the value chain in t&c industries in domestic and international markets
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The Value Chain in T&C The Value Chain in T&C Industries in Domestic and Industries in Domestic and
International MarketsInternational Markets
The Role of SMEs in the T&C Industries; The Economics and Business of Fashion
Presentation by Presentation by
Mr. Matthias KNAPPEMr. Matthias KNAPPE
Caserta, Italy 30 November 2005Caserta, Italy 30 November 2005
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Technical cooperation arm of WTO and UNCTAD for Technical cooperation arm of WTO and UNCTAD for operational enterprise-oriented capacity building for operational enterprise-oriented capacity building for
trade promotion and export development.trade promotion and export development.
……for developing countriesfor developing countries
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Context:
Global T&C trade: 453 billion $ (clothing 258 bio $)
T&C: 7% of global merchandise trade
LDC share of world clothing trade: 5%
Many DCs & LDCs depend on clothing exports or regard clothing as a future export sector, but not the domestic maket
WTO: T&C is a normal sector
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Characteristics of T&C industry in DCs
• Most LDCs have no integrated T&C industry (clothing exports = 8 times textile exports)
• SMEs mainly produce clothing and not textiles
• Poor market diversification• Poor product diversification• Mainly CMT/maquila: « full-package » to be
developed (incl. product dev. & design) • Fashion for the domestic market is minimal
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Structure
The Role of SMEs in the
T&C Value Chain
The Role of SMEs in the
T&C Value Chain
FashionProducts:a Result
of Services
FashionProducts:a Result
of Services
MarketPressure forSMEs in DCs
MarketPressure forSMEs in DCs
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1. Prices are falling
1.65
2.2
2.31
2.4 2.41
2.35 2.33
2.23
2.182.14
1.89
1.831.78
1.5
1.6
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
US
$/s
me
1983 1989 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Trends in US T&C Imports 1983 - 2004
Source: Textile Outlook International No. 116 March-April 2005
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EU: Import Price Development for Clothing
Import Prices in EU for Clothing from 1990-2003
14.0
17.1 17.2 17.3 17.1
18.317.4
16.3
14.4
13
14
15
16
17
18
19
1990 1997 1998 1999 2000 2001 2002 2003 2004
Years
Pri
ces
in E
uro
Per
KG
Prices of Clothing
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2. Consolidation (at 4 levels): what are the consequences for SMEs?
Likely Post 2004 Sourcing Pattern
0
10
20
3040
50
60
70
Under Quota Year 2005/6 Year 2010
Year
Nu
mb
er o
f C
ou
ntr
ies
Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002
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3. Move towards a Service Industry: Have SMEs the vision?
Value-Added
Time2005
ManufacturingManufacturing
Manufacturing & Manufacturing & SourcingSourcing
Manufacturing & Manufacturing & Sourcing & Product Sourcing & Product
DevelopmentDevelopment
Full ServiceFull ServiceBuyers requirements
1970
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4. Pressure from Frequent Fashion Changes Demands Quick Response
• From 2 to multiple selling seasons• More fashion products with short product life
cycles vs. basic products with regular replenishments
• Quick response: a « puzzle » of many variables along the value chain
• This « puzzle » needs to be solved first • Difficult with practices establised over decades• Stop « firefighting »: new business strategies,
processes & procedures
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5. Pressure to Form Strategic Alliances
• Quota system forced retailers to take over value chain responsibilities
• These responsibilities be given to suppliers
• To do so trustworthy partners are needed
• Virtual vertical operations: integrated system between manufacturer and retailer
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Summary: Market Pressure
1. Prices are falling
2. Consolidation
3. Move towards a service industry
4. Frequent fashion changes
5. Strategic alliances
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Structure
The Role of SMEs in the
T&C Value Chain
The Role of SMEs in the
T&C Value Chain
FashionProducts:a Result
of Services
FashionProducts:a Result
of Services
MarketPressure forSMEs in DCs
MarketPressure forSMEs in DCs
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Fibres Yarn Fabrics End-Users
