Mlardalen University Vsters SCHOOL OF BUSINESS MIMA International Marketing 2006-05-31 Master Thesis EX0110 Supervisor: Carl G. thunman Tutor: Claes Jonsson Group: 1238 The international manufacturing and sourcing pattern and practices of Swedish garment industry Authors: Muhammad Takbeer Hossain Wajih Ullah Khattak Fozia Bibi
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The international manufacturing and sourcing pattern and
The objective of this research paper is to investigate international manufacturing and outsourcing strategies of Swedish clothing industry. We hope that the results of this study would help the Swedish companies to embark on international business. We will analyze the global sourcing strategies of the Swedish clothing retailers with their current suppliers in order to understand how they became international and the factors that lead to this change. Global sourcing involves setting up production operations in different countries to serve various markets, for buying and assembling components, parts or finished products worldwide (Kotabe and Murray 1990; Kotabe and Omura 1989; Moxon 1975). Outsourcing is defined as the procurement of products or services from sources that are external to the organization (William M. Lankford 1999, Faramarz Parsa1999). Corporate outsourcing has been interesting for both academic and practitioners. Many companies realized that the peripheral functions such as cleaning, transport and facilities management is not one of their core competences and this can be easily and economically contracted out to different companies. In recent years it has been done to extreme e.g. outsourcing the HR department and manufacturing departments as well. Companies have realized their added value is in fewer firms such as designing and marketing whereas the other functions are inefficient, cost-raising complexity, which is reducing market competitiveness (Andy Winterton). Where the companies of today have a lot of opportunities to outsource still they need to have some guideline about the decisions. As a part of the companys strategic development, the decision of international manufacturing and outsourcing needs to consider different factors, including conditions to the final product market, facility, cost, expertise and supply market condition.
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Mälardalen University Västerås SCHOOL OF BUSINESS MIMA �International Marketing 2006-05-31 Master Thesis EX0110 Supervisor: Carl G. thunman Tutor: Claes Jonsson Group: 1238
The international manufacturing and sourcing pattern and practices of Swedish garment industry
Authors:
Muhammad Takbeer Hossain
Wajih Ullah Khattak
Fozia Bibi
ABSTRACT Program Course
International Marketing Master Thesis
Authors
Wajih Ullah Khattak Mohammad Takbeer Hossain Fozia Bibi
Title: �The international manufacturing and sourcing pattern and practices of Swedish
garment industry�
Problem: This paper is to investigate �Why�, �Where� and �How� the companies are sourcing
and dealing with their international clients.
Purpose: This research paper is aimed to examine and to see how the international
manufacturing and sourcing strategies are used by the Swedish clothing companies and
recommend the new companies how to adopt them in order to get benefit from it.
Method: After a lot of discussion and meetings with our tutor we decided to make a research
about the international manufacturing and outsourcing and the reasons for outsourcing. In the
beginning a market survey was done by roaming around the market and asking questions at
the retail stores, and then we selected some leading companies about which secondary data
and previous studies were done while we gathered the rest of the information directly from
them which were not covered by the previous studies. When the final selection was done
about the companies, information from secondary resources was gathered and some of the
employees were contacted in order to get the information which was not available in
secondary data. After getting the information from the companies, we tried to analyze the
information according to the model.
Usability: This thesis is useful for people who want to know about how the companies make
the international manufacturing and sourcing strategy and also for the companies which want
to review their international manufacturing and sourcing process.
Conclusions: The study of the Swedish garment sector revealed that the primary motive of
companies going abroad is to achieve cost effectiveness and availability of low priced and
good quality raw material, therefore most of the companies before globalization started
business in Hong Kong, Portugal, Turkey, Italy and the Baltic States but after globalization
most of the production is going towards Far East due to much cheaper labor and high quality
raw material. The supply strategy differs among the companies and their business culture,
therefore almost three ways are found; firstly by those companies which acquire their own
brand are investing in foreign market and have overseas offices, secondly some companies
which are running different brands are dealing with independent suppliers and different
producers, the third way of doing business we found in those companies, which don�t have
their own brand and keep different type of brands and are targeting variety seeking customers,
they are dealing mostly with agents abroad and few importers within Sweden and rarely give
big orders to suppliers.
Acknowledgement Completing this master thesis on time seemed impossible most of the times, we are really
thankful to �Allah� who blessed us with giving us the courage and motivation to complete the
task on time. Many people have been involved in helping us complete this master thesis and
we would like to thank all of them for their kind help and support. We specially thank our
tutor �Claes Jonsson� who helped us in all the difficult times. We would also like to thank the
following people who took part in our thesis, and without their contribution and support we
could not have achieved the results; our family, friends, and parents for giving us moral
support. Our teachers Tobias Eltebrandt, Charlotta Edlund and Carl Thunman for teaching us
throughout the program and making us work on the master thesis. The employees of the
companies, who responded, helped us in getting the information and giving us some overview
of the market. The opposition group whose creative criticism gave this thesis a good structure.
Without the help of these people we wouldn�t have succeeded in completing the thesis how it
is now.
