The Globotics Upheaval: Globalization, Robotics, and the Future of Work

Key points

  • “Globotics” or Globalization + Artificial intelligence (AI) is changing the world. Globotics means globalization mixed with new kinds of robotics, from artificial intelligence to technologies that make it easier to outsource services jobs. Particularly, globotics is injecting pressure into our socio-politico-economic system (via job displacement) faster than our system can absorb it (via job replacement). Overall, AI and robots will take jobs — but make the world better.
  • Past globalization and automation were mostly about goods— making them and shipping them. However, the era of globotics is about service-sector automation—driven by information and data.
  • The competition from software robots and telemigrants will seem monstrously unfair to white collar works who lost their jobs. When white-collar workers start sharing the same pain [as blue-collar workers], some sort of backlash is inevitable.
  • As technologies reduce the need for face-to-face contact, some developing nations stand to benefit. For example, India, with its sizeable English-speaking population and armies of techies, could become a hub for services outsourcing, just as China was for manufacturing.
  • Future jobs (that are left) will be more human and involve more face-to-face contact since software robots and tele-migrants will do everything else. In other words, the future economy will be more local and more human.
  • The problem is the short-term. In the era of globotics, it is important to make the rapid job displacement politically acceptable to a majority of voters. Governments may set the policy goal to protect workers, not jobs.

Outlook 2019: Apparel Industry Issues in the Year Ahead

In January 2019, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2019–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. Any comments and suggestions are more than welcome!

1: What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2019, and why?

In my view, uncertainty will remain the single biggest challenge facing the apparel industry in 2019, ranging from a more volatile global economy, the unpredictable outlook of the U.S.-China trade talks to the various possible scenarios of Brexit. While uncertainty creates exciting new research opportunities for scholars like me, it could be a big headache for companies seeking a foreseeable market environment to guide their future business plan and investments. 

Meanwhile, the increasing digitalization of the apparel supply chain based on big-data tools and artificial intelligence (AI) technologies means a huge opportunity for fashion companies. Indeed, the apparel industry is quickly changing in nature—becoming ever more globalized, supply-chain based, technology-intensive and data-driven. Take talent recruitment as an example. In the 2018 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), as much as 68 percent of surveyed leading U.S. fashion brands and apparel retailers say they plan to increase hiring of data scientists in the next five years. Googling “apparel industry” together with terms such as “big data” and “data science” also returns much more results than in the past. It is hopeful that the advancement of digital technologies and the smarter use of data will enable apparel companies to overcome market uncertainties better and improve many aspects of their businesses such as speed to market, operational efficiency and even sustainability.

2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2019, and what can apparel firms and their suppliers do to stay ahead?

Based on my research, I have three observations regarding apparel companies’ sourcing trends and the overall sourcing landscape in 2019:

First, apparel companies overall will continue to maintain a diverse sourcing base. For example, in a recent study, we examined the detailed sourcing portfolios of the 50 largest U.S.-based apparel companies ranked by the Apparel Magazine. Notably, on average these companies sourced from over 20 different countries or regions using more than 200 vendors in 2017. Similarly, in the 2018 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), we also found companies with more than 1,000 employees typically source from more than ten different countries and regions. Since no sourcing destination is perfect, maintaining a relatively diverse sourcing base allows apparel companies to strike a balance among various sourcing factors ranging from cost, speed, flexibility, to risk management.

Second, while apparel companies are actively seeking new sourcing bases, many of them are reducing either the number of countries they source from or the number of vendors they work with. According to our study, some apparel companies have been strategically reducing the number of sourcing facilities with the purpose of ensuring closer collaborations with their suppliers on social and environmental compliance issues. Some other companies are consolidating their sourcing base within certain regions to improve efficiency and maximize productivity in the supply chain. Related to this trend, it is interesting to note that approximately half of the 50 largest U.S. apparel companies report allocating more sourcing orders to their largest vendor in 2017 than three years ago.

