FW
Eager to avoid the higher costs associated with tariffs, several American consumer goods companies are considering shifting, or already have shifted, their supply chains away from China. They are in most cases seeking alternative manufacturers in countries that offer similar manufacturing capacity for a comparable cost.
However, rapid changes to supply chains also may expose companies to greater risks. Establishing compliant, reliable and secure supply chains takes time, and failure to properly vet suppliers can have material consequences.
One US company took 20 years to establish its supply chain in China. To cultivate a partnership, companies typically vet new suppliers by executing multiple inspections and verifying compliance with company-specific policies and codes of conduct. Once suppliers achieve these initial requirements, they have to be monitored on an ongoing basis and must comply with periodic audits. Companies have to invest a significant amount of time and money to establish and maintain a secure supply chain. As China and the United States continue to introduce new tariffs and exchange threats, companies may forego these precautions as they attempt to quickly redirect production. This situation could be exacerbated given that the factories with available capacity to accept new orders are likely to have lower standards.
US fashion brands and retailers are deeply concerned about the negative impacts of the tariff war on their businesses. Prices of US apparel imports are rising, making increasing production and sourcing cost the top business challenge. As companies are moving sourcing orders to Bangladesh, Vietnam and India, the average price of US apparel imports from these countries – the main alternatives to China — has gone up quickly. Trade diversion effect has accelerated US fashion companies’ pace of reducing sourcing from China. About 83 per cent of respondents expect to decrease sourcing from China over the next two years, up further from 67 per cent in 2018.
US companies feel they have no option but to increase their retail prices should the US-China tariff war escalate further. The scheduled Section 301 tariffs on $300 billion Chinese products to take into effect on September 1, 2019, will be increased from 10 per cent to 15 per cent.
Unit price of US apparel imports across the board increased 10.7 per cent in the first five months of 2019. The unit price of US apparel imports in the first five months of 2019 from Bangladesh, Vietnam and India shot up 25.6 per cent, 23.4 per cent and 21.2 per cent respectively.
Last World Trade Organization (WTO), data shows, global fashion exports in the last decade increased by 35.1 per cent, while global trade increased 26.4 per cent. In 2007, two years after the Multifiber Agreement came into force, clothing exports increased to $349 billion. A decade later, these exports increased to $471 billion. Global trade in the same period increased from $14 billion in 2007, to $17.7 billion in 2017.
India registered the strongest performance in its international clothing trade during this period; followed by Brazil and other Asiatic countries excluding China and the ASEAN member. Exports by the United States increased by 28.6 per cent between 2007 and 2008, those by Japan increased by 20.1 per cent and the European Union by 33.5 per cent.
China, that entered the WTO in 2001, increased its garment exports by 93.3 per cent during this period. Middle East and Australia also positioned high in the list, with rises near 100 per cent.
Restrictive measures of world trade registered exceptionally high levels between October 2019 and mid-2019 as the value of trade affected by these countries was estimated to be $339 billion, the second highest number available, after the $588 billion registered the previous period.
New Delhi hosted the 4th edition of Gartex Texprocess from August 10 to 12.This is a one-stop selling and sourcing platform. It witnessed intense networking as it brought together 180 exhibitors from four countries and 10,390 trade professionals from 290 cities and six countries under one roof. Multiple zones and focused business segments on the show floor ensured that the fourth edition brought together stakeholders of the textile and garment industry for cross-sector, creative and collaborative interactions.
The dedicated segments at Gartex Texprocess India ensured dynamic synergy on the show floor and proved to be vital in highlighting the latest tech-advancements and trends that the textiles and apparel industry is moving towards. While smart and recycled fabrics, sustainable alternatives, advances in digital textiles, elegant embroideries and trims were among some of the highlights on the show floor that help manufacturers differentiate their products in the market, seminar sessions alongside the exhibits were tailored to provide insights on high-potential business segments.
As a one-stop selling and sourcing platform, the event lived up to its promise of a truly business-oriented platform for India. With high quality visitors and decision makers walking in over all three days, the trade potential at Gartex Texprocess proved to be strong for the sector.
