphere textile and apparel supply chain to survive. There will be more losers than winners if NAFTA and CAFTA no longer exist. I am not surprised that only 29% of North, South, and Central American countries’ textile imports and 18.6% of their apparel imports came from within the region. Often times, it is not in the US’s best interest to import textiles and apparels from within the region, because it usually equates to higher costs.

    1. I completely agree with this post! It definitely is a perfect example of The Flying Geese Model since it is portraying how the shift in the manufacturing hierarchy has been definitely shifting. Overall, I do agree that this can be a problem for the Western hemisphere especially if NAFTA and CAFTA fall through. This can lead to the textile supply chain to fall apart since the Western Hemisphere would have no upper hand in competing with prices as low as Asia’s. The Western Hemisphere as it is only really trades within and it is mostly because of the benefits of NAFTA and CAFTA such as the shorter lead times, cheap prices (regionally) and no tariffs. With these benefits gone, businesses will go out of the Western Hemisphere to ensure the cheaper prices and may give up the shorter lead times for a cheaper price. This post really does support and show how important NAFTA and CAFTA is and keeping these trade agreements on the table.

  7. I think this is a perfect example of why NAFTA is so important to the survival of the Western Hemisphere regional T&A supply chain. The T&A supply chain in Asia is based off of the flying geese model and as you stated above over 90% of textile imports come from this region. This is because as some Asian countries move into a developed stage and their textile and apparel industries start to fully decline, other countries at the beginning stages of the T&A industry take over apparel production processes. Europe’s textile imports from within the region also are stable as their region has much more diversified T&A manufacturing that ranges from luxury to mass market. The Western hemisphere supply chain is much less flexible than the supply chains of Asia or the EU. The U.S. export textiles to their biggest export market, which is Mexico and Central America. In turn Mexico and Central America produce apparel and export most of it back to the US. If NAFTA were to be abolished Central America and Mexico would have no incentive to source their textiles from the U.S. because they are cheaper and have a much less varied selection than in Asian markets. One of the most surprising points brought up in this article was that Mexico and Central America would also lose a huge part of their apparel market too. Apparel tariffs are some of the highest in the world and if clothing from this region became more expensive U.S. retail companies would probably source even more from Asia.

  8. It is interesting to see that Asia’s textile imports have continued to increase while their apparel imports have slowly decreased in the 16 years. It seems as if more textiles are being imported so that developing countries with lower wages can work on the products that in the end are being exported to developed countries.

    I found it odd that Eu’s textile imports and apparel imports fluctuated throughout the 16 years but in the end they were down significantly from what they were in 2000. It seems as if Eu does it similar to Asia but producing the apparel in developing countries and keeping the process all within Europe and shipping finished apparel to more developed countries.

    I think overall Asia and the EU are benefitting more from the way they are keeping the process within their region, especially Asia. The U.S. seems to struggle because they don’t produce enough textiles and apparel within America, while Asia and the EU have much higher statistics for manufacturing within their regions. Asia is hurting America’s production because it is much easier to produce in lower income places, which America does not have.

  9. I found it interesting that Asia’s apparel imports from Asia has been slowly decreasing for the past 16 years while the textile imports from Asia have been increasing. One would assume that that the apparel imports would also increase since many LDC’s are in Asia, however, according to the graphs that is not the case. It brings the question if they are no longer importing as much apparel from Asia where are they now importing from? With developed Asian countries now producing more and more textiles, will apparel production suffer in turn, and if so what region will take over the “factory” aspect of apparel production?

  10. The first graph poses an interesting perspective- Asia is importing almost equal the amount of textiles from other Asian countries as they are apparel imports from Asian countries. With the rise in outsourcing to drive price competitiveness, the United States remained strong in textile exporting. However, my analysis of this graph is a potential threat to the United States as Asian countries become more technologically developed, they will start to take over even textile manufacturing. These countries have the ability to drive this competitive advantage as they have the willing and able labor force ready to take on textile manufacturing. This also relates to the third point, with over 60% of textiles imported to the NAFTA region in 2016, this puts the United States in a bad position to compete globally. NAFTA is crucial in regulating this trade, without it, that 60% will skyrocket and leave the United States to increase their imports even more.

  11. It is sad to see NAFTA and CAFTA-DR struggling to stay relevant, even when it has proven to help our nation and the countries involved. It has expanded job opportunities in the US, especially in textiles. In its supporting countries, it has greatly stimulated their economies and competitiveness with the rest of the world. The continuous rise in Asian competition, however, has diluted the original intention of NAFTA. It was only intended to be a trade agreement between specific countries, but over the years developed many loopholes that involve Asian trade. The competition and participation with Asian countries have stumped lawmakers’ decision toward the right path. I think the U.S., being such a powerful country that it is, should ensure that NAFTA continues with stricter guidelines that support its origin of creation. Redirecting NAFTA to uphold certain standards that continue only benefiting those intended countries are vital. If NAFTA is to completely collapse, it would cause the U.S. and other western hemisphere countries a great loss. I can only imagine their place in T&A trade to be near-to-nothing.

  12. This article explains the influences of NAFTA and CAFTA-DR. It is not only affect Western countries. It is also related to Asian economy. For example, when the regional free agreements are not exist, the global industry will import textiles from others. They may prefer to accept Asian textiles, this is why the Asian textiles’ export more than previous year.
    I see how global economy influences the whole worlds step by steps. This article explains the clear relationship among T&A, NAFTS and countries.

  13. This article is very interesting and I want to reconstruct the data. Is the data from WTO? I tried to find the total import of Asia but unable to find it. Thanks a lot!

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