Västerås, Wednesday, 31 May 2006
Muhammad Takbeer Hossain
Wajih Ullah Khattak
Fozia Bibi
Table of contents
Introduction:_______________________________________________________________ 1 Back ground___________________________________________________________________ 1 Problem ______________________________________________________________________ 2 Purpose_______________________________________________________________________ 2 Usability ______________________________________________________________________ 2 Disposition ____________________________________________________________________ 3
Literature review____________________________________________________________ 4 Outsourcing ___________________________________________________________________ 6 International manufacturing strategy: _____________________________________________ 9 Global Sourcing_______________________________________________________________ 10
Empirical Findings_________________________________________________________ 27 Market condition: Comparison to European market ________________________________ 27
Availability of local resources and capabilities: ____________________________________________ 28 Tariff Barriers and Government facilitations_______________________________________________ 30 Delivery Time and Logistics Cost _______________________________________________________ 30
Market Condition: Swedish clothing Industry______________________________________ 30 Availability of local resources and capabilities _____________________________________________ 32 Delivery Time and Logistics Cost _______________________________________________________ 32 Labor cost _________________________________________________________________________ 34
Exports and imports condition: _________________________________________________________ 35 Local market Västerås ________________________________________________________________ 36
Swedish market: examples of leading companies____________________________________ 37 H & M (Hennes & Mauritz) AB ________________________________________________________ 38 KappAhl AB _______________________________________________________________________ 40 JC AB ____________________________________________________________________________ 41
European market ____________________________________________________________________ 46 Swedish market _____________________________________________________________________ 46
Why ________________________________________________________________________ 46 Where _______________________________________________________________________ 47 How_________________________________________________________________________ 47
Questionnaire for survey _______________________________________________________ 62 Replies to survey ___________________________________________________________ 64 Appendix 2 _______________________________________________________________ 69
Questionnaire for Interview through E mail and face to face__________________________ 69 Company Name: ____________________________________________________________________ 70 Answered by:_______________________________________________________________________ 70 Employee designation: _______________________________________________________________ 70 Date of reply:_______________________________________________________________________ 70
Replies to Executive questionnaire _______________________________________________ 72 Company Name: JC AB (head office Gothenburg)__________________________________________ 72 Answered by: Niklas Odequist _________________________________________________________ 72 Employee designation: Production Director _______________________________________________ 72 Company Name: H&M (head office Stockholm) ___________________________________________ 74 Answered by: Per Lundin _____________________________________________________________ 74 Employee designation: H&M Production Dept_____________________________________________ 74 Company Name: KappAhl AB (head office Gothenburg)_____________________________________ 74 Answered by: Lena Bengtsson _________________________________________________________ 74 Employee designation: manager Supply & Sourcing ________________________________________ 74 Company Name: Rock Zone (Västerås) __________________________________________________ 76 Answered by: Mazhar Shah____________________________________________________________ 76 Employee designation: Manager ________________________________________________________ 76 Company Name: Budo& Fitness (Västerås) _______________________________________________ 78 Answered by: Camilla ________________________________________________________________ 78 Employee designation:: Company s owner ________________________________________________ 78 Company Name: Jeans 22: an (Västerås) _________________________________________________ 80 Answered by: Thomas Hndersson_______________________________________________________ 80 Employee designation: Company s owner_________________________________________________ 80
How?Depends on: �Tariff barriers and government facilitations �Availability of local resources and capabilities �Delivery time and logistics �Cultural/organizational proximity
By: �Configuration of the production resources �Co-ordination mechanisms �Technological i t t
International configurationOf the operating system
Page 18
WHY
According to Porter, �the rationale of a global strategy stands on the competitive advantages it
assures� (Porter, M.E.1986). Where the Swedish clothing industry is concerned, it is important
to note that the Swedish consumers became demanding and wants to buy cloths that are good
quality and medium price. The companies are trying to make themselves distinguish in the
market among the other competitors. Big parts of the market are people who are buying
clothes that are good quality with average price (Marianne Doff-Kallenius and Ms. Inge
Jense, 2006).
The main motive of international manufacturing and outsourcing can be found out in the
literature which identifies two broad types of import motives; task related and non task related
(Webster and Wind 1972). The first type explains the motives that are directly related to the
product e.g. cost reduction, quality improvement etc. The second one non-task related
explains that still humans are involved in the decision making therefore sometimes the
company might make some decisions that are not directly related to the product e.g. reciprocal
purchasing, pet project purchasing, ego enhancement and so on.
An example of non-task related motives can be explained by the report that was given by
Jackson (1981) where he found out that many of the Israeli importers in UK are importing
from Israel just to support the exporters in their country. This kind of motives for a company
can also be showing that the company is social responsive and they want to produce from
countries where the living standard is too low and there are no jobs availability, so this way
the company is helping the people of that country.
Sweden is not a country with abundance of natural resources which are used for garment
manufacturing and the labor cost is very high. Therefore most of the companies to gain
competitive advantage are going abroad for international manufacturing and outsourcing.
There are few types of behavior for which companies are going abroad, which are explained
below;
• Natural resource seeker
These kind of companies go abroad to acquire specific types of resources at a
relatively cheaper cost. In the case of Sweden, labor and natural resources are most
demanded. This is technically a requirement, or best suited for those products that do
not need special competence to produce. Such products could be formal or informal
wears that need intensive labor force. As designers, very high quality is something that
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can not be achieved with this preference (Ettore Bolisani & Enrico Scarso, November
1996).
• Market seeker
Such companies are the one who wants to expand their market share by entering into
new foreign markets which are rich and demanding, but normally has not enough
domestic competition. This not only helps in keeping the costs low but also to
eliminate and understand the domestic culture and getting accepted by the local
customers (Ettore Bolisani & Enrico Scarso, November 1996).
• Efficiency seeker
These companies are those that are looking for making the optimum solution for their
business. They are not looking for one specific activity but are actually allocating the
resources where the job is done most efficiently (Ettore Bolisani & Enrico Scarso,
November 1996).