Third, nearshoring or onshoring will become more visible. Take “Made in the USA” apparel for example. According to the 2018 U.S. Fashion Industry Benchmarking Study, around 46 percent of surveyed U.S. fashion brands and apparel retailers report currently sourcing “Made in the USA” products, even though local sourcing typically only account for less than 10 percent of these companies’ total sourcing value or volume. In a recent study, we find that 94 out of the total 348 retailers (or 27 percent) sold “Made in the USA” apparel in the U.S. market between December 2017 and November 2018. These “Made in the USA” apparel items, in general, focus on fashion-oriented women’s wear, particularly in the categories of bottoms (such as skirts, jeans, and trousers), dresses, all-in-ones (such as playsuits and dungarees), swimwear and suits-sets. The advantage of proximity to the market, which makes speedy replenishment for in-season items possible, also allows retailers to price “Made in the USA” apparel substantially higher than imported ones and avoid offering deep discounts. Looking ahead, thanks to automation technology and consumers’ increasing demand for speed to market, I think nearshoring or onshoring, including ”Made in the USA” apparel, will continue to have its unique role to play in fashion brands and retailers’ merchandising and sourcing strategies.

3: What should apparel firms and their suppliers be doing now if they want to remain competitive further into the future? What will separate the winners from the losers?

2019 will be a year to test apparel companies’ resources, particularly in the sourcing area. For example, winners will be those companies that have built a sophisticated but nimble global sourcing network that can handle market uncertainties effectively. Likewise, companies that understand and leverage the evolving “rules of the game”, such as the apparel-specific rules of origin and tariff phase-out schedules of existing or newly-reached free trade agreements, will be able to control sourcing cost better and achieve higher profit margins. Given the heavy involvement of trade policy in apparel sourcing this year, companies with solid government relations should also enjoy unique competitive advantages. 

On the other hand, as apparel business is changing in nature, to stay competitive, apparel companies need to start investing the future. This includes but not limited to exploring new sourcing destinations, studying the changing consumer demographics, recruiting new talents with expertise in emerging areas, and adopting new technologies fitting for the digital age. 

4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2019 to be better than 2018, and why?

Two things are at the top of my watchlist:

First, what is the future of China as an apparel sourcing base? While external factors such as the U.S.-China tariff war have attracted most of the public attention, the genuine evolution of China’s textile and apparel industry is something even more critical to watch in the long run. From my observation, China is playing an increasingly important role as a textile supplier for apparel-exporting countries in Asia. For example, measured by value, 47 percent of Bangladesh’s textile imports came from China in 2017, up from 39 percent in 2005. Similar trends are seen in Cambodia (up from 30 percent to 65 percent), Vietnam (up from 23 percent to 50 percent), Pakistan (up from 32 percent to 71 percent), Malaysia (up from 25 percent to 54 percent), Indonesia (up from 28 percent to 46 percent), Philippines (up from 19 percent to 41 percent) and Sri Lanka (up from 15 percent to 39 percent) over the same time frame. A key question in my mind is how quickly China’s textile and apparel industry will continue to evolve and upgrade by following the paths of most other advanced economies in history.

Second, how will the implementation of several newly-reached free trade agreements (FTAs) affect the big landscape of apparel sourcing and the existing regional apparel supply chains? For example:

