Economic Integration

Just-style.com has issued a comprehensive new report that brings attention to the uncertainty facing the world’s apparel industry with respect to the pace of future growth.

Entitled “Tomorrow’s apparel industry: products, markets, sourcing and processes -- forecasts to 2017”, the report is described as a “think piece” about the future of the apparel industry, which is designed to encourage industry executives to consider what is going to shape their industry over the next few years.

In a description of the report just-style.com says it analyses and provides future forecasts for the various sectors of the industry, and discusses how trends have changed in the 18 months since publication of the company’s last report.

Perhaps the most significant change from the last report in 2010 is the increasing level of uncertainty about a positive outcome, influenced by the current global political and economic situation. “The apparel industry and market really are at a tipping-point,” the report notes. “The forks in the road between stagnation, growth and recession are quite dramatic.”

Areas analyzed include the apparel market, merchandise trends, distribution, the industry, and sourcing and production. Moreover, the report reviews key influences on the future shape of the industry, including the supply chain, technology and computer systems issues, and political and economic factors.

Just-style.com says that for each area, the report gives a “best guess” forecast for growth between 2011 and 2017, then assesses the level of confidence it has in that prediction.

The report has greatest confidence in the areas of products and production, where it believes that the fastest-growing merchandise sectors will be women’s underwear and sportswear, with the weakest likely to be children’s wear – as recessionary conditions in the developed world drive consumers to low-price retailers.

“There is also a fair degree of confidence in predictions for distribution, where it’s thought likely that the internet will continue to gain ground, at the expense in particular of traditional mail order – although the extent of this change is debatable. In addition, sales made through social networking channels are likely to rise,” says the synopsis.

“Assessing the likely health of the apparel industry is a harder job, given the uncertainties brought about by the euro zone crisis in Europe and the earthquake and tsunami in Japan. But fastest growth is expected in the rest of the world, Eastern Europe and Turkey, offset by steady declines in Western Europe.

Projections on the likely size of the global apparel market remain broadly in line with the 2010 report, but with one significant proviso: there is far less confidence in growth, with projections clouded by the spectre of a double-dip recession in Europe, caused by the crisis in the euro zone.

The rest of the world, the report predicts, will remain a hugely significant manufacturing base, with the area (principally China, South East Asia and the Indian subcontinent) producing nearly two-thirds of the world’s apparel – but consuming only one quarter of the market total, remaining a huge net exporter to more developed regions.

Furthermore, the report assesses the key influences on these industry trends, naming raw materials costs, increasing labour costs, oil price increases, political instability and the ethical debate about sustainability, the environment and fair trade as the most significant.

And it suggests that rising labour costs will produce “permanently higher prices” for consumers in developed markets, despite a likely easing in future cotton and fibre prices and a return to more “sensible” levels for oil prices.

Meanwhile, political instability will persist in the Muslim world in particular, but will only affect a relatively small part of global production, while concerns over ethical and fair trade will be the most significant areas of debate among social responsibility issues.”

Questions:  Is the uncertainty for the apparel industry expressed in the description of this report a common view?

Which sectors fact the most severe challenges?

Which countries are better suited to overcome the challenges?  Which are not?

A fresh approach to supply chain co-operation will become increasingly vital for the long-term development of the textile industry, Mr. Loek de Vries, Chief Executive Officer of the Dutch technical textile specialist, Royal Tencate, said at the first ITMA-ITMF World Textile Summit in Barcelona, Spain this month.

In a report by the World Textile Information Network, Mr. de Vries said: “It is only through a shared vision of value chain management that we as an industry will be able to create our own competitive edge. Slowly but surely, the production-dominant approach will disappear from the value chain and be replaced by a market-oriented way of operating. Openness, transparency, co-creation and the sharing of knowledge will be central to this, with the value chain becoming ever more efficient.”

De Vries said that innovation in the textile industry is increasingly being driven by demands created by seven major long-term consumer-driven trends: ageing; individualisation; globalisation; urbanisation; sustainability; financial and public debts; and the limited availability of raw materials.

