Working paper

Garment Suppliers Beware

The Global Garments Value Chain is Changing

Shahid Yusuf

December 2012

When citing this paper, please use the title and the following reference number: S-37044-PAK-1

GarmentSuppliersBewareTheglobalgarmentsvaluechainischanging

ShahidYusuf,ChiefEconomist,GrowthDialogue,GeorgeWashingtonUniversity,WashingtonDC

ABSTRACTThe industrial takeoff of countries as diverse as China and Mauritius is directlylinked to the growth and export competitiveness of their textile and garmentsindustries,andthissubsectorremainsthemainstayofPakistan,Bangladesh,andSriLankamore than three decades after the start of industrialization. Since themid1980s, buyer driven global value chains and production networks managed bybranded manufacturers from the advanced countries have channeled exportsmainlyfromdevelopingeconomiestomarketsintheEU,theU.S.andJapan.Fortheforeseeable future, these three will remain the focus of tradewith othermiddle-incomecountriesslowlyenlargingtheirimportshares.Buthighlyfragmentedvaluechains carrying the imprint of past trade agreements are changingbecauseof theending of theMFA/ATC, slowing growth in the advanced countries, rising South-South trade, shifts in consumer demand, turnover of producers, technologicaladvances on several fronts, and the efforts by lead firms to optimize their supplychainssoastoimproveservice,andminimizecostsandrisks.Withmanycountriesjostling to enlarge their share of the exportmarket, the pressure on suppliers inPakistan, Bangladesh and other low-income countries will intensify and only theproactiveandstrategicallymindedfirmsarelikelytogrowtheirbusinessesassistedbygovernmentpoliciesthatimprovethebusinessclimate,infrastructureandtradefacilitation.

ExecutiveSummaryGarmentsproductionisavitalindustrialactivityinmanydevelopingcountries.Itismoreover,amajorexportcommodityforAsiancountriesinparticularaswellasforthe EU. Given the variegated nature of technological change and the manyinnovationslikelytosweepthroughthegarmentsbusiness,theindustrycanremainadriverofproductivityandgrowth.But likemanyothermanufacturingactivities,the garments industry is in the throes of an upheaval and the global productionnetworksandbuyerdrivenvaluechainsthathavechanneledmuchofthetrade,arebeing streamlined and trimmed down in response to changes in: consumerdemands; theretailingbusiness; logisticscosts;andarevolution inmanufacturingitself.Itwouldappearinthelightofthepasthistoryanddynamicsofthegarmentsbusiness that incumbents, already tightlyhookedon to value chainswill have theupper hand even as the industry evolves and chains are transformed. Lowwageswill be of diminishing importance, instead, skills and technological capabilities,investmentinmodernproductionfacilities,andthequalityoftheinfrastructurewilldeterminewhichcountriesremainaschainparticipantsandincreasetheirshareofthevalueaddedthroughdesignandbranddevelopment.Arobustglobaleconomywill allow for new entrants that participate in possibly realigned global chains;sluggish performance – and with it trade frictions – could lead to heightenedcompetitive pressures, forcing incumbents to struggle to maintain shares andmakingitmuchharderfornewcomerstogainafoothold.The smooth functioning of buyer driven supply chains will depend on severalfactorsofwhichthreehavebeenrepeatedlyunderscored: theresourcefulnessandmultifaceted capabilities of the buyer to manage, design, transfer technology,market and create a governance structure that consistently delivers the desiredresults.VeteranbuyerssuchasWal-Mart,Target,M&S,Zaraandothersknowthiswell enough and their survival depends on ceaseless effort at anticipating andrespondingtofickledemand,promotinginnovation,containingcostsanddeliveringquality.Fortheforeseeablefuturethebignamesseemcomfortablyensconcedatthetopoftheirrespectivechainsandnetworks.Thebiggerissuesareelsewhere:thesearethenationalandfirmleveldeterminantsofcompetitivenessinasupplychaincontext.Thechecklistofnationalissuesislongand only a few items deserve rehearsing. Macroeconomic stability (a function ofbenign politics as much as of good policies) and a business environment witheffectiveinstitutionalchecksonrentseeking,helptoreduceuncertainty,encourageentrepreneurshipandstimulateinvestmentinmodernproductionfacilities.Movingupthegarmentsvaluechainisimpossiblewithoutcontinualinvestmentinstateofthe art equipment andprocesses and such investment is scarcewhenuncertaintyandrentseekingisrampant.Among the weakest links in a supply chain within developing countries, is thephysicalinfrastructure–hardandsoft.Poorlandtransportandportinfrastructures

and security breaches that lead to pilferage and jeopardize the timely delivery ofgoods, increasecosts, eat intonarrowmarginsanddiscouragebuyers. InadequateanderraticpowersuppliesarethebaneofgarmentfactoriesthroughoutdevelopingAsia. Yet neglect remains widespread while suppliers plead, governments dither,and export opportunities are lost to others. Considering the stakes, the amountsinvolvedarenotexcessive,but thegapsarebeingclosed ifatallmuchtooslowly.Strengthening supply chains for leaner times demands urgent attention to theseinputs. Behind the border trade facilitation and supply chain security, is anotherbottleneck that needlessly compromises the health of core industrial activitycountriesandmillionsofworkersrelyupon.Waysofsweepingawaythesandthatcauses friction in trade channelsarewellknown to the stakeholdersbutdoing sorequires governments to take up cudgelswith vested interests and do awaywithentrenched practices. Themechanics of reforming trade facilitation are relativelystraightforward; the socio-politics of reform can be forbidding. Governments thatwant to see their firms enlarge their presence in supply chainswill findways ofgraspingthenettle.Thosethatdonotwillseetheirsharesinavaluabletradeshrink.Formany value chain suppliers, especially the second tier ones, access to financecanbeaconstraint.Evenlargerfirmscanbeforcedtolivedangerously.Fullpackagebusiness involves substantial up front purchases of fabric and othermaterial fortrimandpackagingandfirmsinthisgamerequirea fundofworkingcapital.Thusthe state of domestic and perhaps more importantly, local financial markets canaffect the ability to respond to orders as andwhen they arrive. And it is not justworking capital that matters: successful firms are those that keep abreast ofadvances in technologyandmake theneeded investments inbothequipmentandplant.Anindustry,whichisstarvedofcapital,risksbeingmarginalizedinthesupplychain. Much like an unreliable power supply can result in lost business, aninadequate banking systemor one that neglects the needs of supply chain boundfirms, can stifle the deepening of the garments sector via clustering and valueaddition.Fortoolong,thegarmentssubsectorhasbeenviewedasalow-tech,unskilledlabor-intensive activity, surviving on cheap predominantly female labor and inured tohigh turnover. But as indicated above, the industry is undergoing a technologicalrenaissanceandthemorecompetitivefirmswillbethosethatharnessnewdesignproductionandITtechnologiesandmatchthesewithamoreskilledworkforce.Theleading top tier forms are alreadymoving in this direction but for the rest, a seachange is required in hiring, compensation and in-house training practices. Butthesealonewillbeinsufficientintheabsenceofpublicandprivateinitiativestosetupeffectivevocationaltrainingfacilitiesthatinculcateabaselevelofskills,buildingonadequatefoundationofprimaryandmid-levelschooling.Climbingupthevaluechainwillbeimpossibleifthequalityoftheworkforceisnotimprovedandfirmsdonot takesteps toretainqualifiedworkers.LeadingproducersofgarmentssuchasChina and Turkey have successfully built up the infrastructure of vocational anddesigninstitutionsandsupportingresearchfacilitiesandtightenedtheirlinkswithglobalretailers.IfPakistan,Bangladesh,SriLankaandVietnamwantalargerpiece

