The Value Chain In T&C Industries In Domestic And International Markets

The Value Chain in T&C The Value Chain in T&C Industries in Domestic and Industries in Domestic and

International MarketsInternational Markets

The Role of SMEs in the T&C Industries; The Economics and Business of Fashion

Presentation by Presentation by

Mr. Matthias KNAPPEMr. Matthias KNAPPE

Caserta, Italy 30 November 2005Caserta, Italy 30 November 2005

Technical cooperation arm of WTO and UNCTAD for Technical cooperation arm of WTO and UNCTAD for operational enterprise-oriented capacity building for operational enterprise-oriented capacity building for

trade promotion and export development.trade promotion and export development.

……for developing countriesfor developing countries

Context:

Global T&C trade: 453 billion $ (clothing 258 bio $)

T&C: 7% of global merchandise trade

LDC share of world clothing trade: 5%

Many DCs & LDCs depend on clothing exports or regard clothing as a future export sector, but not the domestic maket

WTO: T&C is a normal sector

Characteristics of T&C industry in DCs

• Most LDCs have no integrated T&C industry (clothing exports = 8 times textile exports)

• SMEs mainly produce clothing and not textiles

• Poor market diversification• Poor product diversification• Mainly CMT/maquila: « full-package » to be

developed (incl. product dev. & design) • Fashion for the domestic market is minimal

Structure

The Role of SMEs in the

T&C Value Chain

The Role of SMEs in the

T&C Value Chain

FashionProducts:a Result

of Services

FashionProducts:a Result

of Services

MarketPressure forSMEs in DCs

MarketPressure forSMEs in DCs

1. Prices are falling

1.65

2.2

2.31

2.4 2.41

2.35 2.33

2.23

2.182.14

1.89

1.831.78

1.5

1.6

1.7

1.8

1.9

2

2.1

2.2

2.3

2.4

2.5

US

$/s

me

1983 1989 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Trends in US T&C Imports 1983 - 2004

Source: Textile Outlook International No. 116 March-April 2005

EU: Import Price Development for Clothing

Import Prices in EU for Clothing from 1990-2003

14.0

17.1 17.2 17.3 17.1

18.317.4

16.3

14.4

13

14

15

16

17

18

19

1990 1997 1998 1999 2000 2001 2002 2003 2004

Years

Pri

ces

in E

uro

Per

KG

Prices of Clothing

2. Consolidation (at 4 levels): what are the consequences for SMEs?

Likely Post 2004 Sourcing Pattern

0

10

20

3040

50

60

70

Under Quota Year 2005/6 Year 2010

Year

Nu

mb

er o

f C

ou

ntr

ies

Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002

3. Move towards a Service Industry: Have SMEs the vision?

Value-Added

Time2005

ManufacturingManufacturing

Manufacturing & Manufacturing & SourcingSourcing

Manufacturing & Manufacturing & Sourcing & Product Sourcing & Product

DevelopmentDevelopment

Full ServiceFull ServiceBuyers requirements

1970

4. Pressure from Frequent Fashion Changes Demands Quick Response

• From 2 to multiple selling seasons• More fashion products with short product life

cycles vs. basic products with regular replenishments

• Quick response: a « puzzle » of many variables along the value chain

• This « puzzle » needs to be solved first • Difficult with practices establised over decades• Stop « firefighting »: new business strategies,

processes & procedures

5. Pressure to Form Strategic Alliances

• Quota system forced retailers to take over value chain responsibilities

• These responsibilities be given to suppliers

• To do so trustworthy partners are needed

• Virtual vertical operations: integrated system between manufacturer and retailer