  • The newly-reached U.S.-Mexico-Canada Free Trade Agreement (USMCA or commonly called NAFTA2.0) includes several interesting changes to the textile and apparel specific rules of origin provisions, such as the adjustment of the tariff-preference level (TPL) mechanism. Whether these changes will boost textile and apparel production in the Western-Hemisphere and attract more sourcing from the region will be something interesting to watch.
  • The implementation of the Comprehensive and Progressive Agreement of the Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) will allow Vietnam to get access to nearly 40% of the world apparel import market (i.e., EU + Japan) duty-free. However, restrained by the country’s relatively small population, the apparel industry is increasingly facing the challenge of competing for labor with other export-oriented sectors in Vietnam. Realistically, what is the growth potential of apparel “Made in Vietnam” after the implementation of CPTPP and EVFTA?
  • In 2017, close to 80% of Asian countries’ textile imports came from other Asian countries, up from around 70% in the 2000s. Similarly, in 2017, 85.6% of Asian countries’ apparel imports also came from within the region. The negotiation of the Regional Comprehensive and Economic Partnership (RCEP) is likely to conclude in 2019, whose membership includes member states of the Association of Southeast Asian Nations (ASEAN) and other six economies in the Asia-Pacific region (Australia, China, India, Japan, South Korea and New Zealand). Will RCEP result in an ever more integrated Asia-based textile and apparel supply chain and make the Asia region even more competitive as an apparel sourcing destination?  

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Automation Comes to Fashion

Video Discussion Questions:

#1 Why do you agree or disagree with the video that automation will post a significant challenge to garment workers in developing countries such as Bangladesh? How should policymakers react to the challenges?

#2 Can automation be a permanent solution to the social responsibility problem in the garment industry?

#3 In your view, how will automation affect the big landscape of apparel sourcing and the patterns of world textile and apparel trade?

#4 Why or why not do you anticipate a sizable return of apparel manufacturing to the United States if apparel production can be largely automated?

Additional reading: The robots are coming for garment workers. (WSJ, 2018)

Please feel free to share your views and join our online discussion!

Outlook 2018: Apparel Industry Issues in the Year Ahead

Outlook 2019: Apparel Industry Issues in the Year Ahead is available 

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In January 2018, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2018–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. All suggestions and comments are most welcome!

1. What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2018, and why?

One of the biggest opportunities facing the apparel industry in 2018 could be the faster growth of the world economy. According to the International Monetary Fund (IMF), the global growth forecast for 2018 is expected to reach 3.7 percent, about 0.1 percent points higher than 2017 and 0.6 percent points higher than 2016. Notably, the upward economic growth will be broad-based, including the United States, the Euro area, Japan, China, emerging Europe and Russia. Hopefully, the improved growth of the world economy will translate into increased consumer demand for clothing in 2018.

Nevertheless, from the macroeconomic perspective, oversupply will remain a significant challenge facing the apparel industry in 2018. Data from the World Bank and the World Trade Organization (WTO) shows that, while the world population increased by 21.6 percent between 2000 and 2016, the value of clothing exports (inflation-adjusted) surged by 123.5 percent over the same period. Similarly, between 2000 and 2016, the total U.S. population increased by 14.5 percent and the GDP per capita increased by 22.2 percent, but the supply of apparel to the U.S. retail market surged by over 67.8 percent during the same time frame. The problem of oversupply is the root of many challenges faced by apparel companies today, from the intense market competition, pressure of controlling production and sourcing cost, struggling with excessive inventory and deep discounts to balancing sustainability and business growth.

2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2018, and what can apparel firms and their suppliers do to stay ahead?

The 2017 US Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA) earlier this year, provides some interesting insights into companies’ latest sourcing strategies and trends. Based on a survey of 34 executives at the leading U.S. fashion companies, we find that:

First, most surveyed companies continue to maintain a relatively diversified sourcing base, with 57.6 percent currently sourcing from 10+ different countries or regions, up from 51.8 percent last year. Larger companies, in general, continue to have a more diversified sourcing base than smaller companies. Further, around 54 percent of respondents expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; over 60 percent of those expecting to diversify currently source from more than 10 different countries or regions already. Given the uncertainties in the market and the regulatory environment (such as the Trump Administration’s trade policy agenda), companies may use diversification to mitigate potential market risks and supply chain disruptions due to protectionism.

Second, although U.S. fashion companies continue to seek alternatives to “Made in China” actively, China’s position as top sourcing destination remains unshakable. Many respondents attribute China’s competitiveness to its enormous manufacturing capacity and overall supply chain efficiency. Meanwhile, it is interesting to note that the most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many” (i.e. China typically accounts for 30-50 percent of total sourcing value or volume, 11-30 percent for Vietnam and less than 10 percent for other sourcing destinations). I think this sourcing model will likely to continue in 2018.