Indonesia will impose a tariff of 2.5 per cent to 18 per cent on imported textile products. The form of tariff will be like a pyramid, the smallest upstream industry at 2.5 per cent and the biggest downstream at 18 per cent. The aim is to protect the domestic textile industry from Chinese products, especially as a result of the trade war. In addition, the depreciation of the yuan has made Chinese products more competitive than local products since the price gets cheaper.
Indonesia fears a heavy influx of yarn, fabric and garment products from China. The US has imposed a 25 per cent import duty tariff for textile products from China. Meanwhile, the tariff imposed by Indonesia is around ten per cent to 15 per cent. With these tariff differences, there is an opportunity for China to shift its textile products to Southeast Asia, including Indonesia. This will lead to an excess supply of textiles and prices will fall and hit the manufacturing sector.
As it is the performance of the Indonesian textile industry sector has continued to decline in the last ten years. On an average, exports have risen only three per cent while imports have risen 12 per cent.
The Indian spinning industry is facing its biggest ever crisis. One third of the country’s spinning capacity is closed. Mills are currently incurring huge losses and the upcoming cotton crop of four crore bales is struggling to find buyers in India and abroad. The textile sector has witnessed big job cuts — over 25 lakh jobs — in the last decade.
Even the cotton ginning industry which is a supplier to textile mills is in the doldrums. For instance there were 422 ginning mills in Punjab in 2007 and the number has come down to 60. Nearly 40,000 workers were employed by ginning factories. In the last 12 years, 34,000 jobs have been lost.
The decline in exports in the first quarter of the current fiscal has come to haunt cotton growers. The 27 per cent increase in the minimum support price for cotton in India is making their produce internationally uncompetitive. Cotton in the international market is cheaper than in India. Farmers are worried that these trends will affect the market prices of cotton, the harvest for which will begin in the first week of September. Cotton has been sown over nearly 16 lakh hectares in the three states of Punjab, Haryana and Rajasthan.
Apparel Sourcing Week will be held from February 20 to 22, 2020, Bangalore. This is a sourcing platform for top foreign retailers and brands. It provides Asian manufacturers a platform to showcase their products and manufacturing capabilities to brands and retailers from all over the world including India. The target is to have 100 hand-picked exhibitors for their focus on creativity, quality, delivery commitments and compliance to social obligations. They will be showcasing a wide range of products that include women’s wear, children’s wear, denims, formal and casual suits, sportswear, jackets, lingerie, swimwear and sweaters. There will be 50 manufacturers and suppliers of fashion fabrics and accessories. While there will be a variety of cotton, manmade and sustainable fabrics available in various blends, accessory makers will present a wide array of laces, buttons, zippers, threads, interlinings and labels. There will be a special section dedicated to fabrics and accessories. The best of the apparel sector from across India, Bangladesh, Vietnam, China and Sri Lanka will be showcased.
Seminars, workshops, open-house discussions and networking opportunities will help manufacturers get a better understanding of Indian and international retail and the evolving dynamics of sourcing in various markets and retail formats.
"Although shares of Fast Retailing, the Japanese company behind clothing brand Uniqlo, surged more than 75 per cent over the past year due to its steady expansion in overseas and endorsement deals with tennis star Roger Federer and golfer Adam Scott, around 2,000 of its Indonesian laborers were laid off with unpaid wages and no severance payments by its vendor. Their employer, who went bankrupt in 2015, has been accused of labor violations that included unpaid overtime and union busting."
Although shares of Fast Retailing, the Japanese company behind clothing brand Uniqlo, surged more than 75 per cent over the past year due to its steady expansion in overseas and endorsement deals with tennis star Roger Federer and golfer Adam Scott, around 2,000 of its Indonesian laborers were laid off with unpaid wages and no severance payments by its vendor. Their employer, who went bankrupt in 2015, has been accused of labor violations that included unpaid overtime and union busting. These workers then demanded $5.5 million of back wages and severance payments from Uniqlo (Fast Retailing) which was rejected, as the brand claimed that it was under no legal obligation to fulfill these demands.
Recently, due to increased pressure from workers, unions and other organisations that support them, multinational companies have been reimbursing laborers for unpaid wages. However, this is not the only issue that laborers face. They are also troubled by the intricate imperialist relations that characterise the capitalist world economy.
