Bad information masks wider choice for buyers
From Namibia to Bangladesh, quota abolition is stimulating businesses to run themselves better. And buyers looking for sophisticated, responsive, efficient suppliers are getting a wider and wider choice outside China every month. But why let a few positive facts get in the way of a good moan? asks Mike Flanagan.
For the benefit of just-style.com's many readers who don't speak English as their first language, 'shroud-waving' is a phrase we use to describe people predicting overwhelming disaster unless something is done urgently.
And as the "what should be done about China?" debates break out all over the world's apparel industry, those shrouds are being waved as enthusiastically as Liverpool FC banners in Istanbul. Whether there's justification or not.
And in most of these debates, it really isn't very clear how much justification there is for calls for immediate protection.
In previous articles we've pointed out how, since the abolition of quotas, US textile industry job losses have actually slowed.
No doubt stung by receiving our Chocolate Firescreen award for the meaningless and incomprehensibility of its data, the EU has stopped making dubious estimates of current imports, and contents itself with making decisions on the basis of old data (while China was publishing export data for April 2005, the EU knew its imports only for January).
But, of course in the West, neither the European Commission nor the US government actually wants to impose trade restrictions against China: neither is being pushed towards it by careful judgement of what's best for their countries.
In both cases, temporary quotas are being imposed or considered as a result of unstoppable political pressure from groups with a mission and power to obstruct - but not necessarily by groups who represent much by way of mass opinion.
In the US, enough anti-China politicians have been threatening to obstruct the Administration's policies if something isn't done; in the EU, poor economic performance in a number of countries - but especially Italy - is creating similar pressure on the European Commission.
The debates in Washington and Brussels aren't about what's best for domestic industry and consumers: they're about what sops have to be given to what pressure groups to stop them from being really difficult.
And however aggressively the US and EU use their China safeguard rights to impose temporary quotas on China, the most they can achieve is to shift imports from China to Bangladesh or their immediate neighbours, and delay slightly the inevitable disappearance of their remaining apparel and textile industries.
Safeguards will irritate the Chinese, increase the cost of clothing for the poorest Europeans and Americans, and temporarily make life easier for Romanian and Mexican companies. But they, and the propaganda surrounding them, will have little deep, long-term effect on life for most people in the EU or US
Emerging world damage in Namibia
But it's different in the emerging world, where bad information and shroud-wavers can do serious damage. In Namibia, for example, Malaysia's Ramatex has been under continuous activist attack, almost since it arrived in the country several years ago.
Quota abolition has removed one of the factory's advantages - that under America's AGOA act, clothes from Namibia didn't need quotas.
But quota abolition doesn't affect Namibia's other undoubted advantage - that, for the moment, clothes from Namibia don't attract America's often penal import duties - nor the undoubted advantages of Ramatex Namibia - that clothes made from Namibian-made fabric will escape duty for a lot longer than clothes from imported fabric, which is why Ramatex has its own weaving factory in Namibia.
Indeed rising wage levels in much of coastal China might even make Namibia use its other potential advantage - its extraordinarily low wages, which the country's low productivity prevents businesses from turning into real lower costs - if Ramatex can control the efficiency of its Namibian factories.
Turning factories round means finding efficiencies. So Ramatex announced the closure in March of a loss-making subsidiary, Rhino Garments. Even after the closure the company remains the country's largest private-sector employer.
But the shroud-wavers really want to see things differently. "Countries like Namibia are unlikely to keep trans-national companies," says one activist, explaining why Ramatex has come "temporarily" to Namibia, and that it is an "illusion" to think a factory in Namibia can compete with factories in China.
Other comments from activists and from organisations claiming to lobby for developing countries continue to report the collapse of Namibia's apparel industry. In fact, for the first three months of 2005, America's apparel imports from Namibia were down 9 per cent in volume on 2004 - hardly a spectacular success, but hardly complete annihilation.
Commentators announcing the disappearance of Africa's US-oriented apparel industry, when it's merely seeing a modest sales decline, are doing the people of Africa no favours; they merely undermine buyer and investor confidence, at a time when Africa's apparel industries need to be improving their efficiency, rather than running away.