ofthesupplychain,theyneedtodoasmuchifnotmoreespeciallyiftheyseetheirmedium term industrialization remaining tied to the fortunes of the garmentsindustry.Augmenting workforce quality, strengthening the physical infrastructure andimproving the business climate can be strands of a strategy to create the urbanindustrial clusters that assist countries in enlarging and upgrading their roles innetworks and value chains. Cluster formation through glocalization triggered byparticipation in value chains is a means of accelerating industrialization as forinstance, inThailand.However, cluster formation is theendresultofanumberofoftenserendipitouseventsandurbanpolicyactions,anditcanrarelybeengineeredthrough policy alone, although policy can providemany of the preconditions thatcan lead to glocalization once a city becomes hooked on to a tendril of a supplychain.Governments – central and municipal - must do their share to ensure thecompetitivenessofgarmentproducersandassistthemtoupgrade,however,muchdepends upon the initiatives of firms themselves. High performing and valuedsuppliershavethreeattributes.Oneisthequalityofmanagementnotjustoffactoryoperationsbutalsoofthesupplychannelandlogistics–acomplementaryattribute.Quickreaction,managementpracticesstronglyinfluenceproductivity.Thisishardlysurprising but now this commonplace is undergirded by solid empirical evidencefrom textile plants in India. In the buyer driven supply chain context, goodmanagement counts for even more because the pressure to perform, to meetexactinginternationalstandardsandtobealivetomarkettrends,isfargreater.A second attribute is the emphasis a form places on quality, upgrading andtechnology,includingthefullharnessingofITforSCM(supplychainmanagement)purposes.Thisistiedinwiththevolumeandselectivityofinvestmentinthelatestequipment; the capacity to search for and absorb new technology; the attentiongiven to training of the workforce so as to maximize productivity and to qualitycontrol in order to reducewastage and achieve the best possible results; and theresources devoted to research and design so as to keep abreast of advanceselsewhereandtopromotein-houseinnovation.Asstatedearlier,thegarmentsectorisnolongeratechnologylaggard.AndtechnicaltextilesareshapinguptobeanR&Dintensive, high tech activity. Rising firmsmust do their ownR&D and collaboratewith other firms and research entities to develop products and processes.Governments can assist by supporting R&D through publicly sponsored research,grantsandtaxincentivesbutfirmsmustdomostoftheheavylifting.A third aspect of firmperformance that hasmoved to the center of internationalconcernistheadherencetocodesandregulationsgoverningworkplaceconditions,laborrightsandminimumwages.FactoryfiresinBangladesh,Pakistan,andChina,accounts of workers being harassed and forced to accept wages below the legalminimum, substandard if not dangerous working conditions, and long workinghours,havearousedresistanceinimportingnations.AlthoughWesternretailersand

brandmanufacturershaverespondedbyredoublingtheireffortsatmonitoringandcertification and by urging governments to enforce local regulations governingfactorywork,slippagesarefrequentbecauselocalenforcementishamstrungbythepoliticalcloutwieldedbyindustrialists.Thusmuchdependsuponthewillingnessoffirms to self-police and to work with the agencies hired by buyers to check onfactoryconditions.

GarmentSuppliersBeware:TheGlobalGarmentsValueChainisChangingThe origins of the modern industrial economy can be traced to a series ofinnovations in the manufacturing of cotton textiles, which began appearing fromearly in the eighteenth century. These innovations and the entrepreneurship thatpromptlyharnessedthemwereresponsiblefortheIndustrialRevolutionthatmadeBritain the world’s preeminent economic powerhouse1. The United States andEuropean nations, followed in Britain’s footsteps with textiles serving as thespringboardtoindustrialization.Now,morethanacenturyafterJapanalsoinitiatedthemodernizationofitseconomybyimportingwesterntextiletechnologiesandthefactory system, the textile and garment industry is still the primary industrialbuildingblock fordevelopingcountries (BrentonandHoppe2007).The industrialtakeoffofcountriesasdiverseasChinaandMauritiuscanbetracedtothegrowthand export competitiveness of their textile industries, and the textiles subsectorremains the mainstay of Pakistan, Bangladesh, and Sri Lanka more than threedecades2after the start of industrialization. Since the mid 1980s, developingcountries have dominated textile exports, however, nearly three quarters of allimportsofgarmentsarebytheEU,theU.S.andJapan,andfortheforeseeablefuture,these three will remain the focus of trade with other middle income countriesslowlyenlargingtheirimportshares.Thusmajorretailersandbrandedfirmsfromadvanced countries will continue to drive global supply chains albeit with manychanges in relations between buyers and suppliers resulting from shifts inconsumerdemand,turnoverofproducers,technologicaladvancesonseveralfronts,evolutionoftraderulesandrelationships,andtheeffortsbyleadfirmstooptimizetheir supply chains so as to improve service, andminimize costs and risks.Withmanycountriesjostlingtoenlargetheirshareoftheexportmarket,thepressureonsuppliersinPakistan,Bangladeshandotherlow-incomecountrieswillintensifyandonly the proactive and strategically minded firms are likely to grow theirbusinesses.

1JohnKayfiredthefirstshotbyinventingtheflyingshuttlein1733,whichincreasedtheproductivityofweaversmanifoldandledtothecreationoffactoriesinthe1740s.Thisresultedinimbalancesthattriggeredcomplementaryinnovationsthroughouttheproductionchainfromthegrowingofcottontotheproduction,distributionandmarketingoffinishedproducts.Hargreavesspinningjennyeasedtheconstraintsontheproductionofyarn.ItwasfollowedbyArkwright’swaterframe,Crompton’sspinningmule,theCartwright-Horrockspowerloom,Whitney’scottongin,Jacquard’sloom,highspeedsewingmachines,chemicaldyes,newmaterialsformakingbuttons,andmanyothersextendingthroughthenineteenthcenturyleadingtothemassproductionofreadymadeclothing.Innovationsontheproductionfrontwerematchedbyadvancesindistributionpromptedbythespreadofrailwaysandthetelegraphnetworkandtheriseofthewholesale-jobber,andinretailsalesthroughincreasedadvertisingthataddressedthegrowing,statusconscious,urbanmiddleclass,theemergenceofspecialtyanddepartmentstoresandmailordersales.Asteadyflowofproductandprocessinnovationscontinues,asdiscussedlaterinthepaper,andthemailorderbusinesshasbeenrevolutionizedbyonlinesalesandmarketingviatheInternet.2Pakistanbeganindustrializinginthelate1950s.

The purpose of this paper is to first take stock of global trends in the garmentstrade3andthecurrentstatusofglobalvaluechainsthathandlemuchofthetrade.Asecond objective is to take account of technological advances that are impinginguponthepattern,compositionandsourcingofgarmentsandtheopportunitiestheyarepresentingtofirmsindevelopinganddevelopedcountries.Thethirdobjectiveistoexaminehowthis isbeingaffectedby theongoingrestructuringofglobalvaluechains and of production networks A final objective is to summarize theimplications of these developments collectively for low-income countries such asPakistanatthelowerendofthefoodchain.Asthesubjectmatterisquitevast,thepaperwill concentrate on recentdevelopmentwith a bearingon the strategies ofsupplierfirmsandonpolicymaking.1.GarmentsTrade:IntheGlobalContextThe progressive dismantling of trade barriers and falling transport costs havecontributed to the rapid growth of global trade over the past half-century. Eventhough the financial crisisand theensuing recession in someof the leadingOECDcountries,causedtradetocontractin2009,recoverywasfairlyswiftin2010-2011withglobalexportsincreasingbyalmost14percentand5percentin2010and2011respectively4.Between2005and2010,merchandiseexportsroseby3.5percentperannum and those of manufactures by 4.0 percent per annum; as of 2010, globalmerchandise exports amounted to $14,851 billion of which $9,962 billion weremanufactures(WTO2011).Starting in the 1980s and gainingmomentum since, the share of export oriented,emerging economies has climbed steadily with East Asia at the forefront. Thisgeographicalredistributionoftradeflowswas–andis–stronglysupportedbythefragmentation of the production process, the offshoring of the labor intensiveelementsofproductionfromadvancedcountries,andbyverticalspecializationthathasservedtoembedmanufacturingactivitiesinanumberofdevelopingeconomies.Withrespecttothetextileandgarmentindustry(t&g),thegeographicaldispersionof manufacturing was reinforced by trade agreements that sought to restrictimports into the advanced countries by assigning export quotas to developingnations.Japanemergedasasupplieroftextilesandgarmentsinthe1940sfollowedbythefourEastAsianTigereconomiesinthe1960s.AspressuremountedonproducersinWestern countries, they introduced Short Term Arrangements limiting importsfrom Asia in July 1961, and these morphed into Long Term Arrangements some3Textileproductionandtradeisnotcoveredhere.Thatisaseparatetopicarea,textileproductionbeingmorecapitalintensive,subjecttoscaleeconomiesandrequiringtheefficientdeliveryofelectricity,waterandinfrastructureservicesandthecapacitytomanagecomplexmanufacturingprocesses(Abernathy,VolpeandWeil2006).4TheWTOestimatesthattradewillincreasebylessthan4percentin2012becauseofasluggishU.S.economy,thepersistingproblemsoftheEurozoneandtheslowingoftheChineseeconomy.http://www.wto.org/english/news_e/pres12_e/pr658_e.htm