• Strategic asset seeker
These companies are expanding their business by acquiring the businesses of foreign
markets. These kinds of acquisitions can be the trade mark or the good will of a
company as well as if there are any valuable agreements in some specialized area of
managerial or technological segment (Ettore Bolisani & Enrico Scarso, November
1996).
The decision of where and how is obviously related to their long term strategies, but still the
relationship must be studies in detail as there are always a lot of options.
Where
Main factor affecting the location of production activities is the availability of nation�s
specific resources (Grant, R.M.1995). As it has been stated before about the importance of the
labor in the production of garments, therefore the companies should take the countries which
have cheap labor into consideration first.
Location also depends on trade ability issues (Handfield, R.B.1994). Location selection also
depends on many other factors mainly the social culture, legal system, political system, infra
structure of the country etc. sometime the culture plays a quite big role e.g. for many
European countries outsourcing in the Asian countries (India, Pakistan, China and
Bangladesh) is not favorable because of the cultural difference and organizational behavior
whereas in the east Europe ,where the labor cost are not the low but relatively to rest Europe
its low, its better for them to invest (Handfield, R.B.1994).
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• Availability of local resources and capabilities
The availability of minerals and the ability to generate energy are the foundations of
modern technology (Ghauri and Cateora, 2005). The distribution or the availability of
natural resources are not equally endowed neither does the nations requirement for
some natural resource is common. Most of the companies when decide to go outside
of their country are focusing on the countries with the availability of local resources
and capabilities. The companies always consider host countries community service,
education sector, government rules and regulation, weather condition, transportation
and statistic information which will help company doing their business smoothly
(Ghauri and Cateora, 2005).
• Delivery time and logistics
When a company is making their product outside of their country they always try to
fix their production, delivery time and logistics. This will make the company
competitive in the global market. Excellent service, high quality goods and time of
delivery helps the company and garments manufactures to rapidly scram their products
after which the specific delivery time and logistics will reduce product cost and save
time (Verghese Paul, Nirma Institute of Technology, Ahmedabad).
• Tariff barriers and government facilitations
To encourage the domestic industry and protect the existing industry, government may
establish such barriers to trade as tariff, quotas, boycotts, monetary barriers, non-tariff
barriers and market barriers (Ghauri and Cateora, 2005). Tariff, which are taxes on
imports of commodities into country region, are among the oldest forms of
government intervention in economic activity .They are implemented for two clear
economics purposes. Firstly, they provide revenue for the government. Secondly, they
improve economic returns to firms and suppliers of resources to domestic industry that
face competition from regional imports (Michael J. Ferrantino, 2003). Most probably
host countries protect domestic economy, that�s why government provide barriers and
tax, which will affect foreign company from entering their market. Some of the
countries provide facilitation to the foreign companies to enter their market.
There are also some activity dependent relationships that may be positive or negative.
Activity dependent relationships are more important as compared to the strong
personal interrelationships. Interrelationships can be for long periods and during those
periods actors can know each other very well and can build up that relationship in the
form of trust. Trust will give the power of that business relationship by promoting the
Page 21
actor�s dependences with in the network .In the business relationship interdependences
plays an important role and with the strong of this relation it becomes a high barriers
to entry to new comers. New comers will find it difficult to get involve into that
relationship that is already strong in the network .In the network every business
strategy is different that�s why it is very difficult for an outsider to get enter into that
network (Catherine M. Daily).
• Cultural/organizational proximity
Organizational culture has been used as a holistic construction that describes the
complexity set of knowledge structures which organization members use to perform
tasks and generate social behavior. Organizational culture affects company structure,
role expectations and job descriptions, which will create opportunity to do better
organizational internal systems. Organizational culture is related with companies
control system, labor cost and multiple competitive sources (Hofstede et al. 1990.
Reichers and Schneider 1990, Gregory 1983).
How
To implement an international manufacturing or outsourcing strategy effectively, substantial
decisions about the configuration of the global operations system, the coordination
mechanisms and the allocation of the technological equipment are required (Flaherty,
M.T.1986).
• Configuration of the production resources
This decision deals with the decision of how many and how big plants should be
outsourced. The clothing manufacturing deals with many phases before it is
transformed into the final or semi final product, therefore all of the processes can not
be outsourced abroad. In particular existing links along the value chain and benefits
deriving from the close proximity among different activities can offset the advantage
of an offshore location (Dunning, J.H., 1990s). when the company�s intention is of
making the most profit and keeping the costs as low as possible than they go for
investing a big plant which can carry out all the processes, whereas on the other hand
if the company is trying to reduce political risks or make it flexible they prefer sharing
the production facilities among different locations. The design phase or the cutting of
the fabric is mostly done internally or else it�s outsourced to expert in that field.
• Co-ordination mechanisms
Page 22
This is related to which extent is the company giving the authority to the supplier to
work. Coordination can be classified into four types which mainly are resource sharing
structure, decision style, level of control, and risk/reward sharing. Coordination
mechanism is mostly taken into consideration from the point of minimizing cost (Lei
Xu and Benita M. Beamon, February 2006).
McCann and Galbraith (1981) analyze coordination strategies on the bases of three
dimensions: formality (from informal personal meetings to more formal
arrangements), level of control, and decision localization (centralized or
decentralized).
• Technological investments
By outsourcing in different countries a company not only is exploiting the competitive
advantage of that country but also is allocating the technological advantage of
different countries where they are running their business. In clothing industry there are
some technological advances such as automated knitting and cutting of the fabrics
which can improve the quality and decrease the cost of production. Before allocating
such resources to countries the company needs to consider process reengineering
seriously. Mainly in the clothing industry these machines have a very minute role, as
most of the processes are needed to be done by labor.