Man-made
Natural
Ginning
Carding
Combing
Spinning
Yarn dying
Weaving Knitting
Bleaching
Dying
Finishing IndustrialGoods
HomeFurnishing
Apparel
The T&C Value Chain
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Fashion = Quick Response = Services
Sourcing
Manufacturing
Sales (+Marketing)
Inbound LogisticsCustoms,
Import Clearance
Outbound LogisticsCustoms-GSP/Quota
Export Clearance
Product development
Design & Sketches
Market Research
Buyer – ManufacturerStrategic relationship
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Design & Product Development
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Structure
The Role of SMEs in the
T&C Value Chain
The Role of SMEs in the
T&C Value Chain
FashionProducts:a Result
of Services
FashionProducts:a Result
of Services
MarketPressure forSMEs in DCs
MarketPressure forSMEs in DCs
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To sell Fashion: SMEs need to take over VC Responsibilities i.e. Provide Services
• SMEs need to diversify: marketing• Everybody offers: good quality,
competitive prices & on-time delivery• Therefore, provide services buyers want:
1) make and send the garment quickly to my store (participate in the fashion VC)
2) Organize everything and I’ll pay you (service)
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59%16%
7%
8%
10%
Fabric Trimmings Cut& make Labour Other overhead Profit
75% of 75% of cost = cost = sourcingsourcing
Cost structure of a woven shirt up to the FOB point
Material Sourcing: No.1 service demanded by buyers
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Number 2 service: Use of e- technology
• The new trading environment forces the adoption of « e » solutions along the VC
• Trend is led by US buyers and HKG trading houses, followed by EU buyers
• E-applications are used throughout the value chain; trend: full VC « e » integration
• Quick responds demands « e »: design and logistics
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3. Assist buyers in selling fashion
• The need to understand:– markets, – buyer requirements, – buyer’s customer requirements, and – competitors
• Need to diversify product range,possibly markets
• Need to match factory size, customer size and product
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The Fundamental Relationship: Matching the Elements
Factory Size Customer Size
Product Size
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Small Customer – Fashion Product – Mass Factory
2000 Machine Factory
Giorgio Armani
Cashmere Men's Jackets
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Mass Customer – Commodity Product – Small Factory
300 Machine Factory Wal Mart
Basic T-Shirt
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300 Machine
Factory
300 Machine
Factory Giorgio ArmaniGiorgio Armani
Cashmere
Men’s Jackets
Cashmere
Men’s Jackets
Small Customer – Fashion Product – Small Factory
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Result of Services: Ability to Produce Fashion Products & Quick Response
• Understanding of: the market, customer & customer’s customer
• Material sourcing: prerequesit to understand & engage in fashion production
• E-business: prerequisite for fast delivery• Partnership: prerequisite for engaging in
fashion products• Matching the elements of a partnership
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Structure
The Role of SMEs in the
T&C Value Chain
The Role of SMEs in the
T&C Value Chain
FashionProducts:a Result
of Services
FashionProducts:a Result
of Services
MarketPressure forSMEs in DCs
MarketPressure forSMEs in DCs
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Summary:
• SMEs in DCs do mainly CMT but no fashion products
• Post-quota situation puts pressure on SMEs to take over VC responsibilities
• Moving into fashion is a process, starting with material sourcing
• Fashion products: a result of services• Industry consolidation competitive
pressure implications on IP
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The Fashion Process in DCs and IP
• Most design does not start from original concept
• Use of existing info (design, colours, fabrics)
• Shopping the stores (& cutting & copying)• Visit fashion shows (and cutting & copying)• Possibilities in niche markets for national,
ethical & folklore design• Exploit fashion potential: collaboration of
SMEs in the north and south
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THANK YOU !THANK YOU !For more information
http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing
Contact:
Matthias KnappeMatthias Knappe, Senior Market Development Officer