Reorganisation of work augments labor exploitation
As per unit labor costs data, countries like China, India and Indonesia, which have the highest global labor-value
chain, also have very low unit labor costs. This is also true for Southern countries like Mexico, which has experienced a sharp decline in unit labor costs relative to the United States within the 1995-2014 period. These countries not only have high productivity rates but also low wages which results in higher profit margins with the additional value generated often credited to production in the countries in which these multinationals are headquartered.
These global labor-value chains largely benefit the multinationals that control them through subcontracting. Any misconduct is therefore, attributed entirely to the subcontractors though these mega-corporations are majorly responsible for the exploitation of these workers. Multinationals often place strict conditions and unreasonable demands on their suppliers which lead to the reorganisation of work in their factories leading to more exploitation of workers.
Ways MNCs can control supply chains
A large part of this fault also lies with suppliers who regard their multinational clients as highly prestigious. Therefore, they willingly submit to the unreasonable demands of multinationals even though it often leads to difficulties in production processes. Most demands are delivered through the imposition of systemic rationaliaation and flexible production that began in the 1970s and are continuously maintained by new information technologies, aiming at establishing production, administration, and distribution processes.
For example, the imposition of delivery on demand by multinationals compels suppliers to implement a buffering policy which makes it imperative for these suppliers to get their finished goods ready and store them in warehouses, to be sent only when their multinational customers need them.
This reorganisation of intensifies the exploitation of workers by forcing them to increase their productivity while stalling wages. To counter this, multinationals should ensure that their suppliers comply with national regulations limiting overtime by monitoring them through third party organisations that audit the suppliers and issue standardization certificates. They should also encourage suppliers to increase strict, direct control of labor on the factory floors, as well as apply an incentive system and a specific measurement of individual or group performance that would reward “productive” workers and punish those who fail to achieve production targets.
The intricate global value chain is a system of balls and chains in which the Northern capital is in a commanding position. This phenomenon indicates a new phase of imperialism, used by capital and its state instruments to propose a new set of demands from brands through which they can control their production systems.
Zara has launched a denim line ‘Denim from Denim’, created from cotton extracted from other used jeans. This is the first collection of the brand using denim waste. Also Zara will start retailing Zara Home, though this fusion will not mean the closure of all Zara Home independent stores. In the last couple of months, the home line has added elements like sunglasses and phone cases, and reinforced its garment offer, limited up until now to sleepwear. Zara Home was the chain with the best performance in 2016.
Zara's growth is flagging because of heightened competition, which is forcing the company to lower prices of clothes and footwear and to put more apparel on sale. Growth in online sales is also chipping away at profitability, because it is more expensive to ship internet orders. Inditex, based in Spain, owns Zara and seven other brands such as Massimo Dutti and Bershka. The biggest contribution to Inditex’s revenue comes from Zara. This year Inditex has launched a new decorating service for restaurants, hotels and companies. Competitors have been unable to fully replicate Inditex's business model, which takes clothes from design to rack in weeks. However the crucial profitability metric has fallen somewhat in recent years.
Zimbabwe is plugging loopholes in the grant of rebates to clothing manufacturers. Some players in the garment making sector have been found to abuse the facility over the past six years, which has led to revenue losses and distortion of both national and regional value chains and of linkages through various malpractices. These include disposal of fabrics intended for value addition on the domestic market, transfer pricing, under-invoicing and incorrect declarations to evade local taxes while taking advantage of preferential trade agreements to realise huge profits in regional markets.
The rebate was aimed at reviving the clothing value chain and was initially granted on select imported fabrics for use in the manufacture clothe g for a period of one year. Materials eligible for the rebate are from manmade yarn and include denim, cotton sewing thread, woven fabrics of polyester staple fibers, chenille fabrics, tulles and other net fabrics. The fabrics are kept in bonded warehouses from where they are withdrawn under supervision. However companies make withdrawals misrepresenting the amount of material they need to make apparel.
Some players in import material that is locally available and later produce garments for the international market, a development that threatens to destroy downstream players such as cotton farmers, ginners, spinners and weavers.