He picked out digital technology as a key example of how to respond to such trends. 

“Individualisation and also sustainability call for new processes, like digitalisation,” he explained. “The digital printing and digital finishing of textile substrates will soon be the norm, because it enables the industry to react faster at market needs.”

He added: “The textile industry needs advanced production technologies such as inkjet and nano technology in order to cope with the ever occurring need to reduce costs.” 

In 2008 TenCate acquired Xennia Technology, based in the UK, to make inkjet technology fully suitable for finishing technical textiles, and a prototype for a continuous finishing process was demonstrated at the beginning of 2010.

De Vries noted several examples of the effectiveness of the technology, such as the Vishal Fashion factory in India, where the Xennia Osiris inkjet machine finishes a staggering 2,500 sq metres of textiles an hour. “The competitive edge of this machine is mass customisation,” he said. “Reaction speed to new fashion trends is unbeatable compared to traditional process technologies.”

Question:  Is the US textile industry positioned to react promptly to changes in supply chain focus?

In the following article by the World Textile Information Network at the inaugural ITMA-ITMF World Textile Summit in Barcelona, Spain earlier this month, a speech by a US economist suggests future challenges facing the Chinese and German textile industries may present new opportunities in the US and India.

There are a number of factors that are likely to alter China’s current dominance of assembly and labour-intensive manufacturing, and Germany’s leading position in capital goods and precision manufacturing, according to Barry J Eichengreen, professor of economics and political science at the University of California, Berkeley. 

He said that historical evidence suggests that China, as with all fast-growing economies, will slow down at some point. “Growth invariably slows as a catch-up economy begins to approach the technological frontier,” he said, pointing to four key factors:

• Followers can no longer grow simply by importing advanced technology - eventually they must develop their own

 • With higher living standards come increased demands for social services, etc. and lower rates of fixed capital formation

 • More investment is absorbed simply by making good depreciation on a now larger capital stock

 • The same demographic transition (decline in birth rates) that previously produced a rise in the share of the population in the labour force now produces a decline (as those workers age).  China’s population aged 15-24 will fall by 21% over the next decade.

While acknowledging the significant challenges faced by India’s textile industry, such as infrastructure problems, the uneven quality of the raw cotton produced primarily by subsistence farmers, and the rigid labour laws making separating workers from large firms difficult, thereby providing an incentive to stay small, Prof Eichengreen pointed to compelling evidence that India could capitalise on a slowdown in China.

“India has abundant hard-working labour,” he said. “It has no shortage of able entrepreneurs (as its success at high-tech services shows). It has a well-regulated banking and financial system by emerging market standards.  It has a vibrant multi-party democracy. And while it has infrastructure (transport and energy) bottlenecks, these can be relaxed by a handful of strategic investments.”

Focusing on India’s textile industry, he observed that:

• The industry is 4% of Indian GDP and provides 14% of the country’s exports.

• Indian textiles and apparel are attracting FDI at a rate of $1 billion a year, with the recent joint venture between Geoffrey Beane LLC and Arvind Ltd. an illustrative example.

• The Government has created 40 textile parks with reliable power etc. to relax infrastructure constraints.

• The Government plans to ramp up the training of additional qualified workers.

• India has an emerging comparative advantage in design.

• India has a booming domestic market.

Prof Eichengreen said that the key danger signs for Germany are low investment rates, especially in modern information and communications technology, low growth prospects, and, as with China, an ageing demographic.

He said that the prospects for manufacturing as a whole in the USA can improve over the coming years, pointing to factors such as its world-class universities, flexible markets, and the culture of entrepreneurship. “As the US rotates away from consumption and toward exports, the production and sales of business equipment (machinery, IT equipment) is growing rapidly. Germany may have the specialised products, but the US still dominates the production of many high-end standardised capital goods.”

Questions:  Is there agreement or disagreement with the professor’s comments?

How best can the US and India prepare to take advantage of such a slowdown?