Global recession has hit the headlines for quite some time, and economists, industrialists, as well as common people are discussing its global impact. Lower industrial production, unemployment, inflation, reduced currency value, and cost-cutting are the consequences of a recession. With the world recession adversely affecting developed nations, it might be assumed that the Asian textile industry would suffer adverse effects. However, contrary to this belief, the Asian textile industry has experienced some positive outcomes.

The global recession has weakened the economies of developed Western nations. The dollar's reduced purchasing power and the crash of banks due to liquidity and credit crises have been significant issues. American consumers, known for their heavy spending habits, have drastically reduced their expenditures due to the recession. The global financial crisis has severely impacted the strongest economies of America, Europe, Japan, and other countries worldwide.

There have been some positive effects of this recession on Asian countries as well. Currently, India is at a significant advantage, earning $9.5 billion annually from American companies through outsourcing. Indian clothing and textile exports have surged from $4.7 billion to $29.38 billion in 2011. According to McKinsey research, the contribution of developing nations will rise from $12 trillion annually in 2010 to $30 trillion in 2025. This means that they will cater to 70% of the global demand for manufactured goods.

Recession has severely affected the textile and garment industry in America. In India, most outsourcing deals originate from America. There has been a significant decline in employment opportunities in the West. American companies have reduced the workforce, cut back on promotions, perks, and incentives due to the economic downturn. Major companies have relocated their call centers to India, where labor costs are 50-80% lower than in the United States.

The recession has accelerated the offshoring of technical and professional jobs by US companies in an effort to save money as they struggle to recover from the economic slowdown. Outsourcing has become an attractive option for these companies. Faced with high economic pressures and fierce competition, outsourcing vendors are now more willing to accommodate client requirements and are flexible with their terms and conditions.

In a situation where many of the world's largest companies have experienced sudden setbacks, developed nations are grappling with survival. Over the past 12-15 months, cost-cutting has been a dominant factor in the outsourcing market. The high cost of production and labor has driven America, Europe, and the UK to outsource their work to Asian countries. A well-executed outsourcing contract can provide them with immediate cost control amid this ongoing crisis.

Hence, Asian countries have gained in crisis, where companies find cheap labor and timely manufacturing and delivery of the commodities without compromising on the quality. Turkey gets order from Europe, as it can produce and supply swiftly at lower cost. Therefore, effects of recession have proved to be positive for the Asian countries.


It is not that they are completely secure from recession; but there has been considerable gains in textile and IT sectors. China, to a great extent, has eased the effects of recession in Asia. China has grown considerably in clothing and textile exports (from $16.89 billion in 1990 to $248.18 billion in 2011). Japan is increasing its outsourcing to China since 2010. Moreover, the Chinese government is putting effort to promote outsourcing industry by making favorable amendments in the financial and tax policies to attract more vendors.


The western countries take the advantage of off-shoring in developing nations, as it results into reduction of production cost. In return, they can survive in the competitive retail market in their country without lowering their profits. Currently, the trend seems fair in textile industry, as it has brought more jobs and earnings to the Asian countries. Thus, Asian and Western countries are going through an interesting phase due to recession.


There is high demand for Cambodias clothing in the European Union, as per the latest reports published in July, 2013. Its sale has increased due to availability of duty free clothing since January 2011. Also, it is expected that the fall of the rupee can boost Indias apparel exports to US and EU.


The last few months have witnessed improvement in the profit margin of apparel exports, as the gap between the dollar and rupee has increased. Tirupur, a textile hub in India has observed 5-7% increase in profit margin due to this situation. An overall review states that textile and clothing exports from Asian countries have relatively increased in the year 2012-2013.


There is a clear indication that Vietnam will become a leading supplier of clothing in the future. It is evident that Asian countries like China, India, Bangladesh, Vietnam and Cambodia are gaining tremendously. With flexible strategies, they have transformed their relations with the developed nations. This trend clearly shows the dominance of Asian countries over the textile world and garment trade.


Developed nations opt for outsourcing, which is advantageous, to recover the capital loss. Leading IT companies in Mumbai employed around 150,000 people in the year 2008 with almost 50% revenue coming from North America. It has increased to approx. 55% revenue from North America according to the latest reports. This huge shift towards developing nations clearly indicates that Asian countries are progressing swiftly.

 

Asia can be proud of attracting huge foreign investments. It has created an integrated export platform with many countries. The production processes are divided into different segments, which are located at appropriate locations to co-ordinate with other manufacturing procedures and for quick delivery of the finished products. These trends are showing positive effects on Asian countries in times of crisis.


In fact, Asia has emerged as a shock absorber to the global turmoil. Since, the recession had hit the developed countries badly; critics feared that the global financial condition would weaken further. But, Asias growth and its output in the global market rescued the world from economically crashing down.


It can be anticipated that off-shoring of textile and the clothing industry will continue to be fruitful to both the developing and the developed nations. On one hand, it helps the developing nations to build their economy through industrialization, improve working condition and provide better living to the workers, while on the other hand it benefits the consumers of the developed countries with low priced commodities.


References:


1.      Thehindubusinessline.com

2.      Yaleglobal.yale.edu

3.      Textileasiabusinesspress.com

4.      Emergingtextiles.com