Some of the latest technologies can have a big impact on the clothing industry such as
CAD and telematics. These technologies are a little bit problematic in the recent area
but are useful for single phase but still have the potential of doing the whole process.
Telematics can allow a better management of information flow; they could make the
co-ordination of worldwide activities easier (Gottardi, G. November 1991).
The development and use of networks in internationalization is directly connected with
organizational culture. An important part of the firm�s international resources is produced and
maintained by related actors in the firm�s network, as relationships are established with
customers, suppliers, host government officials, intermediaries, etc. taking into consideration
the importance of these actors, if something goes wrong between these actors it would be
difficult for the company to carry out its business. Also the process of internationalization
may itself yield unexpected results (Welch & Welch 1993).
Page 23
Methodology There are a lot of interesting and attractive fields in both traditional and international
marketing that can be studied, but to be interesting is still not enough and many things should
be taken into consideration, such as access to the information and the ability to give valuable
prescription, recommendation and solutions to the problems which are studied. After
discussing everything in detail in our group, and consulting with �Claes Jonsson� our tutor we
choose the subject of the thesis �The international manufacturing and sourcing strategy of
Swedish garment industry�, in consideration of the availability of expected information
channels and the market situation.
The study is focused on the Swedish leading clothing companies as well as the small and
medium companies working in the same sectors to give a practical example of how they
work. The overall market of Sweden should also be analyzed and seen through how does the
garment industry works in European Union therefore this research paper will also give
valuable information about the European Union market as well. In the beginning we were not
sure about which companies to use from Swedish market for case example as getting the
information form the companies is not easy, therefore we contacted almost all the leading
companies and started gathering information about them from secondary sources, but
afterwards when we were answered by the company�s representatives and got access to the
information which was having personal contact with the purchasing department we finalized
H&M, JC AB and KappAhl. Besides gathering the information about these big companies we
also contacted and visited small shops in Västerås to analyze the market in a bigger picture,
which helped in analyzing the market situation. Unfortunately these small companies were not
having very formal kind of business and didn�t had secondary information resources, most of
them also didn�t had company�s website, which made it difficult to write about them
specifically, therefore the information that we gathered from them is used in describing the
general market and in the conclusion part. These small companies also had contact with some
agents situated in Stockholm and Gothenburg but as that was not really related to our problem
and purpose therefore those agents were not contacted.
After a thorough research about garments market in Sweden, we took into consideration about
10 companies, to do quantitative survey about them but after getting no response from them
we had to send the questionnaire to about 256 people (the contacts information were collected
from www.wwlink.se) who were related to the clothing industry in order to bypass the gate
keeper of the buying center and be in contact with the actual buyer and financial buyers, this
Page 24
way we got access to 10 buying center members. We have used Google engine
(www.google.com) and (www.wwlink.se) to search for these companies and the employee�s
contact; the keywords used to search for information about these company�s were; Swedish
clothing companies, garments business in Sweden, outsourcing decision Sweden, global
sourcing affects, international clothing chains. Whereas in the second website mentioned, it
was rather easier to search for the companies as it is a Sweden based website and had all the
information about the companies and such information, and it�s possible for the user to sort
out the results through different aspects, which we did through clothing companies. We
contacted them by phone calls and by sending those emails, and then personal contacts. We
also have talked to the employee�s of Åhléns and got the contact of the regional manager of
the company, which helped us a lot in understanding the business decisions of Swedish
garments companies about outsourcing, even though we didn�t had enough information about
company Åhléns, still we got very vital information from the regional manager which helped
us in analyzing all the companies. We also studied the small scale companies which are
operating in Västerås, Sweden. We went to the city centre and distributed our questionnaire
among them and also talked to them about their business that how are they doing their
business and how are they buying from abroad and so on. We think that having detailed
interview with such small companies is easier because in the big companies we got the
problem that here in Västerås the employee�s didn�t had enough information, whereas in these
small companies the number of employee�s is relatively smaller and getting in contact with
the owner of the company or the higher level manager is not difficult.
Our work plan is simply divided into 2 phases:
1. Doing quantitative survey to add more information to the thesis by going to the
companies asking them questions in Västerås and sending questionnaires to the
companies and this includes also doing research through the internet and journals
about as much as we can about Swedish clothing companies.
2. Doing qualitative interviews with persons, through telephone, E mail and if possible
face to face, (except for Åhléns we couldn�t get face to face interview from other
companies) from the buying departments especially the decision maker in the buying
center in few chosen companies to understand what kind of strategies are they using in
relation to their international sourcing?
The method, that we used, contained both the quantitative and qualitative approach. We
collected literature, articles, related thesis and also other relevant information which was
giving us a clear picture of the companies that are interested in going abroad and start their
Page 25
business internationally, all this information was not directly related to the problem and the
purpose but it helped us a lot in carrying out this thesis e.g. to understand how does the other
industries think before making the decision of outsourcing and also how can one analyze the
information gathered in contrast to outsourcing decisions. After gathering all these
information and the empirical data related to the theoretical frame work and the background
information about the company we tied them together to get the most reliable and relevant
conclusion. We also explained the clothing industry with respect to the supply strategies that a
company can adopt and some points that were taken from the model (see theoretical
framework) which we applied to get the results.
Study Design:
In order to arrive at meaningful results, we needed to find a large sample of the companies so
that we can get the whole picture of the Swedish clothing industry. Our findings from the
reviewed literature and the findings from the survey will be used to elaborate the survey
questions. Our study design can be presented in a graphical form as follow.
