Revised Technical
Assistance Approach
for the Garment Industry in Selected Countries
Introduction
With the 2005 Quota Phase-out,
competitiveness requirements for garment manufacturers will
increase tremendously. With overcapacity in the market, many
producers and even countries risk to disappear as garment
suppliers for world markets. This would have serious consequences,
as in many countries the economy depends to a large extend on
garment exports (see table at the end of the document). In order
to avoid the loss of this important export sector, countries need
to increase their competitiveness. In order to increase the
competitiveness of garment manufacturers, meeting increasingly
complex market demands, a comprehensive approach is needed,
addressing constraints at the policy/strategy as well as meso and
micro level. Altogether 6 major needs of DC garment manufacturers
will be addressed and solutions implemented together wit all major
stakeholders, including market actors.
1) Sector Strategy Development
A strategic approach is needed to
confront the challenge of the 2005 quota-phase out. Garment buyers
are no longer buying from a country because it has sufficient
quotas competitors do not have. While even small quotas were
attracting buyers, this attraction will disappear completely.
Therefore, a critical country mass is required to attract
sufficiently larger buyers in the future. Thus, an overall country
response is required. Such a response needs to build on a close
public-private sector partnership with the involvement of strong
T&C business associations.
In order to respond to this need, ITC recommends to assist the
countries in analysing the textiles and clothing (T&C) value chain
and crafting strategies for sector-level value addition. A
systematic sector strategy development approach –a structured
thinking process- will be applied at the enterprises and sector
level in all participating countries. By mapping out
country-individual T&C value chains, the T&C business community
will get a full sector trade picture outlining in detail
challenges and obstacles at each stage of the chain. From there,
solutions to overcome obstacles will be formulated by the T&C
manufacturers association of the participating country(ies) in
close cooperation with the government in order to accelerate the
development of sector performance along identified targets. ITC
guidance in this process will ensure that it is done in a
structured manner. This will culminate in the elaboration of a
sector action plan.
2) Know your competitors
Under the present quota system,
enterprises do not know about competitors and how they perform.
There is simply no need as quotas provide a guaranteed market and
constrain competitors. Thus, the quota system stifles competition.
This situation, however, will change completely in 2005. There
will be competitors everywhere with whom each and every company
has to compete. While international buyers have a good overview on
enterprise performance in all major garment-producing countries,
the enterprises themselves do not know with whom they compete and
how these competitors perform in the different company/management
areas. This, however will be vital in order to improve performance
in areas they lack behind.
In order to respond to this need, ITC
developed a diagnostic benchmarking tool for SMEs in the garment
sector, named “The FiT”, which will be made available to
participating countries. This tool gives SMEs clear indications of
their performance in five key garment management areas (i.e.
manufacturing, sourcing, export marketing, overall management and
finance, enabling environment) as compared to major competitors
around the world. Based on a set of questionnaires to be filled in
by participating companies, answers will be translated into a
software and compared with those of other participating companies
from other countries. Companies can thus compare their performance
in key areas with those of other companies and identify strong and
weak areas. Results will feed into the item 1 (action plan) above
as well as item 5 (tailor-made market penetration) below. With an
increased database, performance comparison will become more and
more accurate and revealing for SMEs.
3) Sourcing Information and
Development of Supply Management Skills
After the “quota-phase-out” buyer
requirements will increase, forcing DC garment manufacturers to
take over new functions in the value chain, including sourcing and
supply management. This is a difficult task as most of the
garment-exporting countries do not have a vertically integrated
industry and consequently only perform “Cut-Make-Trim” (CMT)
operations. Almost all DC's are procuring yarns, fabrics,
accessories and other inputs from abroad to manufacture a garment
for export, e.g., in Bangladesh around 70 % of the FOB price of a
woven shirt are made up of imported inputs. Currently the
retailers of the finished products, or their agents source these
inputs on behalf of the DC garment manufacturer. In the future,
however, these operations will increasingly be passed on from the
retailer to the DC garment manufacturer.
Due to the quota system and the
resulting CMT structure, DC garment sector manufacturers have not
developed the business relations, skills or knowledge necessary to
manage the supply side of the production process.
To assist garment manufacturers to
start managing their supply management operations, a two-pronged
approach is needed. Firstly, manufacturers need to have the
necessary information about competitive sources (supply market
information – regional supplier databases). Secondly, they need to
develop necessary skills and knowledge to independently perform
sourcing and supply operations. For this to happen training in
international supply management is needed.
Due to regional trading schemes and
corresponding rules of origin requirements regional sourcing will
increase in importance. To further support regional sourcing and
overcome the lack of a competitive supplier base, a database on
regional textiles and accessory suppliers will be developed
accompanied with a clear methodology for its replication.
