Globalization and Its Implications for the Fashion Industry—Discussion Questions from Students in FASH455

Sourcing map: North Face–Men’s Thermoball Eco Hoodie

#1 Why or why not do you think VF Corporation should de-globalize its supply chain—for example, bringing more sourcing and production back to the United States?

#2 Given such a globalized operation, should we still call VF Corporation an American company? Also, does the label “Made in ___” still matter today?

#3 Is the sole benefit of globalization helping us get cheaper products? How to convince US garment workers who lost their jobs because of increased import competition that they benefit from globalization also?

#4 How has COVID-19 changed your understanding of the benefits, costs, and debates on globalization? Do we still need globalization in a post-COVID world? Why?

#5 Throughout history, globalization has been viewed as a two-sided debate with social groups weighing its benefits and negative costs.  With the emergence of COVID-19, how do you think certain social groups’ opinions towards globalization will change?

(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)

Which Apparel Sourcing Factors Matter?

Key findings:

The apparel sourcing formula is getting ever more sophisticated today. US fashion brands and retailers consider a wide range of factors when deciding where to source their products. The long list of sourcing factors includes #1 Capacity, #2 Price & tariff, #3 Stability, #4 Sustainability, and #5 Quality (see the table below).

When evaluating the world’s top 27 largest apparel supplying countries’ performance,  no souring destination appears to be perfect. In general, fashion brands and retailers have many choices for sourcing destinations that can meet their demand for production capacity, price point, and quality. However, fashion companies face much more limited options when seeking an apparel sourcing destination with a stable financial and political environment and a strong sustainability record.

When we compare the trade volume and the performance against the five primary sourcing factors:

  • Apparel sourcing today is no longer a “winner takes all” game. Notably, the factor “Capacity” is suggested to have limited impacts on the value of apparel imports from a particular sourcing destination.
  • Apparel sourcing is not merely about “competing on price” either--the impact of the factor “Price & tariff” on the pattern of apparel imports statistically is not significant.
  • Improving financial and political stability as well as product quality can help a country enhance its attractiveness as an apparel sourcing base. In particular, American and Asia-based fashion companies seem to give substantial weight to the factors of “Stability” and “Product quality” in their sourcing decisions.
  • Fashion companies’ current sourcing model does not always provide strong financial rewards for sustainability. Interestingly, the result indicates that a higher score for the factor “sustainability” does NOT result in more sourcing orders at the country level. Behind the result, fashion companies today likely consider sustainability and compliance at the vendor level rather than at the country level in their sourcing decisions. It is also likely that sustainability and compliance are treated more as pre-requisite or “bottom-line” criteria instead of a factor to determine the volume of the sourcing orders. 

In conclusion, fashion companies’ sourcing decisions seem to be more complicated and subtle than what is often described in public.

By Emma Davis and Sheng Lu

Further reading: Emma Davis & Sheng Lu (2021). Which apparel sourcing factors matter the most?. Just-Style.

Regional Supply Chain Remains a Key Feature of World Textile and Apparel Trade

While textile and apparel is well-known as a global sector, the latest statistics show that world textile and apparel trade patterns remain largely regional-based. Three particular regional textile and apparel trade flows are critical to watch:

First, Asian countries are increasingly sourcing textile raw material from within the region. As much as 85% of Asian countries’ textile imports came from other Asian countries in 2019, a substantial increase from only 70% in the 2000s. This result reflects the formation of an ever more integrated regional textile and apparel supply chain in Asia. However, as Asian countries become more economically integrated, textile and apparel producers in other parts of the world could find it more challenging to get involved in the region. With the recent reaching of several mega free trade agreements among countries in the Asia-Pacific region, such as the Regional Comprehensive Economic Partnership (RCEP), the pattern of “Made in Asia for Asia” is likely to strengthen further.

Second, the EU intra-region trade pattern for textile and apparel stays relatively strong and stable. Intra-region trade refers to trade flows between EU members. Statistics show that 54.6% of EU(27) members’ textile imports and 37.4% of their apparel imports came from within the EU(27) region in 2019. This pattern only slightly changed over the past decade. In other words, despite the reported increasing competition from Asian suppliers, many of which even enjoy duty-free market access to the EU market (such as through the EU Everything But Arms program), a substantial share of apparel sold in the EU markets are still locally made.

