If the Japanese experience is anything to go by, there will be few crumbs left over for non-Chinese suppliers of clothing to western markets after China has taken its share.

The Japanese government - unlike its counterparts in the USA and the European Union - chose not to protect its domestic textile and clothing producers by introducing quotas under the Multi-Fibre Arrangement (MFA). Many authorities therefore look to Japan as a model of US and EU import patterns in 2005 and beyond, after quotas have been eliminated.

If Japan is indeed a realistic model, then the prospects for producers outside China are not promising according to one of the findings of the latest issue of Textile Outlook International.

In 2003 China supplied a staggering 82 per cent of Japanese clothing imports in value terms during 2003. And many industrialists fear that China will gain similar shares of clothing imports in the USA and western Europe once quotas have been eliminated at the beginning of 2005.

This would hit producers not only in the western world but also in developing countries as Chinese expansion puts their main export markets under threat.

There are some crumbs of comfort for non-Chinese producers.

  • First, China's proximity to the Japanese market supports "quick response" ordering and delivery systems. China does not have such advantages in the US and European markets, and this may limit the potential size of its share of these markets.
  • Second, much of China's import penetration in the Japanese market can be attributed to the fact that many of Japan's textile and clothing producers have set up their own production plants in China.
  • Third, penetration of the Japanese market by China is much lower in textiles than in clothing - so textile manufacturers in the west would appear to have better prospects than clothing producers.
  • Fourth, penetration of the Japanese market by China, surprisingly, is significantly lower in volume terms than it is in value. This implies that China supplies Japan with products of relatively high added value, leaving opportunities in western markets for suppliers of low value textiles and clothing in 2005 and beyond.
  • Fifth, China's dominance of the Japanese imports market has not prevented other suppliers from achieving growth. Japanese textile and clothing imports from Latin America, for example, rose during 2003 by 25.6 per cent in value, and by a dramatic 137.3 per cent in volume - albeit from a small base.
  • Sixth, China's dominance does not appear to have closed off the market for high value products. In 2003 Japan's second biggest textile and clothing supplier in value terms was Italy with 5.1 per cent of imports in value terms. This suggests that there is some room for high cost producers in quota-free markets, albeit with only small shares.

Production capacities elsewhere
Forecasts that the Chinese share of US and EU textile and clothing imports will reach 70-80 per cent ignore the fact that huge production capacities are in place elsewhere.

Ocean Sky International in Singapore has so far maintained a policy of geographical diversification in its overseas manufacturing strategy. Putting all its eggs in one manufacturing basket, namely China, is seen as very risky.

Moreover, Ocean Sky believes that the optimal manufacturing location varies according to the type and location of the customer and the type of product being manufactured. Manufacturing in different countries, the company says, enables it to maximise flexibility and the service which it offers to the customer.

Sing Lun Holdings, another Singapore based company, also believes that a geographically diversified manufacturing strategy is the way forward. The company has recently been making plans to expand into India - which, many commentators believe, is the only country big enough to moderate China's dominance of world markets.

So far India is a much smaller player than China on world markets and the country's textile and clothing exporters would have to make a supreme effort to build up market share and take full advantage of the elimination of quotas at the end of 2004.

The Indian government has tended to protect the Indian market and favour domestic firms, which has deterred a number of foreign investors.

This may, however, be about to change. There have been indications recently that a number of multinational retailers are evaluating India as a potential source of textile and garment supplies.

Wal-Mart, for example, has expressed an intention to source goods worth US$7 10 billion from India over the next two years, and textiles and garments are expected to form a large share of this total.

More recently, it has been reported that other large retailers such as JC Penney and Sears have sent teams to India to assess sourcing possibilities.

Sara Lee Corporation is to start selling its garments in the Indian market. In order to do so, it has set up a 100 per cent-owned subsidiary, Sara Lee Apparel (India), headquartered in Mumbai. The subsidiary will introduce Sara Lee's Hanes men's "innerwear" brand to Indian consumers.

'One size fits all' philosophy
The success of Ocean Sky and Sing Lun Holdings highlights the wisdom of a diversified manufacturing base, and casts doubt on assertions that the vast bulk of production will migrate to China.

Different countries have different strengths, and in these two companies' books there is no room for the "one size fits all" philosophy.

Furthermore, despite China's dominance, at least 155 supplying countries shipped textiles and clothing to the Japanese market in 2003.

Assuming this is repeated in western markets after 2004, there will be room for a large number of supplying countries other than China. But for most of these other countries, import shares are likely to shrink to relatively low levels.

It is true that, in western markets, some supplying countries will retain competitive advantages over China through market proximity as well as duty-free access under preferential trade agreements.

But much will depend on the price premium which western buyers are prepared to pay for quick response.

"Post-2004 Strategies: Companies Avoid Putting All Their Eggs in China's Basket" and "Trends in Japanese Textile and Clothing Imports" were published in Issue No 111 of Textile Outlook International