In his keynote address at the International Textile Manufacturers Federation annual conference in Dresden, Germany, Robin Anson, editorial director of Textiles Intelligence, provided a detailed analysis of Global Textile and Apparel Trading to 2005 and Beyond: Winners and Losers. Here we present the highlights of his assessment of the regions which will be most at risk after the elimination of quotas in 2005.

Winners and losers
China is one sure winner. The country possesses almost unlimited human resources and very low labour costs. In general terms, its people are hard working and motivated by a desire to improve their living standards. And the surge in China's exports to the USA and EU in 2002 and early 2003 was spectacular. Chinese exporters are equipped and able to respond quickly and flexibly to increases in demand.

China has given companies in other developing countries a very loud wake-up call. For years, such companies have seen the elimination of quotas as a passport to future growth and many have invested accordingly. But many are also worried about China's potential to exploit the world's markets when quotas are eliminated at the end of 2004.

Even companies in India, another likely winner in 2005 and beyond, are getting nervous, and many see the need to devise strategies to enable them to compete in 2005 and beyond. In a recent report in Textile Outlook International, two researchers, Uday and Archana Sekhar, have identified seven strategies being pursued by some of the more forward-looking Indian firms in preparation for 2005:

  • improving production efficiency through increased automation;
  • re-engineering of production systems;
  • expanding capacity and integrating operations;
  • collaborations with foreign companies;
  • backward and forward integration of operations;
  • moving up the value chain; and
  • enhancing marketing capabilities.

Not all firms are pursuing all seven strategies. Nonetheless, the list shows that the industry in India is taking the threat from China seriously.

The industries in India and China are similar in many respects - both are large in scale, and both benefit from indigenous fibre supplies and very low labour costs. However, they are dissimilar in others. China's textile industry has grown much faster than India's in recent decades. Also, while India has invested heavily in ring spinning, China is way ahead in replacing its obsolescent shuttle looms with modern shuttleless technology.

Competitive weapons
For Mexico, quota-free access to the US market will cease to be a competitive weapon. However, Mexico will continue to enjoy the competitive advantages of market proximity, preferential tariffs and low labour costs.

In addition, it will continue to benefit from close links and production-sharing arrangements with US manufacturers. Although China has taken over as the USA's leading supplier - and stands to make further gains in 2005 and beyond - Mexico should be able to retain a high share. The same applies to Caribbean countries, which have been granted enhanced benefits in recent years.

For suppliers in Central and Eastern Europe and the Mediterranean Rim, including Turkey, quota-free access to the European Union will similarly cease to be a competitive weapon once quotas have been eliminated for all. This is likely to lead to falls in market share at the expense of Asian suppliers.

But major exporters in the region will continue to benefit from market proximity, duty-free access and low costs. Also, ties with importing countries will be strengthened for a number of the region's exporting countries in 2004 when they join the European Union.

Elsewhere, the strugglers will include those countries whose exports have not been subject to quotas. Many such countries have flourished in recent years because they were free to export while quotas held back their competitors.

Notable among these is Mauritius, whose industry was built up from almost nothing on the back of quota-free (and duty-free) access to the EU under the Lomé Convention. Mauritius faces an uncertain future. Unlike countries in Central and Eastern Europe and the Mediterranean Rim, Mauritius has no locational advantages.

Bangladesh, similarly, is distant from its main markets. Some years ago, the EU granted Bangladesh quota-free access (subject to certain origin rules) because it was a "least developed" country. For the same reasons, Bangladesh was given generous quotas for the US market.

Preferential treatment, combined with the country's low labour costs, has given Bangladesh a major competitive advantage. As a result, exports have boomed in recent years. But in 2005 quota-free access will cease to be a competitive weapon.

Bangladesh's future growth in 2005 and beyond must therefore remain uncertain.
Bangladesh is especially vulnerable because its upstream textile industry is relatively weak. Thus it is heavily reliant on imported materials and all the associated logistical and cost problems which result. Post-2005, Bangladesh will have to fall back on its low wage costs and duty-free access to its major markets.

Expert Analysis

Textile Outlook International
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Question mark
A big question mark must also hang over Sub-Saharan Africa, which is only just starting to develop as a result of the granting of duty-free and quota-free access to the US market under AGOA. When in 2005 there are no longer any quotas to restrict competing suppliers, the future of Sub-Saharan Africa and the success of the AGOA project must remain uncertain.

Hong Kong, a likely loser, is a different case. Production survives in the territory largely because of Hong Kong's historically high quota holding. This reflects an era when Hong Kong's costs were competitive and China was not a major player in world trade. Once quotas go, Hong Kong's advantages as a major quota holder will become worthless.

Market proximity will become an increasingly valuable competitive advantage as customers demand better quality of service, timeliness and reliability of delivery from their suppliers. As product life cycles become shorter, the risks of being left with unsold merchandise become ever greater. Market proximity can also help suppliers to carve out a competitive advantage by building close relationships with their customers.

However, there are other ways of competing. Often neglected in such analyses is the product itself. The scope for product improvement is infinite, and includes such aspects as fit, comfort, functionality, design innovation and brand image to increase customer appeal. With such a variety of non-price factors on which to compete, there should be room in the global market of 2005 and beyond for high cost suppliers as well as those paying the lowest wages.

Arguably the biggest winners in 2005 and will be the world's consumers. Quotas have kept supplies scarce and prices higher than they would otherwise have been. Higher prices benefit everyone in the textile and apparel supply chain except the end user.

Furthermore, when quotas end, lower prices may even encourage consumers to buy more clothing - which would benefit everyone in the industry worldwide.

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