Databases will be elaborated in collaboration with regional sector
associations at the regional and national level and will be
updated and maintained by them. Regions, such as ASEAN, SAARC,
Pacto Andino, CACM, will be targeted because they are important
garment manufacturing regions where also large quantities of
fabrics and accessories can be found. It can also be applied in
other regions once T&C-specific projects will be developed and
implemented.
The training in supply management will
focus on garment sector key issues identified by a group of T&C
sourcing experts. The training will be preceded by a workshop for
sector decision makers, i.e. associations and entrepreneurs. The
workshop will present alternative sourcing approaches and will
elaborate a future approach for the sector. The training material
will hence provide a two-phased support: 1) workshop material for
sector decision makers and 2) training material for future supply
managers and trainers.
4) Understanding Changing Markets
Despite the quota phase-out, trade in
T&C will remain complex and difficult to analyse. Competitors will
become more numerous and so will be the number of new hurdles
garment exporters are likely to face after 2004. This would
include more strict codes of conduct (ethical trading requirements),
eco-labelling, environmental standards, etc. Moreover, bilateral
and regional free trade agreements are “flourishing”, providing
countries, which are covered under these agreements with tariff
benefits over non-covered countries. Thus, it becomes more complex
to assess one’s own competitiveness over that of competitors in
other countries and regions. Furthermore, competition is likely to
increase in the traditional markets such as the Canada, the EU and
USA. For example, the US is a relatively “easy” market and hence
competition will be concentrated on this traditional markets as
everybody, including the large T&C nations such as China, India,
and Pakistan would like to sell there in large quantities. As a
consequence, SMEs in smaller garment-producing countries will have
to look for opportunities in higher-end and niche markets with
value-added products. Furthermore, new markets need to be
exploited in other developing countries, especially in a regional
context. The fastest growing garment markets are found in large
Asian countries with increasing middle classes, who are looking
for higher-end garments.
In order to respond to this need, ITC
developed further its market analysis tools with regard to
textiles and clothing, i.e. a textiles & clothing sector webportal.
This garment-specific market analysis tool will provide a T&C
trade analysis platform to identify market trends and new emerging
markets for garment exporters. As only Canada, the EU and the US
work with the quota regime, all newly emerging garment markets
have never been under quota. Thus, trade statistics and past trade
flows reflect more accurately trade tendencies and sales
possibilities in these markets. This tool can identify growing
non-traditional markets for which tailor-made penetration
approaches can be developed and implemented under item 5) below.
Moreover, the enhanced garment map will be utilised to develop a
monitoring system on business opportunities but also on newly
emerging trade obstacles in the traditional western markets.
5) Implementing tailor-made market
penetration approaches closely following identified buyer
requirements
Garment manufacturers in most
developing countries do not know how to penetrate newly emerging
markets nor how to target niche markets in traditional
destinations. Business information is not available, firm business
contacts are missing, detailed buyer requirements (e.g. labelling
requirements, codes of conduct, quality standards, delivery times,
etc.) are unknown, distribution channels are unfamiliar and import
requirements (e.g. customs, origin certificates, forms, etc.) are
unidentified. This is true for new markets but also for newly
identified niche markets in traditional target markets as
customers are different. DC garment enterprises need to be guided
through this process to ensure that they fulfil the demanded buyer
requirements.
In order to respond to this need, the
beneficiary companies and their respective garment associations
will, in very close cooperation and collaboration and with the
guidance of ITC, develop market penetration strategies for
identified target markets, including an implementation plan. In
order to do this, possible major buyers in the target markets and
their specific requirements and concrete demand will be identified
in terms of the final product but also in terms of other
requirements (e.g. ethical sourcing, fabric supply, lead time,
etc.). In collaboration with importers associations (USA-ITA for
the US and country-specific importers associations in individual
EU markets as well as other selected emerging markets) in the
identified target markets, shortcoming in the performance of
selected garment manufacturers will be identified and addressed in
order to ensure that garment exporters fulfil the requirements of
the buyers in the market. Specific technical assistance will range
from product adaptation towards market development, including
ethical sourcing requirements, eco-labels, etc.
6) Promoting E-applications in the
T&C sector
E-facilitated trade becomes a
prerequisite to attract large buyers also in the T&C sector. In a
way to benefit most out of the quota phase-out and to more and
more shorten lead time and to reduce expensive inventories, larger
buyers are exploring ways on how to electronically connect the
entire value chain, including sourcing of fabrics and accessories,
garment manufacturing and sales to the final customer. This poses
new needs on garment manufacturers in DCs, who need to be aware of
these new buyer requirements. Moreover, garment manufacturers need
to find innovative solutions on how to fulfil these new
requirements, as it will require a more complex form of
competitiveness than “only” manufacturing good quality garments.