Third, social responsibility and sustainability continue to grow in importance in sourcing decisions. In the study, we find that nearly 90 percent of respondents give more weight to sustainability when choosing where to source now than in the past. Around 90 percent of respondents also say they map their supply chains, i.e., keeping records of name, location, and function of suppliers. Notably, more than half of respondents track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e., supplier’s suppliers. However, the result also suggests that a more diversified sourcing base makes it more difficult to monitor supply chains closely. Making the apparel supply chain more socially responsible, sustainable and transparent will continue to be a hot topic in 2018.

3: What should apparel firms and their suppliers be doing now if they want to remain competitive further into the future? What will separate the winners from the losers?

I assume many experts will suggest what apparel firms should change to stay competitive into the future. However, the question in my mind is what should companies keep doing regardless of the external business environment? First, I think companies should always strive to understand and impress consumers and control their supply chains. Despite the growing popularity of e-commerce and the adoption of transformative new technologies, the fundamental nature of apparel as a buyer-driven business will remain the same. Second, companies should always leverage their resources and stay “unique,” no matter it means offering differentiated products or value-added services, maintaining exclusive distribution channels or keeping the leadership position in a particular niche market. Third, apparel firms should always follow the principle of “comparative advantage” and smartly define the scope of their core business functions instead of trying to do everything. Additionally, winners will always be those companies that can take advantage of the mega-development trends of the industry and be willing to make long-term and visionary investments, both physical and intangible (such as human talents).

4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2018 to be better than 2017, and why?

I think the apparel industry should keep a close eye on the following issues in 2018:

  • The destiny of the North American Free Trade Agreement (NAFTA): The potential policy change to NAFTA means so much to the U.S. textile and apparel industry as well as suppliers in other parts of the world. Notably, through a regional textile and apparel supply chain facilitated by the agreement over the past 23 years, the NAFTA region has grown into the single largest export market for U.S. textile and apparel products as well as a major apparel sourcing base for U.S. fashion brands and retailers. In 2016, as much as half of U.S. textile and apparel exports went to the NAFTA region, totaling US$11billion, and U.S. apparel imports from Mexico and Canada exceeded US$3.9billion. Understandably, if NAFTA no longer exists, sweeping changes in the trade rules, such as import duties, could significantly affect the sourcing and manufacturing behaviors of U.S. textile and apparel companies and consequentially alter the current textile and apparel trade patterns in the NAFTA region. For example, Mexico’s focus on basic apparel items suggests that U.S. importers could quickly source from elsewhere if duty savings under NAFTA are eliminated.
  • The possible reaching of the Regional Comprehensive Economic Partnership (RCEP): Even though RCEP is less well-known than the Trans-Pacific Partnership (TPP), we should not ignore the potential impact of the agreement on the future landscape of textile and apparel supply chain in the Asia-Pacific region. One recent study of mine shows that the RCEP will lead to a more integrated textile and apparel supply chain among its members but make it even harder for non-RCEP members to get involved in the regional T&A supply chain in the Asia-Pacific. This conclusion is backed by the latest data from the World Trade Organization (WTO): In 2016, around 91 percent of Asian countries’ textile imports came from other Asian countries, up from 86 percent in 2006. The more efficient regional supply chain as a result of RCEP will further help improve the price competitiveness of apparel made by “factory Asia” in the world marketplace. Particularly in the past few years, textile and apparel exports from Asia have already posted substantial pressures on the operation of the textile and apparel regional supply chain in the Western Hemisphere.
  • Automation of apparel manufacturing and its impact on the job market: Recall my observations at the MAGIC this August, several vendors showcased their latest technologies which have the potential to automate the cut and sew process entirely or substantially reduce the labor inputs in garment making. The impact of automation on the future of jobs is not a new topic, but the apparel industry presents a unique situation. Globally, over 120 million people remain directly employed in the textile and apparel industries today, a good proportion of whom are females living in poor rural areas. According to the World Trade Organization (WTO), for quite a few low-income and lower-middle income countries such as Bangladesh, Gambia, Pakistan, Madagascar, Sri Lanka, and Cambodia, as much as over 70 percent of their total merchandise exports were textile and apparel products in 2016. Should these labor-intensive garment sewing jobs in the developing countries were replaced by machines, the social and economic impacts will be consequential. I think it is the time to start thinking about the possible scenarios and the appropriate policy responses.

