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Global Economy

A new way to mitigate buyer risk in apparel

Mark Jones's picture
Bangladesh's share of the apparel market is increasing
The Alliance and Accord have been working over the past three years with more than 1,500 factories to help them meet new fire and building safety standards

The China sourcing conundrum
In conversations with U.S. and European retailers and brands, ELEVATE – a company formed in 2013 to support corporate social responsibility – finds that apparel buyers rate diversifying away from China as one of their top three sourcing goals.

This is not to suggest that there is a desire to exit China – which currently holds by far the largest share of global apparel trade, at 41 percent – but rather a need to significantly reduce dependence on product from China, owing to rising costs, factory closures, unenthusiastic second generation family ownership, new attitudes about working in factories, and a perception that China wants to move to higher-value manufacturing. Sourcing and procurement organizations feel uncertain, and uncertainty is not a friend of supply chains.

The problem is that for all its uncertainty, China still has a huge base of factories, a well-developed transport infrastructure, and a comprehensive eco-system that supplies cut-and-sew operations, and management that has matured with years of experience. Even if a buyer would like to give another country an opportunity, many corporate risk managers view certain countries or regions as quite challenging for doing business.

Stitches to Riches? The Potential of Apparel Manufacturing in South Asia


South Asia could seize this opportunity by better meeting requirements – besides competitive costs – that are vital to global buyers. These include: (i) quality, which is influenced by the raw materials used, skill level of the sewing machine operator, and thoroughness of the quality control team; (ii) lead time and reliability, which are greatly affected by the efficiency and availability of transportation networks and customs procedures; and (iii) social compliance and sustainability, which has become central to buyers’ sourcing decisions in response to pressure from corporate social responsibility campaigns by non-governmental organizations, compliance-conscious consumers, and, more recently, the increased number of safety incidents in apparel factories.

Surveys of global buyers show that East Asian apparel manufacturers rank well above South Asian firms along these key dimensions, as noted in a new World Bank report on apparel, jobs, trade, and economic development in South Asia, Stitches to Riches (see table). So, what can South Asia, which now accounts for only 12 percent of global apparel trade, do to become a bigger player? An encouraging recent development is that buyers have started collaborating to facilitate new sourcing possibilities – as the case of Bangladesh illustrates.

What will it take for India to reach double digit growth?

Prajakta S. Sapte's picture

 
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“Despite the global slowdown, India has been one of the few countries to have shown remarkable growth in the last financial year. While this has been an achievement in itself, this growth rate can be taken to double-digits.” This was the key message of Dr. Frederico Gil Sander, Sr. Country Economist, World Bank Group, New Delhi. Dr. Gil Sander was speaking to students at the IIM Ahmedabad as part of the World Bank - IIM Discussion Series. The discussion centered around “Financing Double-digit Growth: Current and Long-term Challenges of India’s Financial Sector”.

Dr. Gil Sander noted that urban consumption and public investment have been the key drivers for current growth. Additionally, a good monsoon this year is expected to give a boost to rural consumption. These, coupled with the promised emphasis on supply-side factors such as labour reforms, the inclusion of more women in the labour force, and the timely implementation of GST can boost economic growth. To further increase this growth rate, potentially to double-digits, these drivers will first have to be augmented by productive capacity investment, which in turn depends on ease of credit availability from banks. However, credit growth in India is marred primarily by high lending rates, priority sector lending regulations and rising non-performing assets (NPAs).

How much of China’s apparel production can South Asia capture?

Raymond Robertson's picture
Clothing Manufacturing
Apparel manufactuaring has the potential to provide much needed jobs to women in South Asia
Photo by: Arne Hoel/World Bank

China now dominates the global apparel market – accounting for 41% of the market, compared with 12% for South Asia. But as wages in China continue to rise, its apparel production is expected to shift toward other developing countries, especially in Asia. How much of China’s apparel production can South Asia capture and therefore how much employment could be created? This is important because apparel is a labor intensive industry that historically employs relatively large numbers of female workers. 
 
In our new report, Stiches to Riches?, we estimate that South Asia could create at least 1.5 million jobs, of which half a million would be for women. Moreover, that is a conservative estimate, given that we are assuming no changes in policies to foster growth in apparel and address existing impediments.