Study Design Figure 2
Interviews
While opting to get information through interviews, we chose to just to get the information
which is not easily accessible through secondary data like publications and other documents.
Swedish clothing companies
Interviews
Literature study
Survey
Final selection of companies
Results
Relevant topics for interviews
Companies selected for interviews
Relevant subjects
E-mail Contact
Informants invited
Page 26
Interviewee selection
Since we need to obtain information about the purchasing function, we will try to get the
information from employees with central position. The case companies will probably be
selected which are situated in Västerås, due to easy access. The interview will be conducted
probably from few employees having managerial role in the company, just because that we
need to get the whole picture in general, rather than describing each case in depth.
Validity and reliability
To determine the validity and reliability we need to confirm that the companies we choose
should be able to show the diversity in doing business in the Swedish clothing industry, we
should also try to approach the right and responsible person, and lastly, see if the questions
have been directly related to the area the person in question is involved in.
Survey As the interviews will be conducted to investigate the specific areas of the industry, we need
the survey for explanatory and descriptive purpose. A questionnaire (which is designed
according to the model in the theoretical framework) will be sent to the companies through E-
mail.
Selection
The first thing that we need to take into consideration before choosing the companies for the
survey is to determine the kind of business they are doing. The companies that we are looking
for can be described as companies that are getting engaged in business of clothing items to
resell. A typical company would be one that is designing and distributing clothes and is using
suppliers in different countries to manufacture in any way, whether directly involved or doing
business through agents.
Page 27
Empirical Findings
In the literature review, we discussed the outsourcing issue and international manufacturing in
general context with some results from different articles and news, now in this part we will
discuss it from the Swedish markets point of view. Our findings and statements will be mainly
focused on the companies that are operating in Swedish market. This will make it easier to
understand that how internationalization process is working in this market and will help in
understanding the market as well.
The textile and the garment industry is an important part of the global economy. Clothing
industry mainly involves manual work and needs extensive labor force. Therefore a company
to be competitive in the market and make profit needs to source their production facilities in a
market where the labor is relatively cheaper. As the world is becoming globalized and
everything has become very easy and faster due to ICT and reliable transportation system, it is
therefore easier to conduct international business than in the past.
To understand the Swedish market it�s necessary to understand the European market first, so
that we get to know how the industry is working as a whole in this big market after that we
will start explaining only the Swedish market.
Market condition: Comparison to European market
Europeans union has a huge garments and manufacturing industry, garments industry plays
important role in European market. As clothing is the second important need of human being,
therefore the products of clothing industry are in demand as ever. Textile and clothing
industry is mainly affected by globalization, because of the cheap labor cost and raw material
costs in developing countries. Garments products are made mainly from two types of raw
material; first type is natural raw material (cotton, wool, silk, flax, jute) and other side human
made fibers, syntactic fibers, polyester, nylon, acrylic etc (Werner, June 2001). Over the last
15 years, the European textiles and clothing industry has gone through large-scale
restructuring. Advancement of the industry is significant, productivity has improved, and
production has been restructured towards high quality products. However, this change has
also caused decrease of approximately one third of the employment. Further developments are
expected to affect the industry over the coming years including EU enlargement, increased
competitiveness, research, quality, skills, creation and most notably, the removal of import
quotas in 2005 and the challenges and opportunities of a recent round of multilateral talks
(Michael Keenan, Ozcan Saritas and Inge Kroener 2004).
Page 28
In the last two decades European garments and clothing industry faced a lot of competition
and lost employment in the textile industry (Werner, June 2001). More than two million of
peoples are doing job for 177,000 enterprises. Where per year annual turn over £200 billion.
For the last four decades this industry increase 60 times ($6 billion to 342 billion in 2001).But
last 20 years USA and Asia increased dramatically, USA 97.7 and Asia 76.3 percent as
compeer to European countries.
According to EU Enterprise Commissioner Olli Rehn said: �The EU textiles and clothing
industry is a sector which has faced permanent competitiveness, restructuring and
modernization challenges over the last fifty years. Now it is going through profound structural
changes. At EU, national and regional levels, we need to provide adequate conditions to help
the sector strengthen its competitiveness and remain a key industry in the EU.�
On other hand according to EU Trade Commissioner Pascal Lamy added, �With anticipation
and close co-operation with the European industry we can ensure that there is a smooth
transition to a quota-free trade in textiles on 1 January 2005. And we will not leave
developing countries, in particular the poorest and more vulnerable, out in the cold. We will
re-focus our trade preferences so that they can continue to benefit from an open and fair
access to the EU.� Source: (European commission)
Asian, Turkey and North Africa garment industry is the main competitors of European
garment industry, basically European garments industry is focusing on higher productivity,
technological innovation, quality, creativity, design and fashion. Developing countries
producers focus on cheap labor cost and their natural raw material. (Michael Keenan, Ozcan
Saritas and Inga Kroener)
Availability of local resources and capabilities:
European Union has lot of resources and capabilities; day by day they are developing their
economy and industrial sector. In present European market is growing up rapidly, some
factors which helped their garments industry sector such as high quality raw materials, new
technology, skilled employee, foreign direct investment and research & development.
According to Werner 2001, the clothing and textile industry in Europe is highly globalized,
with import growth of 12% in 1990 to 23% in 1999 for the textile industry and 30% to 46%
for the clothing industry. This shows there is continuous demand for the clothing and the
textiles in Europe. The consumers are willing and can afford to buy the clothing from the EU
countries. Another reason may be due to low raw material cost compared to the rest on the
other countries like China, Pakistan, India and USA. Available data below shows that EU
Page 29
countries consumed 1.0 million tonnes of ginned cotton between 1999/2000 and 2001 /2002.