The State of the Apparel Supply Chain

  • What is the biggest hurdle to “speed to market”?
  • What’s more important these days? Dollars or days?
  • Is mass customization a nice to have or a need to have?
  • How are companies fostering better partnerships with vendors?
  • How much has your company been impacted by the “Trump effect”?
  • Industry buzzwords: Amazon, sustainability, digitalization, transparency, on-demand manufacturing, data analytics.
  • How well are companies executing on their data?
  • 2017 is the year of _________? And What will 2018 be known for?

2015 Top Markets Report for Technical Textiles and Apparel Released

technical textiles

The U.S. Department of Commerce recently released its first-ever market report for technical textile and apparel, covering product categories including: non-wovens, specialty and industrial fabrics, medical textiles and protective apparel. According to the report:

  • The U.S. exports of technical textiles totaled $8.5 billion or 46% of U.S. textile mill product exports in 2014.
  • By size, the top 10 export markets for U.S. technical textiles from 2015 to 2016 include: Mexico, Canada, China, Germany, Japan, Hong Kong, United Kingdom, Belgium, Brazil and Honduras.
  • North America is the largest regional consumer of technical textiles due to the presence of the majority of end-use industries. Europe and Asia Pacific follow North America in terms of current consumption; however, development in emerging markets including India, China, Japan, Korea and Taiwan is expected to increase overall technical textile demand. Among the best prospect in the emerging markets for U.S. companies are Vietnam, India, Taiwan and Brazil.
  • Major challenges facing U.S. technical textile exports include: 1) trade protection such as high tariffs and non-tariff barriers, such as import license requirements; 2) foreign competition and continual investment in research and development in many developing countries; and 3) lack of transparency by foreign customs agencies which could slow the flow of trade and lead to processing delays.

Eight country studies are provided by the report, including: Brazil, Canada, China, India, Korea, Mexico, Taiwan and Vietnam.

The full report can be downloaded from HERE.

The German Textile and Apparel Industry supports T-TIP?

Discussion:

  • Why do you think the German textile and apparel (T&A) industry supports the Trans-Atlantic Trade and Investment Partnership (T-TIP)? Should they?
  • Should the U.S. textile industry worry about the competition from Germany after T-TIP?
  • What strategy should the U.S. textile industry adopt in response to T-TIP?

Background: the German textile and apparel industry

  • Similar as the case in the United States, the German T&A industry has significantly shrunk in size over the past few decades. In particular, employment and total industry output were only a fraction of what they were in the past.
  • At the same time, the German T&A industry has undergone tremendous structural changes. While most simple production has gone overseas, German companies remain global leaders in the technical textile sector. Statistics show that the production of technical textiles in Germany went up by 40 percent from mid-1990s to 2011. Manufacturers of technical textiles in particular are benefiting from the increasing use of their products in new fields of application (e.g. vehicle construction, building industry, energy sector, medical technology and functional clothing).
  • Additionally, German T&A companies in general support trade liberalization. On one hand, imported T&A components are of great importance for German T&A companies to get access to needed raw material today. On the other hand, German T&A companies are eager to explore export opportunities in many fast-growing emerging markets in the world. In 2011, Germany’s top export market for textiles were Poland, France, Italy and Austria. The United States was the largest non-European export market. Germany’s largest export market for apparel in 2011 include Austria, Netherlands, France, Switzerland and Poland.

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