Harnessing Stitches for Riches in South Asia

Gladys Lopez-Acevedo's picture
Stitches to Riches? The Potential of Apparel Manufacturing in South Asia

In the coming years and decades, China is expected to slowly relinquish its lead position in the global apparel market, opening the door to other competitors. This is a huge opportunity for South Asia to create at least 1.5 million jobs that are “good for development” – of which half a million would be for women – according to a new World Bank report Stitches to Riches?  But those numbers could be much higher if the region moves quickly to tackle existing impediments and foster growth in apparel, which will also yield dividends for other light manufacturers (like footwear and toys).
 
How South Asia fits in the global apparel market
Currently, China holds by far the largest share of global apparel trade – at 41 percent, up from 25 percent in 2000, with about 10 million workers. But as China continues to develop, it is likely to move up the global value chain into higher-value goods (like electronics, and out of apparel) or switch production among sectors in response to rising wages. A 2013 survey of leading global buyers in the United States and European Union (EU) found that 72 percent of respondents planned to decrease their share of sourcing from China over the next five years (2012-2016).
 
Already, the top four apparel producers in South Asia – Bangladesh, India, Pakistan, and Sri Lanka – have made big investments in world apparel trade, now accounting for 12 percent of global apparel exports (see figure). In terms of apparel export value, Bangladesh leads the pack (at $22.8 billion), followed by India ($12.5 billion), Sri Lanka ($4.4 billion), and Pakistan ($4.2 billion).
 
China dominates global apparel trade
(Country share of global apparel exports)


Source: Stitches to Riches?
 
Why apparel jobs are “good for development”
When we think of jobs that are “good for development,” the main yardstick is whether they will help translate growth into long-lasting poverty reduction and broad-based economic opportunities. Apparel fits the bill for numerous reasons. 

Higher education for the 21st century in action

Joe Qian's picture
The graduating class of the University of Moratuwa’s Department of Textile and Clothing Technology. Photo Credit: Isuru Udara

Imagine a school that teaches knowledge and provides hands-on training. A place where students express confidence in their skills, and are excited to make a difference in their future jobs. A bastion of confidence and optimism, where 100% of graduating students have jobs lined up before graduation.
 
Sounds too good to be true? I found this haven at the University of Moratuwa’s Department of Textile and Clothing Technology, supported by the Higher Education for the 21st Century Project (HETC), which is designed to modernize education by its increasing its quality and relevance. 24-year-old Malaka Perera, who is graduating next month, told me how the program has helped him build a foundation for his career. “The program taught me how to deal with people, along with communications and problem solving skills that I used during my internship. As a result, finding a job was quite easy.”
 
Sri Lankans have enjoyed the benefits of broad education access for decades, which has allowed the country to build human capital to rise and become a middle income country. However, as a country with rising aspirations in an increasingly globalized world and competitive region, the quality and relevance of its education system is key for the country to maintain its edge and reach new heights.

Make in India: Which exports can drive the next wave of growth?

Saurabh Mishra's picture
Structural transformation depends not only on how much countries export but also on what they export and with whom they trade. In my new IMF working paper with Rahul Anand and Kalpana Kochhar, we break new grounds in analyzing India’s exports by the technological content, quality, sophistication, and complexity of India’s export basket. The paper can be found here. Here are few key pieces of evidence from our paper:
 
Technological content of India’s exports   

The evolution of Indian exports has not followed a “textbook” pattern. The pattern of evolution points to a dichotomy in the Indian economy – a well integrated, technologically advanced services sector and a relatively lagging manufacturing sector. The share of service exports in total exports has grown to over 32 percent in 2013 from 28 percent in 2000. On the other hand, the share of manufacturing exports in total export has declined to 67 percent from nearly 80 percent during 1990-2013.
 
The growth in service exports has been more rapid, resulting in the share of services exports in total exports to increase rapidly over the last decade. This can be explained by technological changes. Many services do not require face-to-face interaction, and can be stored and traded digitally. These services are called modern services. Modern services are the fastest growing sector of the global economy. This is particularly evident in India, where modern services exports account for nearly 70 percent of the total commercial services exports (compared to around 35 percent in EMs) (see Figure 1). 
      
Figure 1. Rapid Growth in Modern Services from India

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