Midnight 31 December 2004 is a significant date for the apparel industry. It's at this point the quota system disappears and the world, in theory at least, becomes a level playing field. But is this going to be the true scenario, and who will be the winners and losers in the new open market? Niki Tait takes a look.

Sounds great - but is it? Quotas provide cushions and protectionism - offering advantages to those countries that have negotiated quota free status to Europe and/or the USA. For countries that work within quotas, they also provide some guarantee of orders. Buyers need to buy from somewhere, and to obtain the quantities they want are often forced to source from several quota countries - countries that inevitably have well established apparel industries. But when there are no quotas, buyers will be free to go and buy as much from wherever and whomever they like.

Will the impact suddenly be apparent on 1 January 2005? No, it will be gradual and is already starting. Accelerated trade negotiations are taking place around the world as countries and governments gear up for the end of the quota system. There are the AGOA duty and quota free schemes to the USA for Sub Saharan Africa; Sri Lanka has recently signed quota free access with Europe; Vietnam has duty free access to the US, and Pakistan, Turkey and India are all in negotiations.

More losers than winners
However there will undoubtedly be change, and in that change there will be winners and losers. And in a world where there is already oversupply in garment manufacturing, the free market coupled with the effects of supply and demand means there will inevitably be more losers than winners.

These winners and losers are likely to be countries as well as individual companies. No buyer wants to chase round the world sourcing products from 20 to 30 different countries, but the current quota system means they have to at the moment. It's not a cost effective way to do business.

Admittedly, just as selling to one country is a dangerous strategy that opens the vendor to the vagaries of its political and financial situations, sensible buyers will also limit themselves from buying from one country. Look at Mexico for example: over committed to one product, jeans, with one country, the USA, as its customer. Mexico has seen rapid falls in orders over last year as the US has headed towards recession and is now desperate to sell garments to Europe.

Buyers are likely to consolidate their buying, concentrating on four or five politically and financially stable countries. Countries that respect human ethics and pay minimum wages, do not employ children or forced labour, provide good working conditions, and offer an infrastructure which makes it easy for buyer to do their jobs - good telecommunications, ease of import and export documentation and procedures, international logistics companies, quality controllers and test centres. These countries will also be the ones with high quality levels covering the right mix of products at the right price.

Increasingly, companies are looking more into overall price and costs than just the shop floor labour rate. When properly costed, design and pre-production charges in the west can be a major part of the price of a garment, especially as styling increases and production runs decrease. If labour is cheaper in the country of manufacture, why not carry out the design and pre-production functions in that country too?

The level of service required from the manufacturer is increasing, and CMT (Cut, Make and Trim) is becoming a thing of the past. In demand is a full package from design to delivery of the finished product, inclusive of fabric and trim sourcing, right down to the delivery of store ready items to individual shops - hence the necessity of working in partnership with good logistics providers.

Country concerns
So if a buyer is going to rationalise on certain countries, then which countries are they likely to be? Firstly, they will be those where the customer currently does good business and gets a high level of service - not only in terms of quality and price, but in terms of reliable delivery and lead times. Thus the whole infrastructure is involved, from fabric and trim souring, communications and logistics. Training will be of increasing importance - design skills, pattern making, grading, and garment technology.

Also key is the importance of each manufacturing industry to the buying country. Take the US, for example: Mexico is almost totally reliant on the USA, 50 per cent of Indonesian clothing exports go to America, 60 per cent of Sri Lanka's, approximately 75 per cent of the Philippines', 37 per cent of India's and 26 per cent of China's.

However, as David Birnbaum points out in his 'Global Guide to Winning the Great Garment War', these figures need to be looked at in the context of their percentage stake. As a share of US garment imports for example, Mexico takes 13.5 per cent, as does China, Indonesia provides 3.3 per cent, India 3 per cent, Sri Lanka only 2.3 per cent. If 60 per cent of Sri Lanka's exports go to the US but only account for 2.3 per cent of US imports, there is an immediate imbalance of one country's reliance on another in a turbulent global market.

Government support
Government support also needs to be examined. India, for example, ranks as one of the world's top ten apparel exporters. One fifth of the country's industrial output is in textiles and apparel, and over the last five years apparel exports have grown by 16.5 per cent. Output, value and product mix diversity have all improved.

Even so, the industry has had a chequered past. But while the country's political infrastructure has not helped garment exporters to flourish, India has developed some of the world's best factories in terms of technology, information systems, good management and high quality production.

The government now recognises that apparel and textiles are crucial to the country's future and plans to increase textile and apparel exports from $5 billion in 2000 to $25 billion by the year 2010. Labour laws are coming into line with more internationally recognised systems. Apparel Parks are being established to meet the needs of exporters with purpose built factories housing the whole supply chain - fabric manufacturers, trim and machinery suppliers, logistics companies, and less bureaucracy. And Apparel International Mart will open in a year's time - a complex near Delhi where 250 exporters will have permanent offices and showrooms. Certain quota allowances are also being ring fenced for export companies investing in new technologies, with low interest loans provided for this technology.

To help take the design side forward, 15 of the country's best designers are working with 15 key exporters to establish Indian brands for export to the USA and Europe.

The Philippine government is trying to promote clothing exports to Europe in an attempt to reduce its dependence on the US. It is not a cheap labour cost country, it has no duty or quota free status as yet, and no indigenous textiles, yet the textiles and clothing industry contributes 7.72 per cent of total exports, or $3.08 billion per year. The garment and textile export board has set up PROfiI - a Pro Filipino design and merchandising initiative which aims to project the Philippines as a one stop sourcing centre - and has signed over 41 international conventions on labour standards.

Quota Free does not mean duty free
However, quota free does not mean duty free, and until all markets are duty free the world will continue to be far from a level playing field. US import duty, for example, still averages 18 per cent. Equally, no amount of liberalisation will move nations. Shipping from Sri Lanka, Bangladesh and India will remain at an average 28 days compared to two days from Mexico or Canada. To Europe, Romania, the Czech Republic, Hungary are all within a day or two's road freight, and all relatively low cost.

2005: will it be a level playing field?
No. Is it likely to be governed by politics, individual and trade bloc negotiations, and how much effective help different governments give. There will continue to be an oversupply of clothing within each marketplace and country. So to be selected, or continue as a supplier each company needs to help itself. There are no 'divine rights'.

So what are the responsibilities of each company?
To become a world class supplier; analyse what customers want and provide it in the most economic and cost effective manner possible; react to these changing needs; and strive for continuous improvement.
The best way of achieving these goals is for businesses to react quickly, reduce lead times along the supply chain, carefully plan and schedule production, monitor and adjust what is being produced against this plan, have good systems and controls, and analyse costs effectively and accurately.

And this means having the best information technology, production and planning systems, the right supply chain partners, and much else. None of which will come from government.

Production runs are getting smaller, style variation is getting wider, lead times are getting shorter, prices are getting lower. More is expected for less. If one company does not address the customer's needs, another will. 2005 will definitely see the survival of the fittest, in country terms as well as in company terms.

The progressive company knows what it is trying to achieve, and why. It is continuously questioning what is happening within the company and why, it is continuously striving to improve.

Niki Tait, C.Text FTI, FCFI heads Apparel Solutions, which provides independent assistance to the apparel industry in the areas of manufacturing methods, industrial engineering, information technology and quick response.