This shows there they import less ginned cotton form other countries beside the EU, which
shows that the overall cost (including transportation) of cotton within the EU is probably
cheaper that the other countries like Pakistan, India, China and USA.
Main world Consumers (ginned cotton) Figure 3
It can be inferred from the above that Sweden being a member of the EU country has a greater
chance on importing from the other EU countries like Lithuania, Poland, and Estonia among
others where there is cheap labour and the raw materials like cotton and the clothing are
produced at a less cost compared to that of USA and Pakistan. Though there may be cheaper
products in China, the proximity and trade barriers make it more advantageous to import from
the EU Countries that the others.
Therefore now days we can see that most of the companies are shifting their production
facilities from developed countries to developing countries where the labor force is cheaper.
Over the last four decades of the 20th century, trade in textiles and clothing increased over 60
times (Keenan et al, 2004). UK and the Scandinavian countries show a liking for earlier
British colonies where knowledge of English is common (English is the favored foreign
language in Scandinavia).
Page 30
Total Textile Industry Operator Cost in US$/hour, Summer Autumn 2000 Figure 4
Developed Mediterranean C. & E. Europe
Asia Africa
Portugal 4.31 Germany 18.10 Italy 14.71 US 14.24 UK 12.72
Israel 7.43 Turkey 2.69 Morocco 1.87 Tunisia 1.65
Hungary 2.63 Poland 2.35 Lithuania 2.23 Estonia 1.53
Taiwan 7.23 Hong Kong 6.10 South Korea 5.32 Thailand 1.18 Malaysia 1.13 China 0.69 India 0.58 Sri Lanka 0.46 Pakistan 0.37 Indonesia 0.32
Mauritius 1.87 RSA (urban) 1.82 Madagascar 0.37
Note: exchange rates as of 25 July 2000
Source: Werner International, 2001
Tariff Barriers and Government facilitations According to the European Commission on trade and Industry 2006 report, the EU market for
clothing and textile may be regarded as open, and this can be the reason for the rise in import
between 1995 and 1999 by 31%, accounting for about 50% of the general consumption in the
EU. For example according to the report EU tariffs are low: 0.7 % for raw materials, 5.3% for
yarns and fibres, 6.3% for fabrics and 11.9% for clothing, an average of 9%. It can inferred
from the this figures that it may be easier and cheaper to import from the EU member
countries that the other countries like the USA, China and India, as the EU may have different
trade barriers for goods from non member countries.
Delivery Time and Logistics Cost The delivery of goods within the EU is by three ways, namely, air, water and sea. These are
the main means of importing goods into the EU countries. Available data from some
researchers shows that the logistics cost in the EU range between 11.8% and 12.8% of GDP.
Some countries in the EU like Denmark according to the same source, has 12.9% of GDP
(Dan Magnusson and Patrik Ryden 2002).
Market Condition: Swedish clothing Industry
The Swedish textile and clothing industry is a modern, quality-oriented industry with
advanced technology, continuous product development and a strong environmental
Page 31
awareness. The industry is international, in the supply of raw materials, product adaptation,
production collaboration, marketing and export. There are close to 14,000 people employed in
the textile and clothing industry in Sweden with around 350 companies (greater than five
employees). Most of these companies are geographically concentrated in the south-west of
Sweden (Textiles and clothing to Sweden, Australian Trade Commission 2006).
In Sweden production of clothing may have seen the greatest transformation. Most of the
sewing is done by production partners in other countries. However, the Swedish producers
engage in product design and development, purchase of material, cutting, quality and
environmental policies and supervision, logistics, warehousing and, of course, in marketing
the products under their own well established trademarks. In addition to fashion clothing there
are a number of successful Swedish producers of protective, work and corporate identity
clothing. Here function, quality and design constitute the competitive added values (Textiles
and clothing to Sweden, Australian Trade Commission 2006).
Swedish people are getting more and more fashion conscious which is making the companies
trying to become as distinguish as possible. The plenty of fake products flooding the market is
creating problems for brand identity. The Swedish clothing industry market is about US $
6.06 billion. In 2000, the total sale of garments, footwear and accessories increased by 6%
compared to the year before. Garments accounted for 82.4%; footwear for 14.4%; and
accessories for 3.2% of the total sale (Marianne Doff-Kallenius and Ms. Inge Jense).
If compared to different European countries, Sweden has the most percentage of producing
directly abroad. Almost 70% of Swedish companies have direct overseas manufacturers
whereas 37% for UK and 19% for France. Comparing to other countries, most of
Scandinavian retailers had a long-established practice of direct sourcing from overseas
manufacturers and most of them had made important investments in overseas offices. Most of
the Scandinavian companies are doing their business by highly concentrated sourcing
networks developed through direct relations with overseas manufacturers (Peter Gibbon and
Lotte Thomsen).
Page 32
Services expected from existing suppliers Figure 5
Strategy UK France Scandinavia
Full-fabric/cloth sourcing Design services Minimum capacities Supplier-managed inventory Production flexibility Making regular visits to retailer Permanent presence at retailer HQ Product development Invoicing on 90 days
10 3 0 6 4 2 1 1 1
11 6 1 1 0 0 0 0 0
9 5 2 2 0 0 0 0 0
Availability of local resources and capabilities
With regards to this, the authors are focusing on the income levels of the people and their
access with respect the availability of the clothing shops in the cities and towns. There are
many clothing shops in almost every city and town in Sweden. The income of the people in
Sweden $266.5 billion (2005 est.), purchasing power parity $29,600 (2005 est.).Most of the
lands covered by forests, in other hand raw material grow up barley, wheat, sugar beets; meat,
milk andiron and steel, precision equipment, wood pulp and paper products, processed foods
(The world fact book, Sweden).
