The liberalisation of the clothing sector internationally has been controversial due to its significant socio-economic contribution in both developed and developing countries alike. However, clothing manufacture in most developed countries has already severely contracted and changed its focus. For example, the US, EU and Japan are the largest consumers of apparel worldwide, but while there is still an important apparel industry left in Southern Europe, in the US and Japan 85% to 90% of apparel is now imported.
The actual production of apparel has therefore moved away from developed to developing countries, with the commercial buyers that remain in the developed countries now controlling extended global value chains and becoming much more demanding. They insist on lower prices, shorter lead times and smaller minimum quantities, with this directly linked to the increasing sophistication of consumer markets in developed economies, as well as increasing market segmentation. The result of this is that as markets become more differentiated and fashion changes become more frequent, so manufacturers need to improve their responsiveness in respect of meeting these buyers’ demands.
The scale and scope of global clothing trade is illustrated by a number of important facts:
• Global clothing trade totalled $462 billion in 2003 and has grown at a compounded annual rate of 6.6% since 1990
• The US alone imported clothing worth $71.3 billion in 2003, up from $27.0 billion in 1990
• China and Hong Kong, which together totalled 33% of global clothing exports in 2003, increased their clothing exporting levels from $25.1 billion in 1990 to $75.2 billion Given the scale of clothing production globally, it is important to note that the South African clothing industry was built up under isolation with the domestic market driving production.
As such, it was never able to achieve scale economies. Furthermore, the industry was protected by an import substitution strategy and now that the economy is exposed to international competition it is comparatively inefficient, lacks capital, technology and innovation, and has high labour and management costs in relation to output. Liberalisation and the restructuring of the industry in the 1990s resulted in large decreases in employment, while productivity has increased through cost-minimisation and downsizing rather than production growth. Even the recent explosion in domestic retail sales amongst the major retail groups that dominate the clothing value chain has had limited impact on the sector due to the propensity of the retailers to import cheaper wearing apparel in an attempt to bolster their margins and market share. Moreover, whilst certain retailers appear to be guiltier of this approach than others, the trend is evident across all major retail groups. This is reflected in the fact that clothing imports increased 58% on 2003 levels through 2004. Conversely, South African clothing exports have generally been modest and primarily to the EU and US markets. The bulk of exports are basic, commodity items (such as T-shirts) produced because of preferential trade agreements that have provided South Africa with duty and tariff-free access, where competitor countries have generally been restricted. However, even under these conditions South Africa’s higher cost structure means that firms have found it difficult to compete with low-cost competitors, such as China, India, Indonesia, Turkey and Pakistan. Furthermore, with the end of the Multi-Fibre Agreement (see Section 4) these countries will no longer be constrained, placing South Africa in a precarious position, unless it is able to upgrade and improve its competitiveness.
Table 3 presents data on selected competitiveness indicators, comparing the performance of the domestic clothing industry relative to a sample of international clothing, South African textiles and South African automotive component firms. The data shows that not only is the clothing industry faced with major international challenges, but that it also has inherent competitive weaknesses. For example, compared to the international firms, South African firms perform poorly in relation to output per employee and total inventory holding levels. Compared to the domestic automotive component firms’ average, the clothing firms’ performance is weak in relation to total inventory, customer return rates, domestic customer lead times, delivery reliability and absenteeism. Moreover, the data illustrates that the sector lags many of the comparative indicators by a significant margin. Positively, that there is substantial scope for firms to improve their performance and thus bolster their competitive position.
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