And to be an efficient factory, you first need customers reasonably confident you'll still be around in a year's time.
Undermining talk hits Morocco
And it's not just in Sub-Saharan Africa that businesses are being undermined by shroud-wavers.
In Morocco, it's become fashionable to talk about 95,000 textile/apparel jobs being lost in the first three months since quotas were abolished. Indeed, since the consultancy that invented this figure mentioned a further 105,000 jobs lost elsewhere in Morocco over the same period, some commentators are claiming that quota abolition has cost 200,000 jobs in Morocco.
Except that, as Moroccan newspaper Aujoud'hui Le Maroc uncovered, there's no evidence for these missing jobs at all. Only the national Social Security Bureau tracks employment figures, it hasn't done so for the period concerned yet, and the paper's unattributed sources within the Bureau say they can't see any evidence of job losses on anything like the scale being bandied about.
The apparel industry in Morocco isn't doing as well as it would like: apart from anything else, its unique free trade agreement with the US, which allows Morocco to use some raw materials from other countries and still get duty-free access to the US, has had its implementation delayed till mid-year.
Moroccan businesses thought 2005 would have them exploiting their advantage of duty-free access, relative proximity to the US (Morocco is a lot nearer than anywhere in Asia to New York, and its factories are a lot nearer ocean ports than most Asian factories) and their experience of making for the French and Italian markets.
Instead, they've got newsletter reports of apparently wholly imaginary job losses undermining potential buyers' confidence.
Bad information on India
Bad information can kill in lots of ways. No-one's going round saying India's apparel industry is on the skids. But confusing data produces confusing lessons for businesses and policymakers.
The fact that there's no hysteria in the West about booming imports from India makes it pretty clear that India has not been able to exploit quota abolition as effectively as China has.
In fact, its 27 per cent increase in garments imported into the US (compared to China's 140 per cent increase) in the first four months of 2005 shows that it's actually fallen even further behind China from the fairly dismal performance it put up during the quota era. India never really managed to sell its full quota to the US or EU in the bad old days, while countries like Honduras and Bangladesh sold more garments on the world market than India ever achieved.
Indeed, India's own export data seems to show it's performed even worse. For instance, provisional apparel export data from its Directorate General of Commercial Intelligence and Statistics shows apparel exports for the first three months of 2005 down 21.4 per cent in rupee value on 2004.
It may well be that healthy volume increases aren't translating into income for suppliers, as competition and the devaluation of the dollar against the rupee drag prices down - but officials in India's Textile Ministry aren't totally confident with this provisional data.
But it's important to know what's happening. India, in spite of its persistent ability to live down to the lowest expectations, has a large and internationally competitive apparel and textile industry.
In the past decade, this industry has helped millions of Indians out of poverty - millions more than India's over-hyped process outsourcing or software industries, which employ relatively tiny numbers, in spite of their formidable contribution to the Indian economy.
But millions more could have been employed if India had developed a more competitive apparel industry. Indians offer many explanations for why its share of the world market is so small: they range from delusions of being victimised ("it's all because of quotas," though even more quota-constrained China sold seven times as many clothes as India to the West last year, and India sold virtually nothing to the billions of people in countries that didn't have quota limits) to gullible parroting of whatever fad consultants are churning out this week ("the world really wants lots of complex, integrated textile/apparel complexes").
Just like the ones that have been going steadily bankrupt throughout the world for the past 20 years, from the EU and US to countries like Egypt or Russia. Or the ones successful apparel exporters, like Vietnam or Romania, have been closing to improve their competitiveness.
India's real problems are quite simple. India's labour laws discourage expansion, its ports are mediocre, its energy too expensive. And above all, its apparel and textile businesses don't invest in new plant to anything like the level required for competing with countries like China.
Best recent estimates are that India's apparel and textile industries are planning around $2 billion investment a year. Earlier this month, the China National Garment Company announced an investment in one plant alone at Tongling, of $500 million (with, incidentally, annual sales projections for that plant of $1.5 billion). China's levels of investment are currently running around ten times India's.