Delivery Time and Logistics Cost The available data shows the various delivery cost and time for the various types of
transportation system in Sweden. The data shows that the air transport cost increased from
199 to 2001 and gradually falling up to 2003. This implies there is a reduction in the cost of
air transport in Sweden.
Page 33
Price index for scheduled domestic air travel, 1996=100
Figure 6
The road transport cost is Sweden, from the data shows a stead increase in cost of road
transport from 2004 to 2005. This means that there is a high demand for road transport in
Sweden.
Price index for freight transport services by road (2004=100)
Figure 7
Year Quarter Freight transport
services by road
2004 Quarter 1 99.5
Quarter 2 99.7
Quarter 3 100.2
Quarter 4 100.6
Annual Aver. 100.0
2005 Quarter 1 103.2
Quarter 2 103.0
Quarter 3 105.0
Quarter 4 105.3
Page 34
Annual Aver. 104.1
2006 Quarter 1 107.1
Source: Statistics Sweden
Sea transport also keeps on increasing according to the data below. The cost for sea transport
is rapidly increasing since 2004 to the first quarter of 2006.
Price index for freight transport* services by sea (2004=100) Figure 8
Year Quarter Freight transport
services by sea
2004 Quarter 1 97.4
Quarter 2 98.9
Quarter 3 100.8
Quarter 4 102.9
Annual Aver. 100.0
2005 Quarter 1 104.7
Quarter 2 111.0
Quarter 3 117.7
Quarter 4 118.9
Annual Aver. 113.1
2006 Quarter 1 119.5
* Excluding oil transport
Source: Statistics Sweden
Labor cost The available data show that labor cost in Sweden keeps on increasing since the last two
decades. Salaries keep on increasing in Sweden affecting the cost of production in the
country.
Page 35
Average monthly salary Figure 9
Full-time employees 1973-2005. SEK
Private sector
Public sector
Non-manual workers Central government
sector Municipal sector County council sector
Year Total Women Men Total Women Men Total Women Men Total Women Men
Bolisani Ettore; Scarso Enrico November, (1996). �, International manufacturing strategies:
experiences from the clothing industry�, International Journal of Operations & Production
Management, Volume: 16 Issue: 11 Page: 71 � 84. Retrieved on 22 June , 2006 From
http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0240161105.html Blumberg D.F . (1998), 'strategic assessment of outsourcing and downsizing in the service
market', Managing service quality, Vol. 8 No.1, pp. 5-- Retrieved on 18 April, 2006, from
Doff-Kallenius Mariane and Ms. Jense Inge, �Market Brief� the Swedish Market Seminar
conducted by Borje Risinggard, Import Council, Swedish Federation o/Trade, Philippine
Trade and Training Center; Manila. Retrieved on 27th April 2006, from
http://www.philembassy.se/annments/garments.htm
European Foundation for the Improvement of Living and Working Conditions, textile and
clothing: A dying industry or not, Wyattville Road, Loughlinstown, Dublin 18, Ireland.
Retrieved on 21 March, 2006, from
www.eurofound.eu.int
European Foundation for the Improvement of Living and Working Conditions, Sector future:
Policy responses to post-2005 challenges, Wyattville Road, Loughlinstown, Dublin 18,
Ireland. Retrieved on 23 March, 2006, from
www.eurofound.eu.int
European Foundation for the Improvement of Living and Working Conditions, Industrial
change in the textiles and leather sector: Hennes & Mauritz, Wyattville Road, Loughlinstown,
Dublin 18, Ireland. Retrieved on 22 March, 2006, from
www.eurofound.eu.int
Forbath Theodore, (2006). �Developing an Effective Global Sourcing Strategy�. Retrieved on 20th June 2006, From http://www.cioupdate.com/insights/article.php/3522381
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Fisher, M.L. (1997), �what is the right supply chain for your product�, Harvard business
review, March, pp.105-16. Retrieved on 28 March, 2006, from
� Outsourcing: How Outsourcing Developed; Reasons for Outsourcing and Off shoring; Consequences of Outsourcing; Responses to Outsourcing�.Retrived on 20th June, 2006 from http://encarta.msn.com/encyclopedia_701702628/Outsourcing.html
Porter, M.E, The Competitive Advantage of Nations, Free Press, New York, NY, 1989.
Porter, M.E., �Competition in global industries: a conceptual framework�, in Porter M.E.
(Ed.), Competition in Global Industries, Harvard Business School Press, Boston, MA, 1986.
Pol Antras ;Elhanan Helpman, 2004, �Global Sourcing� , Journal of Political Economy ,
vol.112.no.3 .Retrived on 19th June ,2006, from
http://post.economics.harvard.edu/faculty/antras/papers/GSJPE.pdf Parker. K, 2006, June 10 �Outsourcing: it�s Impact on American Jobs market�.EzineArticles
Which one is the most important when deciding on which market to enter for production? Cheap labor--------------- Raw material-------------- Emerging market--------- Potential customers------ How do you supply your garment?
