Emerging Trends in Global Textile Trade

As the world gears up for a new economic era, countries & political boundaries give way to regional economic alliances and commercial co-operation across continents. Today, the global economies are more inter-dependent than ever before and no country or sector is insulated from the happenings in the rest of the world. The slowdown witnessed worldwide has impacted the textile and apparel industry also as evident from the capacity utilizations and reduced demand from the developed world markets. The accelerated pace at which the annual trade was growing has got a jolt, if not a halt.

The below graph shows how the global apparel trade has fared from 2003 onwards to 2007 and also the expected dollar values for the next 5 years.

The year-on-year rate of growth has come down from a high of about 12.1% in 2004 to about 5.6% in 2007. Technopak estimates growth rate to go down to about 4.5% for the next 3 years but would rebound with 7% from 2010-2012 as the overall scenario would improve.

Source: US Comtrade and Technopak Analysis

The changing economic scenario has made the trade very competitive and in order to sustain and grow, the manufacturers have to come up with innovative strategies, nurture a culture of continuous improvements in operations, comply to the social and quality standards which have now become a necessity rather than a point of differentiation.

Some of the trends and factors which are gaining importance in today's context are:

1. Mergers and Acquisitions & Joint Ventures: More and more countries are consolidating their positions in world trade by synergizing through mergers/acquisitions. Countries like India and China are acquiring manufacturers based in countries which offer proximity to market. The retailers are attempting to attain economies of scale by consolidating their supply bases. High cost manufacturers based in developed countries are cementing JV's to reduce their manufacturing cost by moving production to developing countries.

2. Managing a lean and complete supply chain: Today, the changing lifestyle and preferences of the customer has made "Fast Fashion" as the order of the day which demands continuous product innovation and faster turnaround while being cost effective as well. Product Life Cycles are shorter and merchandise assortment is wider than ever before. This poses significant challenges to the apparel supply chain. The pressure is also felt by Apparel manufacturers and in turn passed on to textile & accessories manufacturers. These demands can be only met with continuous improvement in textile & apparel technology, having a complete supply chain in place, lean manufacturing & productivity improvement techniques.

3. Compliant manufacturing: Shoppers are becoming more informed about the effects of their consumption patterns on both the environment as well as people involved in the entire value chain. The social responsibility of this is bearing heavily on them and this concern is being passed down through the textile and apparel chain from retailers to manufacturers. Tracing back the footprints of apparel is todays reality and fast becoming tomorrows necessity i.e. understanding and being responsible for every stage of the apparel chain is being demanded by consumers today.
   
   
4. Political and economic stability: This factor has recently gained importance as it lends an element of assurance to the trade. The US economy is under extreme stress with retailers closing business thereby risking the merchandise being shipped by the manufacturers. Such economic instability affects trade relations and manufacturers can only mitigate losses by looking for new trade partners. Similarly political unrest and terrorism, which has recently touched new highs, are not only crippling the domestic industry, but affecting the countrys trade relations with its partners.
   
   
5. Shifting markets: A new world order is emerging with growth in the traditional markets of US/EU slowing down due to various factors while simultaneously promising growth being witnessed in developing countries like China and India. Asia with its large population and high disposable incomes has become an attractive and promising fashion destination for international brands & retailers. Consumers in Asia have a growing fashion sense pinched with traditional influences and such a fusion of fashion is a greater challenge for retailers. Retailers are thereby redefining growth paradigms and product portfolios to suit these consumers. Asia has become important not only as a sourcing hub, but as a destination for fashion. The BRIC countries are emerging as the major markets with high GDP growth rate in the BRIC countries, high per capita GDP and growing opportunity they present for organized retail.

Drivers of Change for these Trends

• Increasing entanglement of business decisions with the decisions of other supply chain members- sourcing partners, competitors, customers. It just reinforces the importance of the concept of SCM and that today the value chain members cant afford to just focus on their own business and cant just do whatever they feel like doing ( in terms of business decisions). The business decisions are taken keeping the entire Supply chain in mind as well as competition.

• Decoupling of manufacturing and marketing
• Manufacturing companies of developed markets are now the marketers and retailers while the manufacturing is shifting to the Asian (low cost) countries
• Thriving of the brands without manufacturing bases is the order of the day which signifies the emergence and prominence of trends like outsourcing/licensing/franchising.
• There has been a tremendous surge in the growth of Private Label as the Retailers are tying up with manufacturers to produce private label for their stores for improved margins.

• Ethical manufacturing (e.g. Fair Trade, Green manufacturing, Social Compliance etc.) and Environmental issues gaining more importance than ever. These concepts are gaining imp as people are getting more conscious about these concepts and thus it has become a necessity for the manufacturers and is no more possible to be used as a point of differentiation.

• Role of Technology i.e. automated production, increased use of e-commerce; the role of internet in defining fashion is becoming an obvious rather than an option.

• Growing importance of logistics - supply chain logistics costs account from 5% to 50% of a product's total landed cost (depending on the product) and thus in times like today where cost cutting, going lean is the order of the day, logistics is one area where a manufacturer can attack for maximum savings.

Conclusion

It is thus clear from the changes happening that the future of fashion lies in synergies across the entire value chain. The traditional buyer-seller models should quickly evolve into more meaningful relationships to be able to tide over the changing economic and world order. Current global economic crisis will affect adversely global trade in textile and apparel and there will be slower growth in 2009 and 2010. But, global trade in textile and apparel will pick up further from 2010 onwards as the world economy improves. Other factors which will help the growth in global trade include growing global population, growing income of the world, more disposable income around the world, growing middle class, increasing consumerism and factors like consumption and manufacturing centers (countries) are different, which necessitates more global trade.

About the Authors:

The authors are associated with Technopak Advisors as Associate Vice President, and Senior Consultants; respectively.