The changing dynamics of world textile and apparel trade are closely linked to the shifting sourcing and supply chain strategies of fashion brands and retailers. And according to Dr Sheng Lu, assistant professor at the Department of Fashion and Apparel Studies at the University of Delaware, there are five critical patterns worth watching.
#1: World textile and apparel trade is slowing
After unprecedented negative growth in 2015, the value of world textile and apparel trade continued to drop in 2016. Specifically, the value of world textile exports totalled US$284.3bn, down 2.4% from 2015; while the value of world apparel exports totalled US$442bn, down 2.6%.
On top of this, the compound annual growth rate of world textile and apparel trade in the past five years has fallen to a record low since 2000 (-0.6% for textiles and 1.1% for apparel). This growth rate was even lower than the period of 2000-2004 (5.8% for textiles and 7.1% for apparel) when the quota system was still in place.
Although the popular view suggests exchange rate fluctuations and lower raw material price are the primary causes of the decline in the value of world textile and apparel trade in recent years, we should not ignore other factors such as growing trade protectionist measures and the underlying structural adjustment of the industry.
#2: Asian countries dominate world textile and apparel exports
In 2016, 62% of world textile exports came from Asian countries, up from 48% a decade earlier. Similarly, in 2016, Asian countries accounted for over 60% of world apparel exports, also a substantial increase from 51% ten years ago.
A common misconception is that Asian countries’ expanded textile and apparel exports have come at the expense of other non-Asian suppliers. However, scrutiny of the data shows this is NOT the case. For example, while EU countries lost 10 percentage points of market share in world textile and apparel exports between 2006 and 2016, the absolute value of their exports went up by almost 12% over the same period.
The fact is that Asia has quickly grown into a sizeable textile and apparel import market itself, which has created new export opportunities for countries in the region. Data shows the value of Asian countries’ textile and apparel imports surged by 67% between 2006 and 2016, compared with only 31% growth of other regions in the world. Notably, rising textile and apparel import demands from Asian countries are also mostly fulfilled by Asian countries themselves.
#3: Regional supply chains continue to endure
In general, there are three primary textile and apparel regional supply chains in the world today:
Asia: Within this regional supply chain, more economically advanced Asian countries (such as Japan, South Korea and China) supply textile raw material to the less economically developed countries (such as Myanmar, Cambodia and Vietnam). Based on relatively lower wages, the less developed countries typically undertake the most labour-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets around the world.
Europe: Within this regional supply chain, developed countries in Southern and Western Europe such as Italy and Germany serve as the primary textile suppliers. With regards to apparel manufacturing in the European Union (EU), mass market products are typically made in developing countries in Southern and Eastern Europe such as Poland and Romania, whereas high-end luxury products are mostly produced in Southern and Western European countries such as Italy and France. Furthermore, a high portion of finished apparel is then shipped to developed EU members such as the UK, Germany, France and Italy.
Western hemisphere: Within this regional supply chain, the United States serves as the leading textile supplier, whereas developing countries in North, Central and South America (such as Mexico and the Caribbean region) assemble imported textiles from the US or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the United States or Canada for consumption.
Associated with these regional textile and apparel supply chains, three specific trade flows are worth watching:
1: Asian countries are increasingly importing more textiles from within the region. In 2016, around 91% of the imports into Asian countries came from other Asian countries, up from 86% in 2006. This change reflects the formation of a more integrated and efficient regional textile and apparel supply chain in Asia – which has also helped improve the price competitiveness of apparel made by “factory Asia” in the world marketplace. In the past few years in particular, textile and apparel exports from Asia have put substantial pressure on the western hemisphere supply chain.
2: Intra-regional textile and apparel trade in the EU remains strong and stable. In 2016, 64% of EU countries’ textile imports and 55% of their apparel imports came from within the EU. Over the same period, 73% of EU countries’ textile exports and 82% of their apparel exports also went to other EU countries.
3: The western hemisphere textile and apparel supply chain, which involves countries in North, South and Central America, is facing substantial challenges due to increasing competition from Asian exporters. In 2016, only 29% of North, South and Central American countries’ textile imports and 18% of their apparel imports came from within the region – a record low in the past ten years. In the same year, Asian countries supplied 60% of textiles and nearly 74% of clothing imported by countries in the western hemisphere – a record high in history.
If regional free trade agreements such as NAFTA and DR-CAFTA no longer existed, it would be even more difficult for the western hemisphere textile and apparel supply chain to survive. The potential losers from its collapse would include not only US textile exporters but also apparel exporters in North, South and Central America. Notably, in 2016, close to 90% of apparel exported by countries in the western hemisphere was destined for the region.
#4: The changing role of China in the world textile and apparel supply chain
While China unshakably remains the world’s largest apparel exporter, its market share measured by value fell from 38.6% in 2015 to 35.8% in 2016. China’s market shares in the world’s top three largest apparel import markets – namely the US, EU and Japan – have also shown a clear downward trend in the past five years.
This result is consistent with several recent surveys that have found fashion brands and retailers are actively seeking alternative apparel sourcing bases to China. Indeed, no country, including China, can keep its comparative advantage in making labour-intensive garments when its economy becomes more industrialised and advanced.
However, it is also important to recognise that China is playing an increasingly important role as a textile supplier for apparel-exporting countries in Asia. For example, measured in value, 47% of Bangladesh’s textile imports came from China in 2015, up from only 39% in 2005.
We can see similar trends in Cambodia (up from 30% to 63%), Vietnam (up from 23% to 50%), Pakistan (up from 32% to 68%), Malaysia (up from 25% to 49%), Indonesia (up from 26% to 40%), Philippines (up from 19% to 40%) and Sri Lanka (up from 15% to 38%) over the same time frame.
A meaningful indicator to watch in the future is how many apparel exports from Asia to the rest of the world contain textiles supplied by China.
#5: Textile and apparel exports remain a critical economic development tool for many developing countries
By World Bank standards, textiles and apparel on average accounted for 18% of a low-income country’s total merchandise exports in 2016, up from 14% in 2006. This percentage also went up from 24% to 28% for lower-middle income countries over the same period, suggesting the growing significance of the sector to developing countries’ participation in global trade.
For many low-income and lower-middle income countries such as Bangladesh, Gambia, Pakistan, Madagascar, Sri Lanka and Cambodia, as much as 70% of their total merchandise exports were textile and apparel products in 2016. However, it should also be noted that low-income countries together accounted for just 0.1% of world textile and apparel exports in 2016 – which was even lower than 0.3% in 2000.
How to help these poorest and most economically vulnerable countries improve the competitiveness of their textile and apparel exports remains a tough but urgent task for the world community.