• Own production in Sweden • Other production in Sweden • Production at full or divided subsidiary abroad • Purchase directly from manufacturer abroad • Purchase through Swedish agents • Purchase through agents abroad
How important are the following areas in your supplier relationship? Price: Less important , Important very important Quality: Less important , Important very important Right delivery in right time: Less important , Important very important Communication concerning garments performance: Less important , Important very important Communication concerning delivery and production and planning: Less important , Important very important The atmosphere in the circumstances: Less important , Important very important
Page 63
Working circumstance in the production process: Less important , Important very important How long time does it take for your supplier from ordering to delivering: For your quickest supplier ____ weeks For your slowest supplier ____ weeks For your normal supplier ____ weeks About how many suppliers of garments does your company use at the same time? Less than 5 More than 5 More than 10 Which methods do you use to choose a supplier? We look at other customers for whom our suppliers are working. Other purchasing partner�s recommendations Visit their exhibition That they give a favorable price option Look at their previous sample work Others__________________________________ Is it common that the garment has to be worked at in different companies before they are ready? Yes No Don�t know Do you use the strategy that you use two suppliers for the same model- one who produces biggest part depending on selling and the other who can deliver according to their need quickly? Yes No To which extent do you outsource the production process? Making the fabric Cutting and designing Sewing to make it semi finished good Getting packed final product
Page 64
Replies to survey
COMPANY�S NAME: Leopold & Bloom (Västerås)
Which kinds of clothing your company has?
• Casual
• Dressed
• Sports
• Uniform
• Netted clothes
• Leather accessories
• Others___________________________________.
Which one is the most important when deciding on which market to enter for
production?
Cheap labor---------------
Raw material--------------
Emerging market---------
Potential customers------
How do you supply your garment?
• Own production in Sweden
• Other production in Sweden
• Production at full or divided subsidiary abroad
• Purchase directly from manufacturer abroad
• Purchase through Swedish agents
• Purchase through agents abroad
How important are the following areas in your supplier relationship?
Price:
Less important , Important very important
Quality:
Less important , Important very important
Right delivery in right time:
Less important , Important very important
Page 65
Communication concerning garments performance:
Less important , Important very important
Communication concerning delivery and production and planning:
Less important , Important very important
The atmosphere in the circumstances:
Less important , Important very important
Working circumstance in the production process:
Less important , Important very important
How long time does it take for your supplier from ordering to delivering:
For your quickest supplier 4 weeks
For your slowest supplier 30 weeks
For your normal supplier 20 weeks
About how many suppliers of garments does your company use at the same time?
Less than 5
More than 5
More than 10
Which methods do you use to choose a supplier?
We look at other customers for whom our suppliers are working.
Other purchasing partner�s recommendations
Visit their exhibition
That they give a favorable price option
Look at their previous sample work
Others: Fashion fares
Is it common that the garment has to be worked at in different companies before they
are ready?
Yes
No
Don�t know
Page 66
Do you use the strategy that you use two suppliers for the same model- one who
produces biggest part depending on selling and the other who can deliver according to
their need quickly?
Yes
No
To which extent do you outsource the production process?
Making the fabric
Cutting and designing
Sewing to make it semi finished good
Getting packed final product
COMPANY�S NAME: Saks (Västerås)
Which kinds of clothing your company has?
• Casual
• Dressed
• Sports
• Uniform
• Netted clothes
• Leather accessories
• Others___________________________________.
Which one is the most important when deciding on which market to enter for
production?
Cheap labor---------------
Raw material--------------
Emerging market---------
Potential customers------
How do you supply your garment?
• Own production in Sweden
• Other production in Sweden
• Production at full or divided subsidiary abroad
• Purchase directly from manufacturer abroad
• Purchase through Swedish agents
• Purchase through agents abroad
Page 67
How important are the following areas in your supplier relationship?
Price:
Less important , Important very important
Quality:
Less important , Important very important
Right delivery in right time:
Less important , Important very important
Communication concerning garments performance:
Less important , Important very important
Communication concerning delivery and production and planning:
Less important , Important very important
The atmosphere in the circumstances:
Less important , Important very important
Working circumstance in the production process:
Less important , Important very important
How long time does it take for your supplier from ordering to delivering:
For your quickest supplier one week
For your slowest supplier weeks
For your normal supplier thirty weeks
About how many suppliers of garments does your company use at the same time?
Less than 5
More than 5
More than 10
Which methods do you use to choose a supplier?
We look at other customers for whom our suppliers are working.
Other purchasing partner�s recommendations
Page 68
Visit their exhibition
That they give a favorable price option
Look at their previous sample work
Others: They are coming to us.
Is it common that the garment has to be worked at in different companies before they
are ready?
Yes
No
Don�t know
Do you use the strategy that you use two suppliers for the same model- one who
produces biggest part depending on selling and the other who can deliver according to
their need quickly?
Yes
No
To which extent do you outsource the production process?
Making the fabric
Cutting and designing
Sewing to make it semi finished good
Getting packed final product
No Answer
Page 69
Appendix 2
Questionnaire for Interview through E mail and face to face
Respective Sir/Madam,
We are students of International marketing program at Mälardalen University; we are doing
our master thesis about Swedish garments sectors under the supervision of our tutor �Claes
Jonsson�. The purpose of our thesis is to find out about the patterns of Imports that are being
carried out by the Swedish garments industry. The main usability of this thesis is to find out
their strategies and the reasons behind those strategies and further more if some companies
want to reengineer their business process can take help from this thesis.
We would appreciate if you would complete the attached brief survey. Completion of the
survey is expected to take about 10 minutes of your time. The questions are quite general (for
example, when the company realized that they should start producing abroad?). You may omit
any question you prefer not to answer. There are no known or anticipated risks to
participation in this study. Further, all information you provide will be considered confidential
if desired by the company.
The information that we need is purely for academic reason. Your help and contribution to
this thesis will be sincerely appreciated.
Thank you in advance for your interest in this project.