So what is the Indian government doing to combat this investment strike? Believe it or not, ruling out foreign investment. If a Chinese company were to try to build the factories India needs, but Indian businesses won't construct, India would turn them away, announced textile minister Shankarsinh Vaghela this week.
He believes Chinese companies wouldn't run them properly, but would blindly do what the Chinese government told them. A quick trip to a real Chinese factory would disabuse him of that fantasy in half a second: he ought to get out more.
Phoney debates rage in Bangladesh
But the shroud-waving problem remains strongest of all in Bangladesh, where the phoney debate still rages.
Bangladesh continues to be the activists' poster child: the deserving poor country whose economy is about to be destroyed by whatever underhand tricks China and a free market will play on it.
Local trades unionist Naz Maakder is still, this month, telling the world about the imminent collapse of the country's apparel industry. At least a million jobs, she claimed at a recent rally (that's half the country's apparel workforce), will go soon.
But the real world persistently refuses to fit the gloom-mongering model trotted out every five minutes by activists more interested in getting headlines than in developing the economies of poor countries. As in Morocco, there's no sign of any of those million Bangladesh jobs disappearing.
However rapidly Chinese factories have been bringing their prices down, Clothesource PriceTrak (the guide to US and European import prices) and ChinaTrak (the guide to Chinese export prices) both show that even the most savage of Chinese price cuts in the first four months of 2005 have only brought prices down to about the level of Bangladesh.
Indeed, overall, China is still a slightly dearer apparel supplier than Bangladesh.
Which is why the Bangladesh economy has stayed so healthy this year. Indeed, in the first three months of 2005, its apparel exports grew 9.5 per cent - even though it got less benefit from quota abolition than most other Asian countries, as it hadn't needed quota before abolition to sell to its key, EU, markets.
True, the Bangladesh performance was weaker in woven garments than in knitted. But that's because Europe's Rules of Origin stop Bangladesh from exploiting its duty-free status for most wovens.
And whose fault is that? Well, oddly, not the EU. The Bangladesh fabric industry is at the forefront of the campaign to keep the EU's rules bent - to stop the Bangladesh apparel industry from using the best-value fabric.
Who will do well?
Bangladesh typifies the problem throughout the non-Chinese world. China isn't going to take over the world apparel market - though it suits the job-destruction agenda of many political activists to pretend it will. But China will account for a larger share of rich countries' apparel imports than the 23 per cent it achieved in 2004.
Which businesses outside China do well in competing for the half to three-quarters of the market left depends on their efficiency, and the preparedness of their governments to create the right environment.
In India's case, that means more, better factories (whoever's paying for them), functioning ports, affordable energy and labour laws that encourage expansion. It's not China standing in the way of all this: it's India's own government.
In Bangladesh, it means honestly-run Customs, and the ability to exploit the country's favourable deals with its customers. Again, it's not China, or some complicated conspiracy by rich countries standing in the way of this: it's the Bangladesh government, and its fabric industry.
Publicity-hungry political activists
But what's also standing in the way of businesses throughout the developing world are publicity-hungry political activists, hysterically creating soundbites of imminent Armageddon.
America's apparel imports from the world outside China declined 2.2 per cent in volume in the first four months of 2005 - a good deal less than their decline in the aftermath of September 11 2001, or during any of America's recent economic slowdowns.
A 2.2 per cent market decline is tough for some, but provokes efficiency improvements in any sensible business - not immediate liquidation.
That's why, far from losing 200,000 jobs, Morocco has seen $300 million of new industry investment in the past month. It's why, although Turkey's textile companies have been leading the calls for more restrictions on China, the country actually increased its textile and apparel exports by 10 per cent in April this year.
From Namibia to Bangladesh, quota abolition is stimulating businesses to run themselves better. And buyers looking for sophisticated, responsive, efficient suppliers are getting a wider and wider choice outside China every month.
The shroud-wavers would help the world's poor a lot more if they pointed buyers towards these better suppliers. But of course the truth of better factories gets far fewer headlines than the myth of worldwide tragedy.
Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries.
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