In order to respond to his need, ITC is
presently elaborating a business guide on present and future
e-applications on the T&C sector. The findings of this guide will
be disseminated during workshops and training on how to adapt to
the new requirements will be given in the selected target
countries for this project. Based on the specific buyer
requirements identified under item 5) above, tailor-made solutions
to use e-applications for selected companies will be developed.
Its implementation, however, will depend on the necessary funding,
as it is likely to involve investment in technology and/or
software solution. Participating companies should be willing to
invest in the identified e-solutions.
General:
direct target beneficiaries will be
selected enterprises in the textiles and garments sector in each
participating country. Through the close involvement of the
respective national garment manufacturers associations (acting as
multiplier organizations), benefits will be spread widely in the
participating countries. Through specific capacity building
activities in these associations, their involvement in all related
project activities, and on-the-job training of several of their
specialists and related training of national consultants, it is
expected that benefits spread widely to other enterprises as well.
Regional activities in sourcing and supply management and
experience sharing will complement the capacity building
activities. The results of the project’s activities will be
disseminated to all interested parties and especially among the
relevant business community.
The planning and implementation of all
project activities will be carried out in close co-operation with
the respective business organizations and enterprises and related
government counterpart organisations in the countries concerned.
Regional activities (specifically sourcing of fabrics and
accessories as well as intra-regional trade development) will be
carried out in close collaboration with the secretariats of
regional and sub-regional associations such as ASEAN, SAARC,
Andean Community, CACM Secretariat.
Application: At a national and/or
regional level
Duration: 3 years
Budget: approx. US$ 400,000 per country
or US$ 1,2 million per region (4 countries) depending on the
region and participating countries (to be confirmed by detailed
estimations)
Table: The importance of clothing
exports in total exports of selected countries
|
Country |
Clothing exports in total merchandise
exports |
|
Bangladesh |
70% (86% says USITC) |
|
Cambodia |
82% |
|
Laos |
20% |
|
Vietnam |
94% (source WTO Osakwe) |
|
Nepal |
30% |
|
|
|
|
Dominican Republic |
51% |
|
El Salvador |
64% |
|
Honduras |
38% (63% says USITC) |
|
Guatemala |
42%[1]
|
|
Haiti |
83% (USITC) |
|
Jamaica |
18% (USITC) |
|
Nicaragua |
45%2
(37% says USITC) |
|
Costa Rica |
14% (USITC) |
|
Bolivia |
|
|
Peru |
9% |
|
Ecuador |
2% |
|
|
|
|
Malawi |
6% (T&C is the most important merchandise
export sector (tobacco 69% tea 9%) |
|
Kenya |
5% (USITC) before AGOA started: now higher |
|
Mozambique |
6% (Aluminium exports not accounted) |
|
Lesotho |
83% (94% says USITC) |
|
Mauritius |
63% |
|
Madagascar |
44% (USITC): before AGOA |
|
South Africa |
2% (USITC) (but very important import
market for Africa garments) |
|
|
|
|
Other countries |
|
|
India |
26% (including textiles) |
|
Pakistan |
22,5% (clothing) plus 48,3% (textiles) |
|
Sri Lanka |
50% (61% USITC) |
|
Indonesia |
14% clothing plus textiles |
|
Morocco |
31% |
|
Tunisia |
40% (plus 4% textiles) |
|
Romania |
24% (plus 2% textiles) |
|
Bulgaria |
19% |
|
Estonia |
11.3 (2000, EC, IFM Paris) |
|
Lithuania |
15.9 (2000 EC, IMF) |
|
Poland |
7.6 (2000 EC, IMF) |
|
Slovenia |
7.7 (2000 EC, IMF) |
|
Slovakia |
7.2 (2000 EC, IMF) |
|
Latvia |
5.9 (2000 EC, IMF) |
|
Czech Republic |
5.9 (2000 EC, IMF) |
|
Hungary |
5.7 (2000 EC, IMF) |
|
Turkey |
36% |
|
Egypt |
23% (USITC) |
|
Hong Kong |
52% (USITC) |
|
Korea |
10% (USITC) |
|
Macau |
89% (USITC) |
|
Malaysia |
4% (USITC) |
|
Philippines |
8% (USITC) |
|
Taiwan (Prov of China) |
10% (USITC) |
|
Thailand |
8% (USITC) |
|
China |
20% |
|
Jordan |
33%[2] |
Source: WTO and ComTrade, USITC data are from 2001