EU consumers’ preferences for “slow fashion” (i.e., purchasing less but for more durable products with higher quality) may contribute to the stable EU intra-region trade pattern. Many EU consumers also see textile and apparel as cultural products and do NOT shop simply for the price. This explains why Western EU countries such as Italy, Germany, and France rank the top apparel producers and exporters in the EU region despite their high wage and production costs.

Third, the Western Hemisphere (WH) supply chain faces significant challenges despite the seemingly growing popularity of “near-sourcing.” On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the regional market. In 2019, respectively, as much as 79% of textiles and 86% of apparel exports from countries in the Western Hemisphere went to the same region. 

However, on the other hand, the Western-Hemisphere supply chain is facing increasing competition from Asian suppliers. For example, in 2019, only 22% of North, South, and Central American countries’ textile imports and 15% of their apparel imports came from within the Western Hemisphere, a new record low in ten years. Similarly, in the first eleven months of 2020, only 15.7% of US apparel imports came from the Western Hemisphere, down from 17.1% in 2019 before the pandemic. The limited local textile production capacity and the high production cost are the two notable factors that discourage US fashion brands and retailers from committing to more “near-sourcing” from the Western Hemisphere.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

Additionally, many say that the reaching of RCEP creates new pressure for the new Biden administration to consider joining the CPTPP and strengthening economic ties with countries in the Asia-Pacific region. Notably, several USMCA and CAFTA-DR members, such as Mexico, also have RCEP or CPTPP membership. Apparel producers in these Western Hemisphere countries may find it more rewarding to access the cheaper textile raw material from Asia through CPTPP or RCEP rather than claiming the duty-saving benefits for finished garments under USMCA or CAFTA-DR. Like it or not, the Biden administration’s inaction will also have consequences. 

by Sheng Lu

Further reading: Lu, Sheng. (2021). Regional supply chains still shape textile and apparel trade. Just-Style

US Apparel Sourcing Trends to Watch in 2021

Key points:

  • Key themes in 2021: COVID-19+ trade policy
  • U.S. apparel imports continue to rebound, but uncertainty remains
  • Asia will remain the dominant apparel sourcing base
  • U.S. fashion companies are NOT giving up China as one of their essential apparel-sourcing bases, although companies continue to reduce their “China exposure” overall. Meanwhile, do NOT underestimate the impact of non-economic factors on sourcing.
  • No clear evidence suggests near sourcing from the Western Hemisphere is happening in a large scale
  • Watch Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These two mega-free trade agreements could shape new textile and apparel supply chains in the Asia-Pacific region.

COVID-19 and U.S. Apparel Imports: Key Trends (Updated: February 2021)

First, affected by the surge of COVID cases and consumers’ slowed spending, the value of U.S. apparel imports decreased by 15.7% in December 2020, the worst performance since September 2020. Specifically, the value of U.S. apparel imports in December 2020 shrank by 6.4% from November 2020 (seasonally adjusted), compared with an 8.8% growth from Aug to September, a 4.6% growth from September to October (seasonally adjusted), and a slight 0.3% decline from October to November (seasonally adjusted).

The substantial drop of U.S. apparel imports in December 2020 also altered the recovery trajectory. Overall, the outlook of US apparel imports in 2021 is hopeful but remains far from uncertain.

Second, supporting the findings of some recent studies, data suggests that U.S. fashion brands and retailers continue to reduce their “China exposure” in 2020. For example, both the HHI index and market concentration ratios (CR3 and CR5) suggest that apparel sourcing orders are gradually moving from China to other Asian countries. Measured by value, only 23.7% of U.S. apparel imports came from China in 2020, a new record low in the past ten years (was 29.7% in 2019 and 33% in 2018).

However, China’s apparel exports to the US lost more market shares from 2018-2019 than 2019-2020–it seems the impact of the trade war is more significant than the COVID.