Summary: Market Pressure

1. Prices are falling

2. Consolidation

3. Move towards a service industry

4. Frequent fashion changes

5. Strategic alliances

Structure

The Role of SMEs in the

T&C Value Chain

The Role of SMEs in the

T&C Value Chain

FashionProducts:a Result

of Services

FashionProducts:a Result

of Services

MarketPressure forSMEs in DCs

MarketPressure forSMEs in DCs

Fibres Yarn Fabrics End-Users

Man-made

Natural

Ginning

Carding

Combing

Spinning

Yarn dying

Weaving Knitting

Bleaching

Dying

Finishing IndustrialGoods

HomeFurnishing

Apparel

The T&C Value Chain

Fashion = Quick Response = Services

Sourcing

Manufacturing

Sales (+Marketing)

Inbound LogisticsCustoms,

Import Clearance

Outbound LogisticsCustoms-GSP/Quota

Export Clearance

Product development

Design & Sketches

Market Research

Buyer – ManufacturerStrategic relationship

Design & Product Development

Structure

The Role of SMEs in the

T&C Value Chain

The Role of SMEs in the

T&C Value Chain

FashionProducts:a Result

of Services

FashionProducts:a Result

of Services

MarketPressure forSMEs in DCs

MarketPressure forSMEs in DCs

To sell Fashion: SMEs need to take over VC Responsibilities i.e. Provide Services

• SMEs need to diversify: marketing• Everybody offers: good quality,

competitive prices & on-time delivery• Therefore, provide services buyers want:

1) make and send the garment quickly to my store (participate in the fashion VC)

2) Organize everything and I’ll pay you (service)

59%16%

7%

8%

10%

Fabric Trimmings Cut& make Labour Other overhead Profit

75% of 75% of cost = cost = sourcingsourcing

Cost structure of a woven shirt up to the FOB point

Material Sourcing: No.1 service demanded by buyers

Number 2 service: Use of e- technology

• The new trading environment forces the adoption of « e » solutions along the VC

• Trend is led by US buyers and HKG trading houses, followed by EU buyers

• E-applications are used throughout the value chain; trend: full VC « e » integration

• Quick responds demands « e »: design and logistics

3. Assist buyers in selling fashion

• The need to understand:– markets, – buyer requirements, – buyer’s customer requirements, and – competitors

• Need to diversify product range,possibly markets

• Need to match factory size, customer size and product

The Fundamental Relationship: Matching the Elements

Factory Size Customer Size

Product Size

Small Customer – Fashion Product – Mass Factory

2000 Machine Factory

Giorgio Armani

Cashmere Men's Jackets

Mass Customer – Commodity Product – Small Factory

300 Machine Factory Wal Mart

Basic T-Shirt

300 Machine

Factory

300 Machine

Factory Giorgio ArmaniGiorgio Armani

Cashmere

Men’s Jackets

Cashmere

Men’s Jackets

Small Customer – Fashion Product – Small Factory

Result of Services: Ability to Produce Fashion Products & Quick Response

• Understanding of: the market, customer & customer’s customer

• Material sourcing: prerequesit to understand & engage in fashion production

• E-business: prerequisite for fast delivery• Partnership: prerequisite for engaging in

fashion products• Matching the elements of a partnership

Structure

The Role of SMEs in the

T&C Value Chain

The Role of SMEs in the

T&C Value Chain

FashionProducts:a Result

of Services

FashionProducts:a Result

of Services

MarketPressure forSMEs in DCs

MarketPressure forSMEs in DCs

Summary:

• SMEs in DCs do mainly CMT but no fashion products

• Post-quota situation puts pressure on SMEs to take over VC responsibilities

• Moving into fashion is a process, starting with material sourcing

• Fashion products: a result of services• Industry consolidation competitive

pressure implications on IP

The Fashion Process in DCs and IP

• Most design does not start from original concept

• Use of existing info (design, colours, fabrics)

• Shopping the stores (& cutting & copying)• Visit fashion shows (and cutting & copying)• Possibilities in niche markets for national,

ethical & folklore design• Exploit fashion potential: collaboration of

SMEs in the north and south

THANK YOU !THANK YOU !For more information

http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing

Contact:

Matthias KnappeMatthias Knappe, Senior Market Development Officer

Knappe@intracen.org