years later.Arationalizationofsortswasarrivedatunderthe20yearMulti-FiberArrangement(MFA),whichcameintoeffectin1974,wherebytheUnitedStatesandotheradvancedeconomiesnegotiatedbilateralquotaswith themajorsuppliersoftextilesandgarments.TheMFAwassupersededby theAgreementonTextileandClothing(ATC)in1995,abyproductoftheUruguayRoundandcomplementedbyanumberofRegional/FreeTradeAgreementswiththeirowncomplexrules.TheATCfinally expired in 2005, however, forty five years of managed trade in t&gcontributed to a scattering of production across the developing world as leadingexporterstotheWestfirstexhaustedtheirownquotasandthenbeganestablishingproduction platforms in countries not subject to quotas orwith quotas to spare5.ThusacottongarmentsoldataWal-MartstoreintheU.S.cantraceacircuitouspathfrom its origins in a field inTexas, spinning andweaving operations inKorea, itsdesign in Germany, the cutting, trimming and making (CTM) of the garment inChina,anditsfinalpackagingandshippingthroughHongKong(Rivoli2005).It is no surprise therefore, that intra-industry trade and trade in intermediateproducts have been growing faster than trade in the aggregate and that thefragmentationprocesshasalsoencouragedgreater intraregional trade,withsomeproducts crossing nation boundaries a number of times as they move along thevalue chain. For developed economies, between 56 percent and 73 percent of alltradeisinintermediateproductsandtheycomprisethreequartersoftheimportsofChina and Brazil (Miroudot and others 2009; Ali and Dadush 20116). Over 70percentofEuropeantradein2010wasintraregional,53percentofAsiantradeandalmostone-halfofexports fromNorthAmericaweretomembersofNAFTA.Intra-regionaltradeinclothingalonewasvaluedat$97.6billioninEuropeand$41billionin Asia. It is also not surprising that this makes it hard to determine with muchprecision, the domestic value added in any one country along the chain that aproducttraverses7.GarmentsbulklargeintheexportsofSouthAsiancountriesbuttheyaccountedforonly 2.4 percent of global merchandise exports in 2010 ($351 billion) and 4.3percent of Asia’s exports ($200 billion). Between 2005 and 2010, exports ofgarmentsgrewgloballyata5percentperannumrateandAsianexportsincreasedat 8 percent per annum. At the global level, this ratewas a little slower than formanufacturesoverall (6percent). In theAsian context, garmentswere among theleast rapidly growing items, with only the exports of automotive productsexpanding more slowly. Over a 25 year period from 1985 to 2010, annualpercentageincreaseinexportsofgarmentsslowedfrom18percentin1985-90–aperiodwhenmanufacturedexportsinvirtuallyallmajorproductcategoriesgrewatdouble digit rates – to 5 percent in 1995-2000 and after increasing to 7 percent5ThisishowBangladesh,Mauritius,SriLankaandanumberCentralAmericanandAfricancountriesamongothers,becameproducersofgarments.WhenEastPakistanbecametheindependentnationofBangladeshitreceivedhalfofthequotathathadbeenassignedtoPakistan.6http://ideas.repec.org/p/oec/traaab/93-en.html;http://www.voxeu.org/article/rise-trade-intermediates-policy-implications7AlltradedataisfromtheWTOunlessotherwisespecified.

during2000-2005,hasreturnedtoitsearlierpace.Interestingly,withtheexceptionof chemicals – the exports of which grew at a 9 percent rate – export growth ofmanufactures were all in the 3-6 percent range in 2005-2010. Garments, widelyviewedasalow-techlaborintensiveandmaturecommodityhasnotdonebadlyatall and it has been a big money-spinner for China8, Bangladesh9, Mauritius andPakistan.By2010,Chinawas the leadingexporterofgarmentsbyawidemarginwitha37percent shareup from18.3percent in2000, theEUwas secondplacedwitha28percent share (unchanged from 2000) and Bangladesh, Turkey and India wereranked4th,5thand6threspectively.HongKongwas in thirdplace.Pakistanwas in12thplacewitha1.1percentsharenodifferentfromwhatitwasin2000.Amongthetop15exportingcountries,other thanChina,whichdoubled itsshare,Bangladeshincreaseditssharefrom2.6percentin2000to4.5percentin2010;Vietnamwentfrom0.9percentto3.1percent;andsmallgainsof0.2percentagepointseachwereregisteredbyTurkeyandIndiawith3.6percentand3.2percentsharesrespectivelyin2010.Sevenofthetop15countriessuffereddeclinesintheirsharesoftheglobalmarket,thebiggestlossesbeingincurredbytheUnitedStatesandMexico.Whatisparticularly notable is the high level of export concentration with the top fivedeveloping countries (China, Bangladesh, Turkey, India and Vietnam) responsiblefor51.3percentofallexports.KeytrendsinGarmentsTradeFlowsWhilemuchisbeingwrittenaboutthedecliningsalienceoftheEUandoftheU.S.inthe global economy – and of the parallel rise of China – the trade in garmentsremainswestern-centric andglobal supply chainshaveaNorth-Southorientation.TheEUandtheU.S.arethebiggestmarkets forexportersofgarmentsand importpenetration is in the90+percent range. SouthAsiancountries count themamongtheir top two tradingpartners for garments, and they export between45percent(India) and 88 percent (Bangladesh) of their garments to these two destinations.EvenChinasent36percentofitsgarmentexportstotheEUandtheU.S.Alesseningofdependenceon theWestover themedium term isunlikely (though itprobablywillinthelongerterm)withimplicationsdiscussedfurtherinthenextsection.Althoughintra-regionaltradeinAsiahaspassedthe$40billionmark–andalthoughthetradeingarmentshasoutpacedthetradeintextiles-muchofthistakestheformofsemi-processedgarmentsthataretransferredamongcountriessoastotakefulladvantage of labor cost differentials; of specialized expertise in some area ofmanufacturing, packaging or logistics; of movements in currency; and country

8Garmentscomprised8.2percentofChina’sexportsin2010asagainst14.5percentin2005.9Garmentsaloneaccountedfor79percentofBangladesh’sexportearningsin2011/12.Iftextilesareincluded,88percentofexportsemanatedfromthisonesector–anoverwhelmingdependence32yearsaftertheindustrytookroot.

specifictradepreferencesbasedonbilateralnegotiationsorRTAs10. Intime,Asiancountrieswill absorb larger volumes of finished ready-made garments from eachother,butthisislikelytooccurslowly.South-south trade has begun attracting attention and its share will continueexpanding as incomes rise and consumption by nascent middle classes finds itsstride.11Much of the trade is within Asia and 60 percent of the trade is inmanufactures, but there is increasing evidence of diversification. Asian exports ofgarmentstoAfricahaverisenatarapidclip–nearly20percent in2010–to$9.8billion, three times the level in 2000. Clothing exports to the Commonwealth ofIndependent States (CIS) have climbed steeply to $11.3billion and exports to theMiddle–Easthave trebled from$2.5billion in2000 to$8.4billion in2010.Theseare promising developments pointing to diversifying opportunities for producers,whichwill reorient global supply chains, modify the productmix, and encourageinnovationindesign,distributionandmarketing.GlobalValueChainsandProductionNetworksTherecenthistoryoftradeinmanufacturedcommodities is inextricablyboundupwiththeemergenceandelaborationofvaluechainsandglobespanningproductionnetworks.Theglobalizationofthegarmentsindustryandtrademovedintohighergear in the 1970s following the advent of lean retailing in the United States andwhile other factors played a role, retailers andbrandedproducers andmarketersbasedintheU.S.werethedriversoftheprocess.Fourfactorsmadeleanretainingalmostinevitable.Firstwasthevastproliferationofproductse.g.varietiesofshirts,thatretailersfoundthattheyneededtocarryasbuyersbecamemoreaffluent,styleconsciousanddiscriminating,advertisersmore ingenious,andnewentrantsmadethemarket farmore competitive. Second, the drastic compressing of product lifecyclesasbuyersbegan todemandand toexpecta frequent refreshingof fashionsmeantthatcarryinglargequantitiesofaperishableproductssuchasgarmentswashighlyriskyandcouldleadtostockoutsandlossmaking,discountedsales.Hence,anticipatingdemandandtailoringpurchasingdecisionsaswellinventories,roseinthescaleofpriorities.Thisimperativewasfacilitatedbyathirddevelopment,whichwas the spread of technologies that enabled retailers to track sales of individual10NotonlycanRTAs/PTAshelpcreateproductionnetworks,countriesthatarealreadyapartofnetworkscanenterintoPTAssoastodeepenandsecuretheirrelationshipswithothersasprovidersofintermediategoods.OreficeandRocha(2011,p.3)estimatethatPTAsthathavedeepenedtraderelationsbetweenmembersofproductionnetworkshaveincreasedtradebyupto35percent.However,theyalsopointoutthatthegarmentsindustryislessaffectedbecauseofhigherlevelsofstandardizationandalowerlevelofcapitalintensity.11In1985,high-incomecountriesaccountedforfourfifthsofglobaltrade,by2050theymayaccountforahalforless.(Hanson2012);http://unctad.org/en/PublicationsLibrary/webditctab2012d2_en.pdf;http://www.unctad.info/upload/TAB/docs/TechCooperation/South-SouthTrade/StatisticalAnnex.pdf;http://www.unctad.info/upload/TAB/docs/TechCooperation/South-SouthTrade/BackgroundNote.pdf

items identified by their bar coded, stock keeping units (SKU) at the checkoutcounter,monitorinventorywithinandamongstoresandreplenishitemsthatwerein demand from centralized distribution points.Wal-Martwas in the vanguard ofthe lean retailing revolution and the parallel advances in warehousing andinventory management12. It also was in the forefront of the effort to diversifysupplierssoastodrivedownitscostsandtomaximizeflexibilityofsupply13.Computerization (and electronic data interchange, EDI) and new IT tools helpedsystematizethecollectionofdetailedinformationonsales,improvedforecastingofdemand and served to streamline inventorymanagement14. But IT,which steeplyreducedcommunicationandtransmissioncosts,andbetterlogisticsalsofacilitatedthe efficient management of dispersedmanufacturing activities, the offshoring ofproduction,startingwithlowtechcommoditiessuchasgarments,andtheefficientsourcing of products frommultiple firms linked to the retailer by long electronicthreads.Thusthefunctionallyintegratedglobalvaluechainascurrentlyunderstoodwasbornandglobalproductionnetworking tookwing.Undoubtedlyother factorsalsoplayedapart, suchas trade liberalizationnotedabove,bigstrides in logisticsand the deepening of industrial capabilities in a number of East Asian economieswithout which globalization would have been anemic indeed. But the Americanconsumer, innovative retailers operating in a large and unusually competitivemarket and the advent of facilitating IT, were the forces that articulated andenergized value chains and made the global garments industry what it is today.Moreover,howthechainsevolve,willstronglyinfluencetheshapeoftheindustryinthefuture.Whatarethesebeastsandhowdotheywork?ThevaluechainconceptgrewoutoftheworkofMichaelPorterinthe1980s(Porter1985).Itrepresents“asequenceofrelatedanddependentactivitiesthatareneededtobringaproductoraservicefromconception, through the different phases of production, to delivery to finalconsumersandaftersalesservices,andfinallytodisposalorrecycling.”TheGVCiscomplemented by the global production network, which is constituted of“specialized independent enterprises, capturing complex relationships betweenfirmsthatareofsystemicnature…Itreflectsthefragmentationofactivitiesinsomevaluechains”,aresultoftechnologicalmodularizationthatpermitstheseparationofdesignandotherknowledgeintensiveordownstreamactivitiesfromtheproductionprocessandalsoallows for thedecompositionofproduction itself intospecializedoperations performed by independent producers in geographically removedlocations (UNIDO2004, p. 5-6). InevitablyGPNs andGVCsoverlapwithoneGPN12Otherfirms,suchasJCPenneyandSearswerealsoactive.Wal-Mart’suseofcross-dockingwhichminimizedthetimegoodsresidedinwarehouseswasasignificantinnovation.http://www.usanfranonline.com/wal-mart-successful-supply-chain-management/;http://www.ame.orgwww.ame.org/sites/default/files/target_articles/04-20-3-Crossdocking.pdf.MorerecentlytheuseofRFIDshascontributedtoincreasedefficiency.13Abernathyandothers(1999).14SeethecommentbyRobertBaldwin(2012)http://www.economist.com/economics/by-invitation/guest-contributions/supply-chains-changed-growth-model/print

contributing to several value chains as contract manufacturers frequently do.However, the distinctive characteristic of a GPN is that it comprises of aconstellation of tiered supplier firms15headed by a flagship retail buyer/brandleader e.g. Wal-Mart, C&A, Hugo Boss or Nike, a contract manufacturer e.g.Flextronics or Foxconn, or an a supply chain manager such as Li & Fung16thatdeterminesitsorganizationalarchitecture,strategicdirection,andgovernance.The utility of the GVC is that it enables lead buyers or suppliers with anencompassingviewofthechaintodeterminewhocreatesvalue,howmuch,whereitisdistributedalongthevaluechain,andhowsuchvaluecanbeenhancedthroughsuitableinnovationand/orinvestment.Garments,arelativelylow-techcommoditysubjecttocodifiedproductionprocesses,fallsinthedomainof‘buyerdrivensupplychains’ because here the retailer or branded firm can conduct arms lengthtransactions with numerous independent suppliers that are able to produce anddeliver according to the specifications. Producer driven supply chains involve themanufactureofmorecomplexproductsrequiringcloserlinkagesamongfirmswithaffiliatesofthe leadfirmservingaskeysuppliers.AlthoughfirmssuchasEsquel17maintain a vertically integrated albeit geographically dispersed system, mostgarmentvaluechainsarerelativelyfragmentedwithmanyindependentsuppliers.During thepast threedecades thespreadandelaborationofproductionnetworkscanbetracedtoparallel initiativesby lead firmsandbygovernments.The formerneededproductionplatformswheregarmentscouldbeproducedat leastcostandthey targeted countrieswith an elastic supply of lowwage labor andwith textilequotasand/orpreferentialaccess towesternmarkets.Meanwhilegovernments indeveloping countries, eager to promote industrializationwere on the lookout foravenues to exploit their comparative advantage in low-tech, labor-intensivemanufactures.ThusDaewooCorporationoftheRepublicofKoreahavingexhausteditstextilequotasoughtandfoundawellconnectedentrepreneur inBangladeshin1979, assisted him through technology transfer to set up Desh Garments andlaunched the Bangladesh garments industry – with the government providingincentives that reduced input and transaction costs. In Mauritius and China,governmentscreatedFreeTradeZonesandofferedapanoplyoftax,tradeandlandprice incentives and invested in infrastructure to attract garment manufacturers15ToptierfirmscanbetechnologicallymoresophisticatedandmaintaintheirownsmallscaleGPNsanddistributetheirordersamonganumberoflowerorderfirms,whichinturncandobusinesswithanumberofsuppliersbelongingtoothernetworks.RelationshipsinGPNscanbevertical,horizontalanddiagonal.16BasedinHongKong,Li&Fung,isaonestopshopforretailerssuchasTarget,designinggarmentsorganizingproductionthroughsubcontractswithsuppliersthroughoutEastAsiaandshippingthemtobuyersmainlyindevelopedcountries.Twothirdsofthetradingcompany’sbusinessisingarments.Recentlythecompany’sbusinesshasbeenhitbythedownturnandbyretailerspreferringtodealdirectlywithfullpackagesuppliersandODMs.17HongKongbased,family-ownedEsquelistheleadingglobalsupplierofmen’sshirtswithaverticallyintegratedset-upthatextendsallthewaytocottongrowingfarmsinXinjiang.http://www.esquel.com/en/;http://www.cotton247.com/article/1809/from-fiber-to-shirt-chinas-esquel-is-all-cotton

fromHongKong andTaiwanwhowere on the lookout for alternativeproductionsites not only because of quota issues but also because of risingwages.A pool oflocal entrepreneurial talent ensured thatFDI catalyzed theentryof locallyownedfirmsthatinitiallyservedassecondtiersubcontractorstoforeignfirms.Latersomeofthesefirmsenteredtheranksoffirsttiersuppliersintheproductionnetwork.Inotherwords,thepushtooffshoreproductionandthecapacitytomanagedispersedproduction plus the piecemeal and selective deconstruction of trade restrictionsfused with the industrial objectives of developing countries to create productionnetworksinalltheircurrentcomplexity.Successful networks have shared at least three characteristics. First networkparticipantshavebenefittedfromtechnologytransfersofallkindsthathaveraisedproductivity, response time to changing market demand, and time to market,thereby bolstering the collectively shared profitability of the network. Suchtechnology sharing includes process innovations that reduce wastage and raisequality; the introduction of products new to a firm; functional innovation thatmodifies the product mix; a repositioning of a supplier within a value chain inrecognitionofchangingcomparativeadvantage;andperhapsmostimportantly,thegerminationof innovationcapacitythatservestoavoidinstitutional lockingin(onwhichmorebelow). Second, thenetwork is anchored to anumberof clustersofproducersinadvantageouslocationswhichenjoylabormarketpoolingthatreducecommuting and job search costs, permit agglomeration specific knowledge andpermit technological spilloveradvantages.The localagglomerationgainsreinforcethose derived from the overarching global scale of networking activities, inparticular when a cluster acquires a host of input suppliers and encompasses alarger chunk of the value chain. Third, the most effective networks from theperspective of both lead firms and countries hosting clusters, are ones whereparticipating firms have been able to progressively upgrade, specialize, innovate,andmoveup thevalue chainbecoming fullpackage suppliersorbetter.AsYeung(2008, p.94) observes, “value chain specialization entails a more strategicallyfocusedroleplayedbythegloballeadfirmsintheupstream(R&D)anddownstream(marketing and distribution) segments of the value chain, leaving much of themanufacturingportionofthevaluechaintoitsinternationalstrategicpartnersandsupplychainmanagers.”Toapprehendwhatparticipationinanetwork,upgradingandmovingupthevaluechainimplyinpracticalterms,thevaluechainneedstobeviewedinitsentirety.Attheapexstandstheleadfirm,whichcanbeamassorspecialtyretailer–aTarget,anM&SoraMango; itcanbeabrandmarketersuchasPoloorDiesel;or itcanbeabrand manufacturer such as Hanesbrands or Zara. The lead firm deals with anumberof“fullpackagesuppliers”whichtakeresponsibilityfordeliveringareadyto be shelved product. These firms engage in the acquisition of fabric and trimmaterial, the basic cut-make-trim (CMT) operations, the laundering, pressing,packaging, quality checks, labeling andpricing (as specifiedby the lead firm) anddeliverytotheretailer’sdistributionwarehouse.Thefullpackagefirmcanconduct

itsownin-houseCMTworkoritcancontractsomeorallofthisactivitytosecondtierassemblersonthelowestrungofthevaluechain.OnerungabovethefullpackagefirmistheOwnDesignManufacturer(ODM),whichdoesitsowndesigningaswelltherebyrealizingadditionalvalue.AndafewofthemostenterprisingODMscanmakethetransitiontotheOwnBrandcategory(OBM)and eventually become apex firms in their own right with their own regional orglobal brand. Developing countries have all started out as assemblers doing CTMoperations on material provided by an apex firm or its first tier full packagesuppliers. Theyhave in time andwith thehelp of clustering, become full packagesuppliers.SuchfirmshaveproliferatedinBangladesh,Turkey,ChinaandtoalesserextentinPakistan.However,fewfirmshaveadvancedtotheODMstage–severalinTurkey and China, a small number in Bangladesh. OBMswith global brands fromdeveloping countries are a rarity. BecomingOBMs and creating their own globalvalue chains, is the challenge for the leading firms in the industrializing countriesand is probably the only avenue out of the low value adding upgrading trap thatcountriessuchasBangladesh,PakistanandSriLankaareinafterdecadesofservingasthefootsoldiersinwesternproductionnetworksandvaluechains.Technologicalchange in textiles and garments offers away forward but it involves a change inindustrialstrategy.2.InnovatingUptheValueChainThe lesson from the Japanese, Korean and Taiwanese experience for countries inSouthandSoutheastAsiaisthatthemanufactureofgarmentsisanimportantwaystationontheroadtodevelopment.Thisindustrycanbealaunchingpadanditcanremainonepartofasuiteofindustries,buttheindustrymustevolveanditneedstoprovide firms with the resources to diversify. In other words, garmentmanufacturersmustsettheirsightsonnotjustbecomingfullpackagesuppliersandeventually ODMs but in acquiring the technological capacity to absorb the mostadvanced technologies, thereby raising their productivity and manufacturing awider range of high value products offering much higher profit margins. Thebuildingofsuchcapacitycanleadintimetoinnovationcapabilitythatcanunderpinatransitiontofashiongarmentsaswellasintoarangeoftechnicaltextiles.Ideallytheinnovationcapabilitynurturedinthegarmentssectorcanthenbecomeavehiclefor diversifying into other manufactures and services with innovation helping tobuttress competitiveness. Governments can serve as handmaidens but firmsnecessarilymusttaketheleadastheydidthroughoutEastAsiabynurturingglobalambitions, setting ambitious targets, and devoting the managerial effort andresources to achieving them. Conventional wisdom has consigned garments andtextiles to the technologicalbackwaterbut theyare far frombeing technologicallystagnant and in fact there is tremendouspotential tobe tappedand technologicalprogressisunceasing.Many factors are influencing and will continue to affect the make-up andappearance of garments. The development of new materials is one big factor.

Already specialty clothing for the military, emergency workers and sportingactivities (swimming bicycling) has introduced a range ofmaterial to protect thebody(e.g.Kevlar,silk)andtostreamlineit.Nowbothinnerandoutergarmentsareincorporating polymers that can conduct electricity, respond to changes intemperature, humidity or the presence of biochemical substances andelectromechanicallychangethecharacteristicsofthegarment.Nanotechnologyandnewantibacterial compoundspermitmanufacturersof specialtyclothing tocreategarmentsthatreduceodor(usingsilvernanoparticles)18andbacteriathatcancauseskin ailments. New materials are also making it possible to produce disposablegarmentsandgarmentsthataremadeentirelyfrom“sustainable”materiallikethesuitdevelopedbyMarksandSpencerandusingtrimmingsmadefrombacteriostaticvegetablematterandeven fromfermentedwine19.Withclimatechangeandmuchgreater variability of theweather – “thewarming, spikeness, and smearingout oftheseasons,willcallforlayeredclothingoftraditionalstyles,materialsanddesign.Smartclothingthatismadeofintelligentmaterialswillbewornoverawiderangeof temperatures (Coates 2005, p.108-109)”. Digital technologies are makingcustomized–bespoketailoringintoarealityforthemassmarket.Withthehelpofbody scanners, producers of clothing can create garments for customers that areclose to a perfect fit. Two companies, Bodymetrics and Styku have developedscanners that can enable individuals to do fittings in stores equipped with theirscanners and then order products on line20. Coates (2005, p.109) observes, thatonce“information is in thedatabase,nomorevisits to thedepartmentorclothingstore [are] needed.” Tesco has introduced theAurasma app for smartphones thatofferstheuseranewandinteractiveexperiencewhenpurchasingapparelonline.AflavorofthetechnologicalproductofferingscanbegleanedfromrecentarticlesinTextilesInternational.Forexamplethereisafabricthatdispensesbodycreamsomewith “firming” properties and the capacity to reduce cellulite. There is a polymerthat can store or release heat allowing the garment to regulate the temperature.AnotherprocessinventedbyClariantInternationalhelpstomakeafabricsoftertothetouchandat thesametimewaterrepellantandwithgreatertearstrength.GEhasgoneastepfurtherbyintroducingawaterrepellantmaterialthatalsobreathesanddoesnotrequireapolyurethanefilm.Incontrast,TeijinFiberhasbroughtoutapolyester fabric that absorbsmoisture rapidlybut alsodriesoutquickly,which isgoodforsportswearandforuniforms.Forprotectiveclothingusablebymedicalandindustrialpersonnel,DarlingtonFabricshascreatedFastenAiranunusuallystrongandstretchablefabricthatcanbemadeodorfreeandwicksmoistureawayfromtheskin.And fromTexas21A&MandFRSafetyYarns comepolymer coatings tomakefabricflameresistant.ActivewearwillbeimprovedbyNilit’ssmooth,flexible,cool

18Otherantimicrobialtreatmentsforhometextilesarealsoavailable.19SeeTextileOutlookInternational(2012,September).20Thistechnologycouldminimizethenumberoftimespeoplehavetotryonclothingtodetermineifitfitsanditgreatlyeasesonlinepurchases.See“Bodyscannersofferperfectfitforreluctantonlineclothesshoppers”FinancialTimes,Sept15/16th2012,p.19.21TechnologyOutlookInternationalNo.157,August20

touch fabric that keeps thewearer comfotable because of aweave that enhancesventilation and the addition of titanium dioxide to the polymer. ColumbiaSportswear and Jensen Cycling have fielded similar “cooling” materials usingdifferenttechnologies.WhileajacketmarketedbyLiandCo.thatincorporateshighvisibilityLEDlights,willincreasethesafetyofmotorcyclists.Advances inmaterials, in customizingapparel, and inonlinepurchasingaregoinghandinhandwithparallelgainsintheproductionofgarments.AsystemdesignedbyDassaultSystemsgivestheuserthesoftwaretocollectinformationontrendsandtheCADcapabilitytoconstructaproductonatabletcomputerwithouthavingtogoto the trouble of creating a physical prototype. The software also allows for thetestingofdifferentfabrictypestocheckforthesuitabilityandtoseehowtheydrapeandperformwhenmovedandstretched.Thedesignandproductionofcustomizedclothing and items such a gloves and backpacks, will also be facilitated by a 3DscannerdevelopedbytheHohensteinInstitute.FurtherassistancecomesfromRealFormanewandhighlyrealisticmannequindesignedbyShapelyShadow.Actualproductionofclothingisbeingmademoreefficientandthequalityimprovedbynewmachineryforknitting,linking,pleating,decoratingandembroidering.Nowan entire garment can bemanufactured in one piece by a computerized knittingmachinewithouttheneedforlinking.Furthermore,beingseamless,thegarmentcandrape better and has greater structural integrity. High tech linking, pleating anddecorating machinery is taking some of the effort and drudgery out of theseactivitiesandalsoreducingthetimeneededtotrainoperators.Producersoffashiongarments,who losemillions eachyear at thehandsof counterfeiters, canbreatheeasily by incorporating specializedDNA into fibers and fabrics eachwith its ownuniquecodethatcanbedetectedbyspecializedscannersatborderentrypoints22.Overthemediumterm,e-textilesarelikelytosurfaceincreasinglyinspecializedandactivewear clothingwith electronics woven in. Already, garmentswith e-textilesinclude (Textile Outlook International April 2010, p.100) “interfaces with i-podsandmobile phones…andbattery recharging functions [and] thosewhichmonitorvitalphysiologicalsigns,suchasheartrate,temperatureandbloodpressure.”Theseand other technical textiles for construction, transport, packaging and protectiveclothing are the focus of intensive R&D activity and items that are likely to becommanding large markets. Recent trend rates of growth have been appreciablyfaster than forconventionalgarmentsand textilesand this is likely topersist.Forinstance,technicaltextilesaccountfor50percentoftheoutputoftheGermantextileindustryhavinggrownby40percentinrealtermssincethe1990s23.As Coates (2005, p.110) remarks, “Over the next generation, our clothes will bemorecomfortable,betterfitting,moredurableandeasiertocleanordiscard.Theywill also guard our health and safety, respond to the environment, improve our22SeeTextileOutlookInternationalNo.144,April2010.23DeutscheBankResearch,TextileandClothingIndustry,July13th2011.

workandrecreation,andcommunicatewithpeopleandthingsautomaticallyoratthewearer’sdiscretion”.ThisisstillsomeyearsawayandtraditionalclothingisnotgoingawaysocountriesinSouthAsiahavetime,however,iftheyaregoingtoholdon to garments and textiles as a leading sector, developing the technologicalcapacitytoanticipateandmeetemergingdemands,toinnovateandtoinvestinthemachinery and the IT hardware and software will be arguably the only way tosustaingrowth, climb thevalue chainand to generate the technological spilloversthat will promote other activities that leverage off technologies catering to thegarmentindustry.3.ShrinkingChainsDeepeningmanufacturingcapabilities,stimulatinginnovation,increasinglocalvalueaddedandenlargingtheshareoftechnicaltextilesistakingonagreaterurgencyforthe frontrunners because the nature of global value chains is being altered by anumber of developments most of which are incentivizing consolidation ofproductionin fewer locationsandby larger fullpackagesuppliersorODMs.Whilepredictinghowtheglobalproductionlandscapemightlooklikeadecadefromnowisalwayshazardous,thereareanumberofcluesastothedirectionofchange24.TheterminationoftheMFA/ATCandthegreaterliberalizationoftradehasdiminishedthe forcesacting todisperseproductionamong countriesnotmainlybecauseof acomparativeadvantageinthemanufactureofgarmentsbutbecausethesecountriesenjoyed preferential access. Such fragmentation involved costs and these wereborne because firms in quota constrained countries could see no other way ofexpanding market share. These forces are much weaker now although RTAscontinuetoexertapull.Countriesthathavenotgainedacomparativeadvantageinproducing garmentsduring their spell of infancy could see their industry atrophyand loosetheirplace in thevaluechain.Othersthatmighthaveattracted industrybecause of preferential trade arrangements may not do so. Economies enjoyingearly mover advantages that have built up a substantial domestic integratedproductionandtechnologicalcapacitiesaremorelikelytosurviveandthrive.ThusSouthandSoutheastAsianeconomieswouldappeartohavetheedgeoverAfricanandLatinAmericancountries.A second factor inducing value chain consolidation is scale and agglomerationeconomies, especially when these result in networked clusters with technologyabsorptive capacity. Industrial districts in Third Italy have long maintained theircompetitivenessandtheircapacity to innovatebecauseof interclusterknowledgeand I-O linkages. The appearance of such technologically absorptive clusters inChinaandtheirslownesstotakerootinPakistanandBangladeshpossiblyaccountsfortherapiditywithwhichChinamovedtotheforefrontofthegarmentsindustry–and in fact is beginning to borrow from and displace Italy in the production offashiongarments–whilePakistanwithalongheadstartcontinuestowallowinthelower reaches of the global value chain. Agglomeration can have a high and24SeeGereffiandFrederick(2010).

persistentproductivitypay-offandtooffsetrisingwagecoststosomeextent.Henceeven though wage pressures are mounting in China, Bangladesh, Vietnam andelsewhere in Asia, clustering effects, investment in the latest technologies andinnovation that responds to evolving market trends could lead to a greaterconcentrationofthegarmentvaluechaininAsia.Theceaselesseffortbybuyersandleadfirmstoreducetransactioncostsisathirdfactorthatchecksthegeographicaldispersionofavaluechainwhetherofgarmentsorothercommodities,andinfactmakesforleanervaluechains.Forleadfirmsandretailers, fragmentationcanundersomecircumstancesreducecostsbuthaving todeal with multiple suppliers is cumbersome, and time intensive, imposessupervisoryandmonitoringcosts(toensureadherencetostandards)andisataxonmanagement. Moreover, larger firms – often with a greater degree of verticalintegration-areusuallymoreproductiveandbetterabletorespondflexiblytothedemandsofretailersandleadfirms.Fewerandlargerfirmsinasmallernumberoflocations are preferable to many small geographically dispersed firms and theprevailingglobaltradingenvironmentisinducingatrimmingandreshapingofvaluechainsandnetworks.Complex and highly fractionated value chains materialized during an era of lowenergy and falling transport costs. That era is now past. Energy prices aremuchhigherand likely to rise furtherand theworrisomelyhigh carbonemissions fromsurface (and air) transport are a fourth factor undermining the economics ofdispersed production and especially so as ceaseless automation drives down theshareoflaborcostsevenintheproductionofgarments.Thusasystemthatrequiressemi-finished goods to crisscross national boundaries during the course ofproduction is increasingly unsuitable and particularly so as no significantinnovations in transports and logistics are on the horizon that could appreciablyreduce shipping costs. Insourcing from within the country or region is gainingcurrency in Europe with Marks and Spencer for example, overhauling its supplychain so as to cease inter-hemispherical purchases. Although garments were notaffected, the Fukushima tsunami in 2011 starkly highlighted the vulnerability ofsprawling supply chains, the risksposedby fragmentedproductionnetworks andthecriticalroleofcertainsuppliersofparts.25

25ThefloodingofafactoryownedbyRenesasproducingelectronicmicrocontrollersforautoenginesdrasticallyreducedautoproductioninJapanandelsewhere.Earlier,floodsinThailandhurtToyota’soperationsandalsothoseofharddiscdrivemanufacturerWesternDigital.However,supplychainparticipantswerequicktorespondtotheplightoftheRenesasplantinHitachinaka.Toyota,HondaandothercompaniesdispatchedhundredsofengineerstorestoreproductionwiththeresultthatbyJune2011productionrestartedandwasbacktopretsunamilevelsbySeptember.Clearlykeyproducersinasupplychaincancountonmassiveassistancefromleadfirmsinemergencies,whichdoesenhancetheintegrityofthechain.http://spectrum.ieee.org/semiconductors/processors/how-japanese-chipmaker-renesas-recovered-from-the-earthquake;http://www.ft.com/intl/cms/s/0/c531d416-bc6b-11e0-acb6-00144feabdc0.html#axzz2EOnZXsNM

Customizationandproductioninsmallerlotsonmuchshorterorderingcyclesandaconcomitantshifttowardsthefinalstagesofproductionclosertotheconsumer,isafifth factor streamlining value chains. As noted above, buyers inmiddle and highincomecountries thataccount for themajorityof salesaremorestyleandqualityconscious–andnolesscostconscious.Tomeetthisdemandandtodosospeedily–as Internet shoppers can be impatient – firmsmust not only be alert to shifts intrendsand fashionsandalso respond to thediffering requirementsofwhat is toooften a segmented clientele with older age groups comprising a growing share.Productionclosertothemarket;thecapacitytoproduceinsmalllotsatgreatspeed;ability to meet high standards of quality and delivery; ability to refresh fashionswith regularity and to go from design to production quickly using the newtechnologies have been gaining momentum, driving technological change andforcingvaluechainstopursuecompactness26.Itisunclearwhetherthispresagesareflux of production back to the advanced countries, but it can certainly dampenfurtheroffshoringandfragmentationofproduction.Last but not least, greater technological sophistication of processes and products,the increasing shareof technical textiles serving theneedsof other sectorsof theeconomyandthecross-disciplinarynatureofthetechnologiesthatarefeedingthe“new” garments industry, are likely to encourage greater R&D, closer linkagesbetweenfirmsandresearchinstitutesanduniversities,greaterinteractionbetweenequipment producers and end users, and hence the migration of garmentproductionbacktothemajorurbancenterswherethemarketsarelocatedandthefashions arise. In effect, technological change appears to be pointing towards anearlier era when value chains were highly compressed and largely concentratedwithintheconfinesofacorecity,asinNewYork27.There are countervailing factors atwork also. One is the increase in South-SouthtradeandrisingcostsinAsiathatcouldintimegeographicallyreorientproductionnetworksandtransfersomeproductiontoAfricancountriesforexample28.Inotherwords,asubsetoftheCTMoperationscouldmovetoAfricancountrieswithlowerlaborcostsandgrowingdomesticmarkets.WhetherAfricancountriesdobegin to26AsLantPritchetthasobserved(2012),Once“peoplegetrichertheproportionoftheirvaluethatisfrommaterialvalueaddedrelativetothatwhichisimmaterialfalls.Betweentheincreasingproportionof“cool”inconsumptionbasketsonthedemandsideandlaborsavingtechnologicalprogressonthesupplyside,thescopefornewcountryentrantsintotheproductionofstuffforrichcountrymarketsasagrowthstrategy,isnarrowing.”http://www.economist.com/economics/by-invitation/guest-contributions/rich-countries-can-only-buy-so-much-stuff27ThegarmentsdistrictinNewYorkwasjustlyfamousandinamuch-attenuatedformstillsurvives.Whetheritcouldberevivedbytechnologicalchangeandregainitsearlierscopeandvigorisamilliondollarquestion.http://www.nytimes.com/2012/08/02/opinion/long-live-the-garment-district.html?pagewanted=print;http://www.nbcnewyork.com/blogs/threadny/THREAD-Physical-History-of-the-Garment-District-118160474.html.ThegarmentsclusterinLosAngelesisalowtechvariant,whichalsocouldgrowifthewindsshift.http://en.wikipedia.org/wiki/Fashion_District_(Los_Angeles)28FirmsinChina,TurkeyandIndiaarealsofocusingmoreoftheirattentionontheirdomesticmarketsasexportprospectshavedimmed.(GereffiandFrederick2010).

figuremoreprominentlyintheglobalgarmentsupplychaindependsataminimumon the effective mobilization of labor for urban factory jobs and investment ininfrastructureandintradefacilitation.A second factor highlighted by the Fukushima disaster, the Thailand floodingreferred to above and the threat posed by political frictions that can interruptsupplies,isthedesirabilityofbuildingredundancyintoavaluechainbycultivatingmultiplesourcesofsupplyforcriticalitems.Thiscanbeexpensiveandmayonlybeneededifatallintheautoandelectronicsindustriesandthattooforafewspecificproducts,whicharemorelikelytobehightechandtheirproductionlocatedclosetothe lead firm/assembler rather than being sourced from a distant location. Onbalance, the likelihood of compaction seems, at this juncture, to be greater thanfurther fragmentation of value chains and of production networks. This isbuttressedbyI-ObasedresearchbyFally(2012)29,whichshowsthatproductionofgoods–evenstandardizedones–havebecomemorecomplexandtechnologicallysophisticated,theirproductionhasbecomelessverticallyfragmentedthanitwasin194730.4.ImplicationsofGVCTransformationforSouthAsiaA trend favoring lean supply chains, if it persists as would appear likely, has anumber of implications for existing suppliers and for nations aspiring to becomemembersofglobal supply chains/productionnetworks.For the latter, thebarhasbeenraised.Newcomerswillhavetomeetexactingstandardsofperformance,priceandqualityanddemonstratethattheycanoutdooratleastmatchthecapabilitiesofincumbents. Low labor costs alone will be increasingly insufficient given theevolution of technologies and market demand. Customization and efficientproduction in small lots is likely to be key. South-south trade will not make lifeeasier,infactonthecontraryasmarginswillbenarrower,marketpenetrationmoredifficult and the competition much harsher. African countries hoping to benefitfromoffshoringbyChinesesuppliers–ortheirlossofcompetitiveness–havetheirworkcutout.SlowinggrowthinOECDcountries31unlessoffsetbytheperformanceofotherswillputpressureonallsuppliers–existingandprospective.Ashakeoutofretailinginwesterncountriescouldresultinthedissolutionofsomesupplychains.Ofcourse,rapidgrowthofdevelopingcountriesandbuoyantSouth-Southtradefedbynewand realigned supply chains could salvage the situation for all concerned,but the probability of this scenario materializing is lower today than it was asrecentlyasfiveyearsagowhengrowthandtradewerebothbooming.29http://37.188.122.157/article/has-production-become-more-fragmented-international-vs-domestic-perspectives?quicktabs_tabbed_recent_articles_block=030Levine(2010,p.1)makesthepointthat“longchainsofproductionarevulnerabletofailureofasinglelink(and)whilelongchainspermitahighdegreeofspecializationandsoalargequantityofoutput,theyarealsomorepronetofailure.”AlsoseeWEF(2012,Pp.14-15).31ThefinancialcrisismayhavereinforcedtrendsdraggingdownthepotentialgrowthratesofthemajorOECDeconomiesintothe2percentandsub2percentrange.

Formajorsuppliersofgarments,whicharealreadypartofsupplychains,growthinvolumeandmoreimportantlyindomesticvalueadded,inaworldmarketthatmaybe expanding somewhat more slowly, will require a redoubling of efforts atenlarging technological, manufacturing and design capabilities plus other links inthesupplychainthathaveabearingoncompetitiveness.Thesmoothfunctioningofbuyer driven supply chains depends on several factors ofwhich three have beenrepeatedly underscored: the resourcefulness and multifaceted capabilities of thebuyer to manage, design, transfer technology, market and create a governancestructurethatconsistentlydeliversthedesiredresults.VeteranbuyerssuchasWal-Mart, Target, M&S, Zara and others know this well enough and their survivaldepends on ceaseless effort at anticipating and responding to fickle demand,innovation, containing costs anddelivering quality. For the foreseeable future thebig names seem comfortably ensconced at the top of their respective chains andnetworks.Thebiggerissuesareelsewhere:thesearethenationalandfirmleveldeterminantsofcompetitivenessinasupplychaincontext.Thechecklistofnationalissuesislongand only a few items deserve rehearsing. Macroeconomic stability (a function ofbenign politics as much as of good policies) and a business environment witheffectiveinstitutionalchecksonrentseeking,helptoreduceuncertainty,encourageentrepreneurship and stimulate investment in up to date production facilities.Movingupthegarmentsvaluechainisimpossiblewithoutcontinualinvestmentinstate of the art equipment and processes and such investment is scarce whenuncertaintyandrentseekingisrampant.Among the weakest links in a supply chain within developing countries, is thephysical infrastructure – hard and soft (Portugal-Perez andWilson 2012)32. Poorlandtransportandportinfrastructuresandweaksecurityincreasecosts33,eatintonarrowmarginsanddiscouragebuyers.Inadequateanderraticpowersuppliesarethe bane of garment mills throughout developing Asia. Yet neglect remainswidespread while suppliers plead, governments dither, and export opportunitiesare lost toothers.Considering thestakes, theamounts involvedarenotexcessive,butthegapsarebeingclosedifatallmuchtooslowly.Strengtheningsupplychainsforleanertimesdemandsurgentattentiontotheseinputs.Behindthebordertradefacilitation and supply chain security, is another bottleneck that needlesslythreatens the golden goose countries and millions of workers rely upon. Awarehouse full of studies have identified ways of sweeping away the sand thatcauses friction in trade channels but doing so requires governments to take up32TheWEF’sEnablingTradeIndex(WEF2012a)assignslowrankingstoalltheleadingdevelopingcountryexportersofgarments.Fromasampleof132countries,Chinawasranked56thin2012,Turkey62nd,Vietnam68thandBangladesh,IndiaandPakistan,lowerstill.Pakistanwasthelowestrankedat116thplace.Clearlythereismuchroomforimprovement.33AnacuteprobleminBangladeshwheretheroad/railtransportiscloggedandChittagongportishighlyinefficient.MckinseyandCo(2012).InlandlockedAfricancountries,onehalfofthetimebetweenwhengoodsleavethefactoryandarefinallyshippedoutisspentinports.Thecostofthiscargodwelltimeishigh(Raballandandothers2012).

cudgels with vested interests that profit from regulatory checks, and minimizereportingrequirements,theneedforclearances,andof(redundant)formfillingthatconfront the exporter (Grainger 2007). The mechanics of reforming tradefacilitation are relatively straightforward; the socio-politics of reform can beforbidding. Governments that want to see their firms enlarge their presence insupplychainswillfindwaysofgraspingthenettle.Thosethatdonotwillseetheirsharesinavaluabletradeshrink.For many suppliers, especially the second tier ones, access to finance can be aconstraint. Even larger firms can be forced to live dangerously. Full packagebusiness involves substantial up front purchases of fabric and othermaterial fortrimandpackagingand firms in thisgamerequirea fundofworkingcapital (BairandGereffi2001).Thusthestateofdomesticandperhapsmoreimportantly, localfinancial markets can affect the ability to respond to orders as and when theyarrive34.And it isnot justworkingcapital thatmatters: successful firmsare thosethat keep abreast of advances in technology andmake theneeded investments inboth equipment and plant. An industry, which is starved of capital, risks beingmarginalizedinthesupplychain.Muchlikeanunreliablepowersupplycanresultinlostbusiness,aninadequatebankingsystemoronethatneglectstheneedsofsupplychainboundfirms,canstiflethedeepeningofthegarmentssectorviaclusteringandvalueaddition.Fortoolong,thegarmentssubsectorhasbeenviewedasalow-tech,unskilledlabor-intensive activity, surviving on cheap predominantly female labor and inured tohigh turnover. But as indicated above, the industry is undergoing a technologicalrenaissanceandthemorecompetitivefirmswillbethosethatharnessnewdesignproductionandITtechnologiesandmatchthesewithamoreskilledworkforce.Theleading top tier forms are alreadymoving in this direction but for the rest, a seachange is required in hiring, compensation and in-house training practices. Butthesealonewillbeinsufficientintheabsenceofpublicandprivateinitiativestosetupeffectivevocationaltrainingfacilitiesthatinculcateabaselevelofskills,buildingonadequatefoundationofprimaryandmid-levelschooling.ClimbingupthevaluechainandenteringtheranksofODMsandOBMswillbeimpossibleifthequalityofthe workforce is not improved and firms do not take steps to retain qualifiedworkers. Leading producers of garments such as China and Turkey havesuccessfully built up the infrastructure of vocational and design institutions andsupporting research facilities and tightened their links with global retailers. IfPakistan,Bangladesh,SriLankaandVietnamwantalargerpieceofthesupplychain,they need to do as much if not more especially if they see their medium termindustrializationremainingtiedtothefortunesofthegarmentsindustry35.

34Whenlocalfinanceisscarce,suppliersbecomemoredependentonleadfirmsandbuyers.GereffiandFrederick(2010).35SeeFernandez-Starkandothers(2011).LeadingfirmsfromTurkeyandSriLankahaveestablishedofficesinafewwesterncitiessoastobeclosertotheirbuyersandtoworkwiththemondesignandproductdevelopment.

Augmenting workforce quality, strengthening the physical infrastructure andimproving the business climate can be strands of a strategy to create the urbanindustrial clusters that assist countries in enlarging and upgrading their roles innetworks and value chains. Cluster formation through glocalization triggered byparticipation in value chains is a means of accelerating industrialization as forinstance in the caseofThailand.However, cluster formation is theend resultof anumberofoftenserendipitouseventsandurbanpolicyactions,anditcanrarelybeengineered through policy alone, although policy can provide many of thepreconditions that can lead to glocalization once a city becomes hooked on to atendrilofasupplychain.Governments – central and municipal - must do their share to ensure thecompetitivenessofgarmentproducersandassistthemtoupgrade,however,muchdepends upon the initiatives of firms themselves. The supply chain literatureattachesthegreatestimportancetothreeattributesofhighperformingandvaluedsuppliers.Oneisthequalityofmanagementnotjustoffactoryoperationsbutalsoofthesupplychannelandlogistics–acomplementaryattribute.AsNickBloomandothers (2012) have shown most recently, quick reaction, management practicesstronglyinfluenceproductivity.Thisishardlysurprisingbutnowthiscommonplaceis undergirded by solid empirical evidence based on a survey of textile plants inIndia.Inthebuyerdrivensupplychaincontext,goodmanagementcountsforevenmorebecausethepressuretoperform,tomeetexactinginternationalstandardsandtobealivetomarkettrends,isfargreater.A second attribute is the emphasis a form places on quality, upgrading andtechnology,includingthefullharnessingofITforSCM(supplychainmanagement)purposes.Thisistiedinwiththevolumeandselectivityofinvestmentinthelatestequipment; the capacity to search for and absorb new technology; the attentiongiven to training of the workforce so as to maximize productivity and to qualitycontrol in order to reducewastage and achieve the best possible results; and theresources devoted to research and design so as to keep abreast of advanceselsewhereandtopromotein-houseinnovation.Asstatedearlier,thegarmentsectorisnolongeratechnologylaggard.AndtechnicaltextilesareshapinguptobeanR&Dintensive, high tech activity. Rising firmsmust do their ownR&D and collaboratewith other firms and research entities to develop products and processes.Governments can assist by supporting R&D through publicly sponsored research,grantsandtaxincentivesbutfirmsmustdomostoftheheavylifting.A third aspect of firmperformance that hasmoved to the center of internationalconcernistheadherencetocodesandregulationsgoverningworkplaceconditions,laborrightsandminimumwages36.FactoryfiresinBangladesh,Pakistan,andChina,

36ExportingcountriesarealsosubjecttorulesgoverninghumanrightsinOECDcountries.Pakistanforexample,standstoloosesomeofthetradeconcessionsgrantedbytheEUfollowingthefloods

accounts of workers being harassed and forced to accept wages below the legalminimum, substandard if not dangerous working conditions, and long workinghours, have aroused alarm in Western importing countries. Although Westernretailers and brandmanufacturers have responded by redoubling their efforts atmonitoringandcertificationandbyurginggovernmentstoenforcelocalregulationsgoverning factory work, slippages are frequent because local enforcement ishamstrung by the political clout wielded by industrialists37. Thus much dependsuponthewillingnessoffirmstoself-policeandtoworkwiththeagencieshiredbybuyerstocheckonfactoryconditions38.5.ConcludingObservationsThe production of garments is a vital industrial activity in many developingcountriesanditmaintainsasubstantialpresenceinadvancedeconomiesaswell.Itismoreover,amajorexportcommodityforAsiancountriesinparticularaswellasfor the EU. Given the variegated nature of technological change likely to sweepthroughthegarmentsbusiness,theindustryhasabrightfuture.Butlikemanyothermanufacturingactivities,thegarmentsindustryisinthethroesofanupheavalandtheglobalproductionnetworksandbuyerdrivenvaluechainsthathavechanneledmuchofthetrade,arebeingstreamlinedandtrimmeddowninresponsetochangesin consumer demands, the retailing business, logistics costs and a revolution inmanufacturingitself.Itwouldappearinthelightofthepasthistoryanddynamicsofthegarmentsbusiness that incumbents, already tightlyhookedon tovalue chainswillhavetheupperhandevenastheindustryevolvesandchainsaretransformed.Low wages will be of diminishing importance, instead, skills and technologicalcapabilities and the quality of the infrastructure will determine which countriesremain as chain participants and increase their share of the value added throughdesignandbranddevelopment.Arobustglobaleconomywillallowfornewentrantsthatparticipateinpossiblyrealignedglobalchains;sluggishperformance–andwithit trade frictions – could lead to heightened competitive pressures, forcingincumbents to struggle to maintain shares and making it much harder fornewcomerstogainafoothold.References

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