The latest data confirms the concerns that some non-economic factors negatively affect China’s prospect as an apparel sourcing destination. For example, the reported forced labor issue related to Xinjiang, China, and a series of actions taken by the U.S. government (such as the CBP withhold release orders) have significantly affected U.S. cotton apparel imports from China. Measured by value, only 15.4% of U.S. cotton apparel came from China in 2020, compared with 22.2% in 2019 and 28% back in 2017. While China’s total textile and apparel exports to the US dropped by 30.7% in 2020, China’s cotton textiles and cotton apparel exports to the US went down more sharply by nearly 40%.

Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (19.6% in 2020 vs. 16.2% in 2019), ASEAN (32.3% in 2020 and vs. 27.4% in 2019), Bangladesh (8.2% in 2020 vs.7.1% in 2019), and Cambodia (4.4% in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.

Fourth, due to seasonal factors, around 21% of U.S. apparel imports came from the Western Hemisphere in December 2020. Notably, to fulfill consumers’ last-minute holiday orders, which require faster speed to market, U.S. fashion companies typically do relatively more near-sourcing from September to December. In comparison, U.S. fashion companies place more sourcing orders with Asian suppliers from June to late September/early October.

However, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the U.S.-China tariff war. In 2020, 9.6% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from USMCA members (down from 4.5% in 2019).

by Sheng Lu

A Snapshot of Myanmar’s Apparel Industry and Export

First, the textile and apparel industry plays a significant role in Myanmar’s economy, particularly the export sector. Data from the UNComtrade shows that textile and apparel accounted for nearly 30% of Myanmar’s total merchandise exports in 2019, followed by footwear and luggage. Industry data also indicates that the textile, apparel, and footwear industry employed more than 1.1 million workers in Myanmar in 2018, up from only 0.3 million in 2016.

On the other hand, as a developing country, Myanmar highly depends on the imported textile raw material. As of 2019, nearly 83% of Myanmar’s textile imports came from China.

Second, since the United States lifted the import ban on Myanmar and the EU reinstated the Everything But Arms (EBA) trade preferences for the country in 2013, Myanmar has been one of the most popular emerging apparel sourcing bases among fashion companies.  From 2015 to 2019, Myanmar’s apparel exports to the world enjoyed an impressive 57% annual growth. Myanmar’s apparel exports to the EU (97% annual growth) and the United States (78% annual growth) have been growing particularly fast.

From 2019 to 2020, some of the top fashion brands that carry apparel items “Made in Myanmar” include United Colors of Benetton, Next, Only, Guess, Jack & Jones, and Mango.

Second, the reasons why fashion companies source apparel from Myanmar are multiple:

  • Thanks to foreign investment (e.g., nearly half of Myanmar’s garment factories are foreign-owned), Myanmar specializes in making relatively higher-quality functional/technical clothing (i.e., outwear like jackets and coats). This is different from many other apparel exporting countries like Bangladesh, Vietnam, and Cambodia, mostly exporting low-cost tops and bottoms.
  • Myanmar’s apparel exports were able to enjoy duty-free market access in the EU, Japan, and South Korea. Myanmar was also a beneficiary of the US Generalized System of Preferences (GSP) program. This explains why Myanmar’s apparel exports mostly go to the EU (56%), Japan and South Korea (30%), and the US (5.5%).
  • Relatively low production cost—garment workers earn around $85/month in 2019.

However, Myanmar still accounts for a tiny share in fashion companies’ total sourcing portfolio because of the size effect. For example, as of 2019, less than 0.1% of US and EU countries’ apparel imports came from Myanmar.

Third, western fashion brands could reevaluate their sourcing strategy from Myanmar because of its recent coup. Notably, in a new study, we find that apparel sourcing is not merely about “competing on price.” Instead, fashion companies give substantial weight to the factors of “political stability” and “financial stability” in their sourcing decisions—reputation risk matters. The country’s latest political instability will hurt Myanmar’s attractiveness as an apparel sourcing base, given many other alternatives out there.

Further, the international community, including the US and the EU, is considering new sanctions against Myanmar. Should Myanmar lose its EU’s EBA eligibility or no longer enjoy duty-free access to its key apparel export markets, the country’s apparel exports could be among the biggest losers. Notably, it could be challenging for Myanmar to find an alternative apparel export market during the pandemic. (for example, only 1.3% of Myanmar’s apparel exports went to China in 2019).

By Sheng Lu

Further reading: