According to Textile Minister Vaghela, the biggest constraints in the Indian textile and apparel industry are "labour laws and the power supply." But this is just the tip of the iceberg; there are, unfortunately, a lot more factors hampering the industry.

Indian labour laws are, indeed, restrictive. The Textile Minister is in favour of relaxing the existing and cumbersome personnel procedures and increasing the maximum weekly working time from 48 to 60 hours.

And as long as power supply is unpredictable, Indian textile companies have to invest in built-in captive power generators - a cost disadvantage compared with other countries.

However, other flaws in the field of human resources and infrastructure also hamper the industry. India may boast superiority in ICT, but the country's general literacy lags behind that of China. In 2002, India's adult literacy rate stood at 61.3% compared to 90.9% for China.

The low labour costs in textile and garment factories are counterbalanced by poor productivity. Small entrepreneurs often don't know or understand what the government has in store for them.

Shri HP Kumar, the chairman of the National Small Industries Corporation, recently said that most of the schemes designed to help small-scale industries go unnoticed. A special Textile Technology Upgradation Fund scheme, which came with a 50% subsidy for small companies, found very few takers.

India's infrastructure is not only deficient in terms of power and water supply, but also in terms of logistics, with inefficient ports and poor roads.

Former 'generous' government policies, devised to help the small-scale industry rather than the big mills, have India left with a highly fractured textile and clothing industry.

Figures from the office of the Textile Commissioner in Mumbai reveal that in 2005 nearly 83% of total Indian fabric production was in the hands of the small-scale powerloom sector. This sector is thought to be unable to compete with the flawless fabric from state-of-the-art plants in China and other countries.

As the production of garments and knitwear has only recently been 'de-reserved,' most Indian clothing for export is still manufactured in small units. Gokaldas Images, India's largest apparel exporter, operates through some 40 factories, while the Chinese top garment firm Luen Thai Holding, four times larger, has only two factories.

Textile Minister Vaghela

Lots of weaknesses
India's textile and clothing supply chain is badly balanced and suffers from bottlenecks.

The supply of cotton may be well developed and internationally competitive, but the same can't be said for the manmade fibre chain - though the government's budget for 2006-2007 proposes to reduce the excise duty on polyester from 16% to 8%, thus making polyester-based yarns more price-competitive with cotton yarns.

India's spinning sector is quite modern (about 25m spindles out of 37m are considered capable of producing quality yarn); the weaving sector is not. The processing sector needs urgent and substantial investment to keep up with international requirements.

Despite talk of 'high value added products,' the bulk of India's textile output is still low value added products. According to the KSA Technopak study 'Implications of the Phase-Out of MFA on Exports of Garments and Textiles,' the Unit Value Realisation (UVR) of Indian mill fabrics is less than 60% of the world average; while the UVR of Indian powerloom fabrics is around 30% of the world average.

Dr Shyam Agrawal, resident-director of the ITPO (India Trade Promotion Organisation) in Frankfurt, regrets that Indian garment exporters tend to ignore the fact that EU countries, just like the USA and Japan, also have a winter as well as a summer season.

In his opinion, Indian exports are too focused on ethnic designs. Amazingly, India still exports far fewer woven trousers, T-shirts and knitted underwear to the rich USA-EU-Japan triangle than small Bangladesh. India is also relatively weak in hosiery and sweater exports.

It's still too early to judge whether the Indian 2005 investment boom in yarn and fabric production capacities (which continues in 2006) was based on sound premises or on 'post-2005' hype.

But many investors feel constrained by the inability of domestic textile machinery constructors to shorten delivery times, despite low capacity utilisation (55% in 2004-05).

Textiles Commissioner JN Singh

Garment retail sector still restrained
India has 1.1bn inhabitants and in recent years the economy has grown at a pace of nearly 8%.

So it is no wonder that in spite of restrictions, a number of global brands are already operating in the Indian market in co-operation with Indian importers, licensees or franchisees, including Benetton, Marks & Spencer, Mothercare, Esprit, Hugo Boss, Lacoste, Levi's, Arrow, New Man, Adidas, Nike, Bulgari, and Zegna.

Recently, Chanel spent several hundred thousands dollars on festivities to celebrate its entry into India, and Christian Dior, Giorgio Armani, Gucci and other famous brands are also preparing to take a step into this market.

This is no accident: at the end of January 2006, the Indian government decided on a partial lifting of its ban on foreign retailers setting up shop. Foreign companies can now directly invest in retail stores, though with two restrictions: their maximum stake in the investment is limited to 51% and they can only offer one brand.

Different consultants have different views on the possible impact of the new law. Mike Flanagan (Clothesource Sourcing Intelligence, UK), warns that the potential of India's domestic apparel market is going to take a great deal of time to materialise.

He argues that India is going to keep its protectionist measures, including high import duties, against foreign clothing imports for a very long time. He doesn't expect companies like Tesco, Wal-Mart and C&A to dash off to India.

The Indian consultant Simran Singh (Simran Singh & Associates, Retail and Brand Advisory), however, believes that the apparel retail sector will soon be subject to further de-restriction. She guesses that within five years, restrictions on foreign retailers could have disappeared.

Like Flanagan, she expects that for the moment most foreign retailers will wait and see. But according to the Indian consultant Devangshu Dutta (Third Eyesight), a lot of foreign retailers are already eagerly preparing their entry into the Indian apparel retail market.

By Jozef De Coster.

Products to save time and money for garment manufacturers and retailers by shortening development cycles, reducing costs and increasing speed to market took centre stage at last week’s IMB 2006 technology trade fair in the German city of Cologne.

One of the top IT issues was product lifecycle management (PLM), with almost every software company offering a tool claiming to help fashion businesses in Europe and the US add value to their operations by streamlining access to product data and imagery throughout the supply chain.

As Tom Reeves, ICT director for Mexx Europe International, part of the Liz Claiborne organisation, pointed out, the fashion industry’s increasingly complicated supply chains are calling out for a product that brings transparency to the whole process.

“We’re working in a very complex environment,” he told just-style “with multiple points of communication, limited process visibility, no centralisation, multiple versions, duplication of efforts and lack of control.”

Mexx is two months into a four-year $10m PLM pilot that began in April 2006 and will eventually be rolled out across all Liz Claiborne’s brands by 2008.

“We want a product world that we control ourselves,” Tom explained, adding that: “PLM will help the company to be faster and more integrated, and will help the business to move away from wholesale and into retail and control the customer experience.”

Mexx’s PLM partner is PCT, which was showing at IMB for the first time. Its web-based FlexPLM software enhances the visibility of information across a company and its supply chain.
 
But what exactly is PLM?
“Product lifecycle management investments are often driven by hard cost saving considerations like material savings, reductions in administrative labour and the elimination of redundant system maintenance,” said Mark Harrop, PTC’s business development director for retail, footwear and apparel in Europe.

“Once applied, additional benefits like dramatic increases in speed to market, with 20% lead time reductions via improved visibility and accountability just reflect the first implementation phase. Evolving further lead times have been reduced by as much as 50%.”

Vicky Hyde, global fashion industry director at Lawson (formerly Intentia), a global ERP provider for the ‘make, move and maintain’ industries, explained that PLM manages the whole lifecycle of a product, from initial concept to the buying, selling and phase-out process. “It runs across a number of factors. Once you get past the design phase, PLM is intrinsically linked and can’t be totally isolated,” she says.

Also from Lawson, Robert Mc Kee, director solution design US, added that the current growth in interest in PLM “is a function of the data that has been enabled through the numerous systems that make up a product lifecycle, and recognition that right up the supply chain you have to concentrate on the consumer.

“PLM is all about data and data analysis; pulling together information from different sources from concept to after-sales service.”  

Fashion-specific needs
Gerber Technology has called its PLM solution Fashion Lifecycle Management (FLM) to highlight the fact that it’s designed to meet the specific needs of the fashion market.

It combines an enterprise-wide, collaborative workflow engine with Gerber’s WebPDM to enable global, real-time visibility and control over the entire product development and lifecycle management process.

As Gerber’s chairman James Arthurs commented: “PLM is a vehicle to get information to a retailer or manufacturer on things like how many styles, where they’re being made, and where they’re selling. PDM is a product development package from the development of a new line to when you stop selling it.

“FLM is a conduit that takes information from PDM and enables the manufacturer to use it in other parts of the business, such as putting together a production calendar.”

The first version of Lectra’s new PLM product is aimed at brands and retailers. It helps companies to organise, manage and share all the data related to a complete collection of garments, accessories and footwear, including product development, including styles, materials, colours, technical specifications, bills of materials, suppliers and costs. The next step is to link this PLM application with Lectra’s tools for design, pattern making and prototyping.

Italian supplier TXT e-solutions also has a PLM package that combines its various software options. The company says the benefits to customers such as Calvin Klein Jeans, Dolce & Gabbana and Fendi include shorter time to market for new products, and better control over supply chain costs and new product launches.

The Infor PLM solution has been expanded with the addition of version 2.0 Runtime QT – ACP (Advanced Collection Planning), which has been developed to help overcome the increasing complexity of multiple collections.

As Infor product marketing manager Michael Boné explains: “Designers typically work in isolation from strategy development, which includes planning, sourcing and budgeting, so actual collections delivered can differ from those originally planned.” Worse still, the process of managing collections is often conducted “in people’s heads” and badly supported by using manual spreadsheet systems.   

According to the company, the new tool helps fashion designers, product developers and management to ensure new collections are in line with strategy, budgets and fashion trends before costly product development commences.

e-collaboration tools
Infor has also updated its Runtime QT – eCollaboration portal. This web-based tool allows product developers to collaborate with global suppliers to reduce critical lead times.

Option Systems Ltd’s new web-enabled STYLEman V10 ERP solution provides users with full visibility of their entire supply chain from anywhere in the world via the Internet, providing them with the real-time information needed to make informed decisions and track where the garment is in the production, import and export processes.

An in-depth management briefing focusing on the main technology developments unveiled at IMB 2006 will be available to just-style members in July.

By Leonie Barrie.

Pre-tax profit was GBP751.4m (US$966.3m) for the year to 1 April 2006 compared to GBP556.1m last year the company said in a statement, but added there is “still much to do.”

Group revenues for the year were up 4.1% to GBP7.8bn. In the UK, like-for-like sales were up 1.3% to GBP7.26bn.

Revealing a 22.7% jump in the final dividend to 9.2p, chairman Paul Myners said the retailer “has made good progress in a difficult environment.”

This was reiterated with characteristic caution by chief executive Stuart Rose, who added: “The Group has had a good year. M&S is beginning to regain its confidence but we still have much to do to ensure that we sustain growth in the long term.

“We are under no illusions about the work necessary to place us firmly on a path to long term growth and are committed to delivering this.”

Mr Rose took the reigns as chief executive two years ago to fend off a takeover bid from retail tycoon Philip Green.

M&S clothing sales were flat over the course of the year as falling sales (down 4.9%) in the first six months were offset by a strong second half (up 4.4%) helped by a highly successful advertising campaign featuring 1960s model Twiggy.

Second half like-for-like sales in general merchandise, which includes clothing, rose 3.5% compared to a 6.1% fall in the first six months.

In clothing, better values, better buying, and better styling resulted in better performance as the year progressed, the company said. “Womenswear benefited from well-received ranges, including more frequent additions of new product into stores. Per una had another very strong year.

“Menswear rationalised its brands and extended its Autograph offer. Lingerie benefited from a clearer offer with five brands, including the new per una range. We restructured our Childrenswear area, where performance was weak, with the aim of regaining a leading position in this important market.”

The company ended the year 9.9% ahead on volume as customers bought more in response to better product and pricing, but said price deflation pushed value down by 10.2%.

In particular, the focus on full price sales has proved successful, with improvements in product and value attracting more customers and helping market share grow from 8.6% to 10.0%.

Customer visits jumped by nearly 350,000 a week to just over 15m a week. The company said more of these people are spending money in the store, and this will be a key area for improvement in the year ahead.

M&S has been able to re-price its ranges – and improve values – so that around one-third of sales now come from opening price point merchandise compared with 12% in 2003/04.

The company already has buying offices in Istanbul, Hong Kong, Bangalore, Bangladesh and Sri Lanka – and says new offices in Delhi and Shanghai will open this year. This international presence is helping to speed up the sourcing process and build greater flexibility into the supply chain. Over the past 12 months M&S has increased the amount of product bought direct to around 25% (from 20% last year).

It is also focusing on delivering the latest trends, introducing more new products and chasing fast sellers.

Other in-store changes include the speeding up of its GBP520-570m store refurbishment programme so that 35% of its floor space to be revamped by the end of 2006.

“By the end of 2006 nearly everyone in the UK should be within easy reach of a modernised M&S store,” the retailer said in a statement.

However, Mr Rose said he would wait until Christmas and its tougher year-on-year comparisons to see whether or not the improved performance at M&S would amount to a recovery.

By Leonie Barrie.

The growing popularity of ‘ethical’ labels such as People Tree with A-list celebrities has given much-needed publicity to these clothing companies and their cause. And the fact that high street stores are responding suggests the time is right to offer fair trade and environmentally friendly clothing to enthusiastic consumers.

Shoppers certainly seem to be reacting well to efforts to make caring clothing trendy.
Rachel Neame, media spokesperson for ethical clothing company People Tree – which has sold its ranges in high-street favourite Topshop – told just-style: “Consumer demand is definitely driving things at the moment. We saw a 40% rise in sales last year.”

Meanwhile, M&S recently said it would be the first major UK retailer to sell clothing made from 100% Fairtrade cotton, and also launched an initiative called ‘Look behind the label,’ designed to tell customers about the way goods are sourced and made.

All M&S stores will feature messages and imagery about M&S products and their health, quality and environmental aspects.

“Look behind the label is the first time we've talked about the lengths we go to ensure everything we sell is produced in a responsible way…Launching Fairtrade cotton builds on our innovative work in areas such as sustainable fishing, reducing fats, salt and additives in our food and banning harmful chemicals from children's clothing,” CEO Stuart Rose said.
 
The company views the move as a sure bet to please its customers which, after all, is what all high-street stores want.

"Customers care more than ever how products are made”, Rose said.

The facts would seem to back up his claim.

According to a YouGov survey commissioned by the company, almost one third of respondents said they had decided not to buy an item of clothing because they felt concerned about where it had come from or under what conditions it had been made.

Pressure groups
Consumer pressure and, more directly, pressure from lobby groups, has also had an impact on sourcing policies. JJB Sports plus a string of top sportswear makers are among those to have become more accountable for how their clothes are made.

Martin Hearson, creative coordinator of Labour Behind The Label (LBL) – which campaigns for garment workers’ rights – told just-style: “Global leaders have taken steps to acknowledge the massive problems in the industry, and are committing to long-term strategies.” LBL targeted a handful of companies back in the 1990s, and got good responses from them.

Mark Farmaner, media officer at Burma Campaign UK, was pleased by the response to its campaign to stop sourcing from Burma, which is ruled by a dictatorship charged by the United Nations as committing ‘crime against humanity.’

“We didn’t need to wage a campaign against Gill Clothing [one of the companies found to be sourcing from Burma] as it responded so fast”, he told just-style. “Such a quick response is really common in the clothing industry as there is such a high awareness of this sort of issue among consumers.”

Burma Campaign UK launched a drive against JJB Sports in 2004, but after 24 hours the sportswear retailer announced it would stop sourcing from Burma.

Such a fast response is good news for these action groups. But the fact that it takes threats of damaging publicity before changes are made might suggest the clothing industry as a whole is still not as predisposed to ethical issues as it would like to claim.

One-off ranges
Hearson also hints that one-off fair trade ranges are somewhat limited efforts to tackle the issues of ethical trading.

“We feel Top Shop’s People Tree range is a positive step for helping bring companies such as People Tree a wider audience. But, it isn’t addressing long-term issues. One could argue it is cashing in on Fairtrade fortnight, and is a PR exercise.” 

He points out the reluctance of Philip Green, the entrepreneur who owns Topshop and the rest of the Arcadia group, to engage in any lengthy discussion over improving the standards of clothing factories, for example.

“Philip Green is a very difficult person to communicate with. Arcadia is hard to talk to and doesn’t commit. As soon as a campaign stops, he loses interest.”

Arcadia, as well as budget chains Primark and Matalan, shows a clear reluctance to communicate and cooperate with trade unions even, Hearson says.

Primark in particular has seen its ethical standards – or alleged lack of them – attacked by the media.

The company was rated the least ethical retailer on the high street by Ethical Consumer magazine last year. The report was later amended after Primark, along with a handful of other disgruntled retailers, complained about the way the results were compiled.

However, this was too late to reverse the damage to Primark’s image, and the ongoing question of just how Primark makes its clothes so cheap has hung over the company ever since.

Primark’s head of external relations, Geoff  Lancaster, told just-style there was a clear element of factual inaccuracy in the report.

He added: “It is quite easy to foster an image of sweatshops to the general public, for example, ‘It’s obvious someone’s being exploited.’ But if someone is on what seems to be a really low wage, you have to think relatively. China has a different economy to us. We do give people enough to live on and have a life.”

Lancaster is obviously aware of the growing importance awarded to ethical trading. “We want our consumers to be able to enjoy shopping guilt-free,” he says.

But he concedes actually putting the effort and money into launching bona-fide ethical clothing would be unlikely.

“We would consider eco/fair trade clothing ranges such as those being launched in M&S and Topshop as an experiment in the future. But the reason we are so popular is we appeal to the mass market. Ethical clothing is pretty niche now. If it got huge demand from consumers we would consider it, but it has to pass that big hurdle.”

Fair trade barriers
Lancaster’s views are understandable but also signal the massive barriers companies see when tempted to pursue fair trade or environmentally friendly tactics.

Neame says People Tree couldn’t keep its concession in Topshop for more than one month because of the longer lead times and hand crafting the company uses, again suggesting these short-term initiatives offer band-aid quick-fixes to ethical problems rather than long-term, sustainable strategies.

“The garment sector isn’t the same as food and drinks,” Hearson says. “The supply chain is a lot more complex.”

On top of this, ethical clothing, whether of the environmentally friendly or fair trade sort, is ultimately going to cost more to source. The whole process is complicated, and time means money. New farming techniques and fabrics require a lot of effort and investment and switching factories can itself rack up colossal costs.

Finally there is still a whole mindset to change amongst many Western companies.
An employee for one Italian shoe company recently told just-style: “Why should we tell China that kids shouldn’t work until they’re 16? That’s their culture. It’s the way things work over there.”

Alliances such as The Ethical Trading Initiative (ETI), which consists of companies, non-governmental organisations and trade unions, could be key in moving ethical action forward. Enlisting big-name companies to back their campaigns could spur other businesses to follow their lead through rivalry alone.

Crucially, ETI works with companies to both identify and promote good practice in code implementation, surely a massive helping hand for companies who are new to the ethical game.

However, the fact of the matter remains that today’s cheap, fast fashion does not really fit easily with ethical initiatives. Initiatives such as ETI or, even better, some sort of industry-wide solution – a compulsory one at that – could be the only way the fashion world could really afford to show how much it cares.

By Rebecca Danton.

Footwear shortages, skyrocketing prices and long-term, harmful repercussions across the European economy are just some of the likely ramifications of unpopular plans to slap anti-dumping duties on Chinese and Vietnamese leather footwear imports.

Angry retailers and industry groups have stepped into the fray and are warning that now the battle for cheap shoe imports has been lost, European consumers should prepare themselves for more steep prices rises on items ranging from jeans through to furniture.

“You can say goodbye to those designer trainers you got in the January sales…that £5 pair of jeans,” is the message from the British Retail Consortium, which on Friday (24 March) launched its ‘How Much?!’ campaign to highlight the threat of more EU import tariffs on goods from China.  

BRC Brussels director Alisdair Gray says: “Many other items, from clothes to household goods, could also be affected if the European protectionist lobby has its way.”
 
The anti-dumping duty on shoes, which was approved by EU member states last week (23 March), is likely to affect over 225m pairs of leather shoes sold in the European market – almost 10% of all the shoes consumed by Europeans. And it is described by Kevin M Burke, president and CEO of the American Apparel & Footwear Association (AAFA), as a “serious economic mistake.”

Martin Salisbury, finance manager at retailer Clarks International, told just-style: “This is a huge issue for us at the moment, and while it’s reassuring that a decision has been reached, we think it’s the wrong one.

“We believe the overall investigation has been flawed and that the decision [to impose tariffs] will probably damage those companies that modern European business depends on for its future growth.” UK-based Clarks has spent the last decade switching production from Street in Somerset to Vietnam and China, from where it imports around 65% of its products.

Phased-in duties
The provisional duties will be phased in over a five-month period from 7 April to 15 September. They will start at about 4%, rising to 19.4% for China and 16.8% for Vietnam at the end of the five-month period. The duties are due to last for an initial six-month period but could be extended for up to five years, and are in addition to the normal 8% tariff already imposed on footwear imports into the EU.

However, one small victory for retailers is Brussels’ decision to exclude hi-tech sports shoes and children’s shoes from the measures.

Some of the grimmest warnings suggest that the move could backfire and lead to job losses in the EU – the very region the duties are designed to protect.

The European Commission is calling on retailers to absorb the cost of this duty into their margins, but as Alisdair Gray explains: “As the principal variable cost is labour, it appears that retailers are being asked to reduce the number of people they employ.”

“Painful” is how Martin Salisbury describes the measures, warning that the impact will be felt across the supply chain from manufacturers to consumers. He says: “A 20% hike in additional costs will be very difficult for us to accommodate. We will therefore have to re-evaluate our supply chains – and it’s likely that the pain will be shared by many people.”

Around two-thirds of Clarks’ adult footwear will be hit. “Phasing-in the duties won’t change anything, since our supply chains are a lot longer than this,” Salisbury explains.

US shoe companies are also rallying against the duties. Footwear maker Timberland calculates it will cut $10m from its 2006 operating profits, and is laying out plans to deal with the duties – including potential price increases on footwear products sold in Europe.

While Wolverine World Wide Inc, whose brands include Hush Puppies, Sebago and Wolverine, says it has spent the last eight months trying to limit the impact of possible measures. Nevertheless, it cautions 2006 earnings per share will be near the low end of forecasts.

Flawed investigations?
The European Commission began its investigations last year following complaints that some European shoe manufacturers were being unfairly hit by the dumping of shoes from China and Vietnam on the European market.

This was followed by a nine-month probe which found “compelling evidence” of serious state intervention in the leather footwear sector in China and Vietnam – including cheap finance, tax holidays, non-market land rents, and improper asset valuation.

Chinese leather footwear is being sold in Europe at about 80% of its normal value, and Vietnamese shoes are being sold at about 50% of their normal value, the EC said.

But critics point out that The Commission’s findings on dumping appear to be skewed by the denial of market economy status to Chinese and Vietnamese suppliers and the use of Brazil as comparison country.

Which, as Clarks’ Martin Salisbury explains, is “like comparing apples and marshmallows.” The Commission didn’t take into account Brazil’s higher wage rates, its heavily protected market and duty levels, he adds.

Even the EU voting process is seen as a farce. The decision to impose the duties actually received only three positive votes out of 25 EU member countries, with 11 abstentions – but those abstentions counted as “yes” votes under EU law.

Price hikes
Not surprisingly, protective measures are violently opposed by retailers and importers who warn they will damage high-value sectors of the European footwear industry like design, advertising, marketing, sales and logistics – and push up prices on the high street.

AAFA’s Kevin Burke believes prices will double, if not triple – “if consumers are able to find the shoes and brands they want on the store shelves at all.”

British Retail Consortium director Alisdair Gray says: “Currently, the average net margin for retailers is around 5%. When the new duties are imposed, shoe retailers will do their utmost to keep prices stable by finding new sources of product. However, in the short term, the duty will wipe out any net margin made on shoe sales. 

The BRC calculates that for a pair of shoes selling at GBP35, the EU duty of 19.4% will add an extra GBP1.60 to the overall cost. Subtracting import costs (GBP8.50), VAT (GBP7.0), overheads (GBP11.50) and labour (GBP6.80) leaves the retailer selling at a loss of GBP0.40.

However, in an attempt to play down fears, the European Commission argues that duties concern just nine pairs of shoes from every 100 pairs bought by Europeans.

And somewhat ironically, the decision has also failed to please European shoemakers in countries such as Italy, Spain and France, since they were seeking even higher duties.

The EU member states are due to meet again in July to vote on definitive five-year duties, which could apply until 2011. But opposition groups say they will continue to pressure the European Commission until then to analyse the overall effect of these duties on retailers. This is one row that looks set to rumble on for some time yet.

At the recent Tex-Styles India fair in New Delhi, several speakers, Textile Minister Vaghela included, declared that the Indian textile and apparel industry is set for spectacular growth, especially in exports.

Indian textile and apparel exports are expected to jump from around US$15bn in 2005 to US$80-85bn by 2010.

The National Textile Policy’s earlier export target for India’s textile and apparel sector was US$50bn by 2010. However, following India’s strong 2005 performances, the Union Textile Ministry has revised its export target to US$85bn. Nearly 60% of this amount is likely to be garments.

In 2005 – the first quota-free year – India was the best performer on the international textile scene after China. The country succeeded in increasing its textile and apparel exports to the US (up by 36%, according to Textile Minister Vaghela) as well as to the rest of the world (up by 20%).

Leading foreign companies such as Wal-Mart, Gap, JC Penney, Levi Strauss, Marks & Spencer and Next increased their sourcing from India.

In response to increasing demand, ambitious capacity-building investments were undertaken. Over 25 medium and large textile and apparel firms got listed on the bourses to raise capital for their expansion plans. And foreign institutional investors such as Citigroup and Temasek took stakes in Indian textile firms.

A number of new textile fairs were also announced: Intex (International Apparel Fabrics & Accessories Trade Fair India) was launched in October 2005, a Fibres & Yarns Exhibition will make its debut in April 2006, and the first Texworld India (fabrics) and the first autumn edition of Tex-Styles India will take place in October of this year.

An unstoppable force?
There are some reasons why uncritical officials and hands-on textile business leaders believe that India’s textile and apparel industry has become an unstoppable force.

First, the economic fundamentals of the country are good. Real GDP growth per annum in 2003-2005 was close to 8% and is expected to remain high. India is a stable democracy with a young population, more university graduates (2.5m in 2004) than China, a vast pool of technical and especially ICT talent, lots of English speaking managers, and well developed financial and legal systems. 

Then comes the usual chant on India’s comparative advantages in the field of textiles and garment production. India has it all: a complete supply chain in cotton and other basic raw materials from fibre to high value added garments and made-ups.

The country also boasts a modern spinning mill sector and a versatile powerloom, hosiery and handloom sector. Skilled labor is abundant and very cheap.

Dr Shyam S Agrawal, resident director of ITPO in Frankfurt, points out that India has the largest cotton acreage in the world, the highest loomage (including handlooms, accounting for 61% of the world total). India is the largest producer of jute, the second largest producer of silk, the third largest producer of cotton fibre and the fifth largest producer of manmade fibre/yarn.

Thirdly, the role of the Government has changed. Reform, which in the words of T Kannan, managing director of Thiagaraja Mills, actually means “the unravelling of a host of mistakes made by successive governments” has speeded up.

The production of garments and knitwear is no longer restricted to small companies and the ban on foreign investment in the garment retail sector has been partially lifted.

The just-published Indian budget for 2006-2007 reveals that the government will continue liberalising imports (especially of manmade fibres and yarns) and stimulating investments through financial incentives (the Technology Upgradation Fund) and the creation of integrated textile parks and employment-generating apparel parks.

Textile Minister Vaghela declared that the 25 projected apparel parks will each generate at least 15,000 new jobs in the coming 18 months (375,000 in total). 

Also, Indian textile and apparel entrepreneurs feel confident that the international sourcing community will continue to rely on the county as the best alternative to China. They point out that in 2005 the textile superpower China had to make export concessions, not India.

Sugata Sarkar, deputy director of Texprocil, the Cotton Textiles Export Promotion Council, believes that importing countries will in future think twice before attacking India for its dumping practices. He says: “For four years we fought a landmark battle in a bedlinen anti-dumping case introduced by Eurocoton. Finally, we won.”

Investment announcements
Nothing illustrates the bullish mood of the Indian textile and apparel industry better than the constant announcements of new investments.

Reliance Industries is considering a mega US$160m injection in its textiles business. Major investments have also been announced by spinners such as KSL Industries, Winsome, Lakshmi Works, Bannari Amman Spinning Mills, while India’s leading bed linen and towel exporters (Alok, Welspun, Abishek, and Sharadha) are all furiously expanding their capacities.

Jindal Worldwide plans to invest nearly US$6m in a new 10m m² capacity denim plant. Orient Clothing, which originally made basic garments for the US market, has successfully upgraded its machinery and re-educated its workers to the satisfaction of design-oriented customers like Oasis, Karen Miller, Next, and Esprit.

The textile city of Surat, known for its burgeoning powerloom sector (650,000 looms), is undergoing an energetic modernisation. Industry sources say that Chinese machinery suppliers expect to sell 20,000 looms in 2006 in Surat alone.

Many investments aim at vertical integration, like the start-up, in January 2006, of a trousers factory by the Bhilwara group in Bangalore. Bhilwara is a major producer and exporter of yarns and fabrics (exports of US$204m in 2004-05).

According to SK Babbar, the group’s assistant general manager, the present production of 3,000-4,000 trousers per day is expected to reach 14,000 trousers per day. The group boasts good ties with Marks & Spencer.

Textiles producer S Kumars Nationwide Ltd intends to invest more than US$20m in retail activities in 2006-07, expanding its Reid & Taylor retail outlet chain and bringing international apparel and fashion brands to India.

By Jozef De Coster.

Tex-Styles fair in March 2006

Behind all the dismal news coming out of Bangladesh lies an extraordinary story of resilience. Indeed it was looking like the garment industry’s great success story.

Between 2004 and the first quarter of 2006, the country – whose industry many activists predicted would collapse in 2005 – has accounted for a quarter of all the extra clothes imported into the EU, US and Japan combined, according to figures from Clothesource TradeTrak.

While that’s dwarfed by the rise in imports from China (which accounted for just over half the growth), there’s no question the Bangladeshi story is the more remarkable. China, after all, has nine times its population.

Bangladesh has achieved its success by keeping prices low – selling almost twice as many clothes to the West as India this year so far. For all the fuss European and American protectionists made about the drop in Chinese prices at the beginning of 2005, China never became as cheap as Bangladesh.

Cheap clothes challenge
However, making clothes cheap in Bangladesh isn’t easy. The Asian Development Bank has claimed that freight costs through the major Bangladesh port, Chittagong, are twice those at ports in China, India, Taiwan or Thailand.

A Clothesource analysis showed that bribery to get a typical garment exported from Bangladesh on time costs about the same, on average, as the workers’ wages to make it.

A government study quoted by the UN claimed that interest on working capital loans to smaller Bangladeshi factories averaged over 100% per year.

And for the past few months, the Bangladeshi press has been full of reports of production lines unpredictably closed down as power is cut off for up to half the day – with backup generators rendered inoperable by government regulations banning the transport of diesel to power them.

The Bangladesh government and banking system have created extraordinary problems for the garment industry. More extraordinary still, though, is the country’s ability to blame everyone but its corrupt politicians for its problems.

In October, after riots followed garment worker deaths in a Savar car accident, a union official at a trade association press conference blamed British charity Oxfam for “trying to destroy the country’s garment industry.”

At the beginning of May, demonstrating workers blamed the EU for depriving the country’s garments duty free access – something the EU repeatedly offers but the country’s government repeatedly turns down as it would allow easier access to Bangladesh for Indian raw materials.

And representatives of the apparel trade association seemed simply unaware the tragic May riots had been started by a factory three months late in paying their workers’ derisorily low wages.

“It may be a conspiracy of local and international collaborators. The countries that opposed us at the WTO meeting in Hong Kong may be behind the conspiracy. They want to tarnish our image and destroy us,” business leaders were quoted as saying.

Their reaction was described by the ITGWLF international union as “so divorced from the reality of the industry that it made the employers of Bangladesh a laughing stock internationally.”

Indeed, the only thing Bangladeshi businesses, union leaders and politicians haven’t blamed foreigners for has been the horrific chapter of illegally built factories and ignored safety regulations which have led to so many deaths in the past year.

Underlying problem
Because the underlying problem in Bangladesh, sadly, is a lot more complicated than a simple matter of greedy employers.

It’s certainly true that many Bangladeshi factories pay disgraceful wages – and that, as its Institute for Labour Studies pointed out, the industry has failed to honour four agreements on the issue signed between 1997 and 2005.

Many Bangladeshi businesses can survive only by paying disgraceful wages. Some survive, indeed, only by delaying the payment of those wages. However appalling that may be, it’s very unlikely that 2 million people – 80% of them women – would remain in jobs if Bangladeshi businesses paid wages on a par with Thailand, China or even India.

This isn’t because Bangladeshi employers are more evil – or incompetent – than their counterparts in China or even India.

It’s that the corruption, inertia and endless squabbling of Bangladeshi politicians impose costs – in bribes, in inefficiency, in payments to loan sharks, in orders cancelled due to power outages – the country’s competitors don’t have to deal with.

Until these shortcomings are dealt with, the country’s competitors may well point them out to their customers.

But mature politicians should handle this threat by tackling the country’s real weaknesses, getting the income from the country’s exports to the businesses and workers who create them.

It’s a great deal easier though to keep things as they are and just cop out. The reaction of the Bangladesh Home Minister, Lutfuzzaman Babar, to widespread riots by people whose minimum wage has not been raised since 1998? “It is a conspiracy by our competitors to destroy the garment sector in our country.”

As riots flared up again, foreign-invested apparel factories in the Dhaka Export Processing Zone (DEPZ) closed indefinitely on June 3. For once this seems to have forced a Bangladeshi politician to accept some responsibility, with State Minister for Labour and Employment Aman Ullah Aman launching an investigation into rule breaking.

Is it just possible there’s a glimpse of a silver lining in the country’s current troubles?

Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries.

The FIFA World Cup 2006 is expected to attract a worldwide audience exceeding one billion, with 32 countries having qualified for the finals in Germany.

It’s not just skilful Brazilians and speedy Spaniards on view either; seven major sporting goods companies are seizing the opportunity to climb up the popularity ladder themselves.

Aside from kit and player sponsorship, the likes of Nike, Adidas and Puma will splash their logos across posters, banners, billboards and television advertisements surrounding the event.

The newly formed Adidas Group, operating on home soil and official partner, supplier and licensee status for the 2006, 2010 and 2014 tournaments, looks strong.

Market analyst Chris Svezia, of Susquehanna Financial Group (SFG), says: “Adidas is spending a considerable amount of money in marketing and sponsoring teams. It has the edge on its own turf and the leading market share in football generally.

“Puma will see the opportunity to gain some ground and market presence too. The company is sponsoring several teams and has a strong heritage in Germany.”

Puma has the strongest presence in terms of shirt sponsorship deals, supplying 12 of the 32 nations qualified for the finals. Other lesser-known combinations, of Joma with Costa Rica and Marathon with Equador, have also been secured.

Adidas will sponsor six teams in Germany, with Nike backing eight teams, including defending champions Brazil, Australia, and USA. 

Italian brand Lotto has signed deals with Ukraine and Serbia and Montenegro, while England has continued a long-standing contract with domestic brand Umbro – which is also sponsoring Sweden.

Corporate dominance
Crucially, Nike has World Cup favourites Brazil on board – whose superiority in class to possible Adidas victors Argentina, France or hosts Germany aptly mirrors a corporate dominance off it.

However, Adidas concedes that it is not necessarily pinning its hopes on a brand-clad captain lifting the trophy aloft on domestic turf.

Adidas spokesperson Anne Putz told just-style: “As we are the overall sponsor and licensee of the World Cup, if the teams we are sponsoring get far it will help us – that is a given – but you have to look at the whole picture, we are not depending on the success of one nation.”

Adidas Group’s slightly increased marketing spend for the competition – of 14.2% to EUR142m (US$266m), from 13.8% before the FIFA World Cup in 2002 – does not include any marketing of its Reebok brand, indicating that brand segregation at the group will remain intact for the time being.

Returns on investments are projected to result in a 30% sales leap for Adidas’ football merchandise, Putz said: “We are expecting sales of EUR1.2bn on football products alone this year.”  

Nike, which leads the sporting goods market overall, has improved “soccer” revenue from US$40m in 1994, and its current value of US$1.5bn (EUR1.17bn) only slightly falls short of Adidas.

The company has rolled out a series of characteristic television and web ads called Joga Bonito featuring former star Eric Cantona and current idols Wayne Rooney and Ronaldinho.

Nike spokesperson Morgan Shaw said: “The World Cup is our biggest initiative by far, it is an important period for Nike and for soccer as a whole.”

Adidas’ winning streak
However, analysts believe that despite Nike’s efforts, Adidas is set to bear most fruit from the tournament, which starts on 9 June.

Svezia told just-style: “It is always tough to say whether the return on marketing investment will be worthwhile and companies are always quite apprehensive.

“Adidas, on the other hand, can look back to 2002 and be reassured by a top heritage in football and a headquarters in Germany itself. The company will spend a lot to support and grow its market share.

“On the back of marketing at the FIFA World Cup 2002 in Japan and Korea, Adidas gained a leading market share in Japan, overtaking Nike. It has also embedded itself in football and other categories throughout Europe.”

It seems Adidas’ track record on the football World Cup “pitch” proves a lot, but the full effects may not reverberate for a few years, as with Japan.

Meanwhile, Nike continues to show its merits globally and “tick” every box with glamorous advertisements and Puma has a strong presence with teams, numerically at least.

The big three cannot really fail to impress at the competition, which is a marketers dream, but home advantage is always useful in sport.

By Joe Ayling.

Figures released yesterday (11 April) confirm that the recovery of Marks & Spencer is continuing apace, with fourth quarter sales rising well above forecasts and shoppers flocking back to its stores.

The UK’s largest clothing retailer reported a third consecutive quarter of underlying sales growth led by its revitalised clothing and home products ranges, bucking the general decline being reported elsewhere on the high street.

Same-store sales in the 13 weeks to 1 April 2006 rose by 6.8%, with like-for-like sales of general merchandise – which includes fashion and homewares – posting a huge jump of 8.2%. UK sales grew by a total of 9.1%, with clothing sales in the retailer’s home market up by 8.5%.

The figures are expected to take M&S’s full-year profits for 2005/06 to between GBP745m and GBP755m – and the company intends to pay a GBP20m one-off bonus to shop-floor staff on top of the £50m incentives already agreed.

Strong performance
M&S’s self-professed “strong performance” is undoubtedly due to a combination of better buying, better values and better styling across its ranges – a plan believed to be the brainchild of chief executive Stuart Rose, who joined the company in the summer of 2004 to help fend off a takeover bid by Bhs owner Philip Green.

Rose concedes that although “the product game” is “a constant battle,” the company is at last making progress in its ladies’ and men’s wear.

Splitting the business between men’s and women’s wear has had a key part to play in delivering this improved performance. Ladies’ wear, under the direction of Kate Bostock who moved to M&S from Asda’s George clothing brand in May 2004, has seized an extra 1.6% market share, led by strong demand for its knitwear, formalwear and fast fashion lines.

Men’s wear, on the other hand, has also done well in its formalwear and casualwear ranges, but “still needs warm sunny weather” if it is to realise its potential.
 
If there are any clouds on the clothing horizon then they are without doubt hovering over children’s wear, which Stuart Rose points out is “a very tough, price-driven market.” But shifting the opening price points here has led to new customers, and helped increase market share to 4.3% from 2.4% last year he says.

As Rose explains: “We benchmark ourselves against our key competitors in the markets in which we trade, such as Debenhams, Next and Bhs – and I’m very comfortable with our pricing.”

Store refurbishment
M&S’s ongoing store refurbishment programme – which it now plans to roll out across the whole chain – has also helped to boost its recovery. Around GBP520m to GBP570m has been set aside for store refurbishments and other projects in 2006-2007.

To date, 24 stores (around 5% of total selling space) have been refurbished, with an additional 50-60 stores due to be completed during this calendar year. Which means that by Christmas 2006, one-third of the company’s retail portfolio will have been updated. In fact, Rose says this refurbishment programme will be “the primary driver for the next 12 months.”

An acclaimed advertising campaign featuring models such as Twiggy and Erin O’Connor has also helped to entice around 18m more customers through M&S’s doors than last year, and footfall into the stores has been outperforming the market in the last quarter by “high single digits.”

But despite these strong figures, CEO Stuart Rose continues to downplay the extent of M&S’s resurgence, saying that there “remains much to do.”

Rather than talk of a recovery he points out that comparisons are being made with the year before, when sales were still fairly weak. Like-for-like figures showing growth on growth are what he wants to see.

“The trading environment remains difficult and we do not expect this to improve in the next financial year. Progress will become more demanding as we start to come up against growth year on year.” He believes this Christmas will be “the defining quarter” for M&S.

But it’s clear that M&S’s growth in market share is coming at the expense of rival retailers who have all had to endure the tough economic climate, cold spring weather and the impact of a late Easter on sales. Figures from the British Retail Consortium – posted on the same day that M&S released its results – show the UK high street in general kicked off 2006 with its worst start for a decade.

Marks & Spencer will announce its full year figures for the year to 1 April 2006 on 23 May.

We in the garment industry know everything there is to know about protectionism. You might say that each of us has earned a PhD in that great school of experience. We have lived through punitive duties, import quotas and export quotas, anti-dumping suits and anti-shlumping suits.

We have also lived through the more subtle protectionist strategies. Who among us will ever forget the dual ad campaigns of the 1990s with their messages ‘Crafted with Pride in the United States’ and ‘Made in Sweatshops in Communist Asia’?

These messages would have been more credible had the local police not raided a Los Angeles garment factory where they found Asian women literally chained to sewing machines. Thus are the hopes of men forever undone by reality.

In the end, two great truths finally began to seep through the protectionist mindset:

• All those quota, duties and both the anti-dumping and anti-shlumping lawsuits failed to save any jobs. In fact, the higher the protection wall, the faster was the decline of the domestic industry and the greater the job losses;

• The bill for protectionism is paid by the consumer in the form of more expensive and lower quality clothes.

And so it was that after 43 years, the fires of protectionism began to fade out.

Or so I thought.

Protectionism’s new face
A new form of protectionism has recently appeared on the scene.

These neo-protectionists no longer argue that garment importing countries should protect their domestic markets against competition from imports. They argue that garment exporting countries should protect their exports from exports.

If this sounds a bit confusing, don’t worry. I guarantee the more deeply you go into this, the more confusing it will become.

The underlying argument is that garment factories in the developing and least developed countries cannot compete because these countries have high macro costs, which they define as poor logistics and infrastructure.

And until these countries are able to build better roads, rail networks, port facilities, and increase electrification, so this new reasoning continues, importing countries should restrict imports from the more productive countries (for ‘more productive countries’ read ‘CHINA’).

This is a wonderful argument. I will try to translate it from la-la language to reality.

I can understand trying to convince a Wal-Mart shopper in Arkansas that he/she must help protect jobs in North Carolina by not buying made-in-China garments. (This has never worked, but I can understand making the effort.)

However, I am having difficulty visualising someone walking up to some guy in Little Rock Arkansas and saying: “Bubba don’t buy that made-in-China polo-shirt. Buy this one made in Bangladesh. I know the made-in-China polo shirt is better. I know it is cheaper. But you have to do your part to protect jobs in Chittagong.”

Do you really believe this will work? Of course not; and neither do the neo-protectionists. Their plan is to go directly to the WTO and place textiles and garments in a special category where protectionism is permitted. However, once again reality steps in.

The WTO operates by consensus – every member has to agree. Last time I looked, China was a WTO member. I am trying to envisage someone walking up to China’s ambassador to the WTO to convince him to agree to anti-China textile/garment quotas… No. I can’t see it. No matter how much I try to suspend reality, my mind boggles.

The real point is that protectionism simply does not work.

Impediments to change
First of all, the important impediments to reducing macro costs are not physical. Good logistics is important and so too is increased electrification. It is equally true that these cost money.

However, the greatest macro costs are corruption, bureaucratic red tape and governments that have no interest in industrial development. Reducing these macro costs is free. All that is necessary is for politicians in these countries to steal less.

I am not saying do not steal. I am not asking the impossible. I am asking only that they take fewer kickbacks and slightly smaller bribes. I can assure you that demand for corruption is elastic. What you lose in each transaction, you will more than make back with increased volume.

Secondly, protectionism is not the way to develop infrastructure. Actually the opposite is true.

Imagine you are a government. And imagine, for reasons of your own, you did not want more roads, you did not want better ports, and you did not want more electrification.

Now try to create the best policy that will achieve these goals.

Well, the first problem is that there are some people in your country who actually want these things. I am not talking about the common people. They do not count. I am talking about important people – people with money. These are mostly business people, industrialists, and factory owners.

Your challenge is to convince these people to go along with you. You must offer them something in place of those roads, ports and electric generating stations. Imagine you went to these people and said: “I know you need the roads, ports and electric generating stations to compete with the more productive countries who already have these things.

“However, I have arranged for exports from these more productive countries to be restricted by quota. This way we will never need roads, or ports, or electric generating stations.”

You think this is a joke. The sad truth is that this is reality.

On a visit to Paris at the beginning of May 2006, Tunisia’s Prime Minister Mohamed Ghanouchi expressed disappointment with the results of the Association Agreement concluded between Tunisia and the EU in 1995.

He described the Association Agreement* as nothing more than a free trade deal, and called on the EU to develop a more ambitious vision on its partnership with the Mediterranean countries. In particular, he asked for help to improve the competitiveness of these countries’ textile and clothing industries, which would in turn also bring benefits to the EU.

As for Tunisia, Mr Ghanouchi stressed that the textile and clothing sector, the backbone of the country’s economy, could compete internationally if it was supported by closer cooperation with the EU.

EU garment imports
In 2005, EU garment imports were dominated by China (EUR16.8bn) and Turkey (EUR8.0bn). EU garment imports from four other countries exceeded EUR3bn – from Romania (EUR3.6bn), Bangladesh (EUR3.5bn), India and Tunisia (both EUR3.2bn).

However, while garment imports into the EU from China (+46.3%) and India (+30.2%) soared in 2005, and those from Turkey increased by a more modest 4.2%, those from all other big players, Tunisia included, showed a decrease.

In response, Cepex, the Tunisian Export Promotion Center, is launching a well-devised effort to support Tunisian garment exporters.

Ferid Tounsi, Cepex chairman and director general, outlined its plans in Brussels on 8 May, including enhancing the competitiveness of the sector, improving international marketing and looking for synergies between the EU and the Tunisian industry.

Tunisia is currently the sixth largest exporter of garments to the EU. Within this it is the EU’s leading supplier of trousers (especially jeans), lingerie and workwear. It’s also an important exporter to the EU of shirts, jackets and anoraks.

International marketing is certainly needed to reduce the over-dependence of Tunisian textile and garment exports on France (40% of exports in 2005) and Italy (25%). Other important customers are Germany (11%), Belgium (7%) and the UK (4%).

EU import statistics covering the first two months of 2006 show that textile and garment imports from the top three suppliers are continuing to increase: from China (+19.9% in Euros), from Turkey (+4.9%) and from India (+31.6%).

The fact that EU imports from Hong Kong during these two months more than doubled (+159%) cast doubts on the effectiveness of the quota policy against China.

Nevertheless, Tunisia and other Mediterranean garment suppliers were not swept away by Asian competitors. EU imports of Tunisian textile and clothing articles (traditionally about 92% of this total are garments) increased slightly by 2.8%. Morocco (+4.6%) and especially Egypt (+13.3%) did even better.

Mediterranean export star?
Is Egypt a rising Mediterranean export star, defying Tunisia and Morocco which have both started to decline?

According to Ahmed Sellami, president of Fenatec (the Tunisian Textile and Garment Federation), the sustainability of the Tunisian industry is better than that of Egypt. The minimum salary in Tunisia is around EUR200 per month and most garment manufacturers pay more than the legal minimum, while Egyptian labour is very poorly paid.

Mr Sellami points to the importance of foreign investment for the Tunisian textile and clothing sector.

The country had 2,094 companies in 2005, of which nearly 1,000 are companies with foreign capital (joint-ventures or wholly owned). Incentives for foreign investors in Tunisia are very attractive and will probably become even more so in 2008 when quotas against China should have disappeared.

TexMed 2006
Riadh Attia, the general commissioner of the re-shaped TexMed garment fair (Tunis, 14-16 June 2006), defines TexMed as a major trade event in the Euromed area, aiming at stimulating synergies and the weaving of alliances between Tunisian and EU companies, in a spirit of Euro-Mediterranean solidarity, complementarity and prosperity.

43 of the 183 confirmed exhibitors are foreign, mainly European companies. The 140 Tunisian exhibitors play the trumps of proximity to the EU, delivery speed and high competence, often via technology transfers from foreign investment partners.

*The EU-Tunisia Association Agreement
Tunisia was the first Mediterranean country to sign an Association Agreement with the EU on 17 July 2005. The Euro-Med Association Agreement between the European Community and its Member States, on the one part, and the Tunisian Republic, on the other, came into force on 1 March 1998. As well as strengthening political dialogue, trade, economic, social and cultural issues, an important component of the Association Agreement provides for the establishment of an EU-Tunisia free trade area by the year 2010.

US trade groups, however, are calling the agreement “a disaster for US manufacturing and the US textile industry in particular,” because it fails to include adequate safeguards in the accession agreement to prevent Vietnam from engaging in “predatory trade practices.”

Instead, they want to see an extension to the bilateral agreement signed between Vietnam and the US in April 2003 which imposes quotas on Vietnam’s textile and apparel exports to the US, or safeguards imposed on Vietnam if it is admitted to the WTO.

The latest bilateral market access agreement, described as “very good” by US Trade Representative Rob Portman, will lower trade barriers on a wide range of US industrial and agricultural products and services, as well as continue the process of political and economic reform in Vietnam.

But the trade groups argue that because Vietnam, like China, is a non-market economy with a heavily subsidised state-owned textile industry, the US textile sector will be especially impacted as a result. Data for March 2006 puts Vietnam as the 6th largest exporter to the United States.

“This agreement provides an open invitation to continue the devastating trend of outsourcing the very jobs that are so critical to our middle class,” said American Manufacturing Trade Action Coalition executive director Auggie Tantillo. 

He added that it could replicate the pattern of soaring imports into the US already seen with China.

Nearly half of Vietnam’s current exports to the United States are in textiles and apparel, and have jumped by more than 5,700% since 2001. Vietnam’s textile and clothing exports to the US were worth US$49m in 2001, rising to US$2.9bn in 2005.

“This deal is a double loser. It will further damage the hard-hit US textile industry and more than likely cause substantial job losses in Mexico and Central America,” Tantillo added.

There is a scene in the movie ‘Minority Report’ when the hero Tom Cruise walks into a store and is greeted by a hologram that knows all his previous purchases and offers suggestions for new ones.

Like most science fiction, the science in this movie is exaggerated (the store recognises Cruise by scanning his iris) but the fiction could soon be reality.

Retailers and clothing manufacturers are investigating whether radio frequency identification technology (called RFID) has the potential to become the biggest leap forward in inventory management since the barcode.

But privacy advocates are warning that retailers don’t want to use RFID only to manage their stock more efficiently.

Instead they point to a Minority Report-type future where code readers would be able to track consumers who had chips embedded in their clothing, allowing the sort of directed advertising featured in the movie.

Testing RFID
The latest company to admit that it is testing RFID technology is Levi Strauss. Levi’s is supplying men’s blue jeans with RFID hang tags (tags attached to the outside of a pair of jeans) to two franchised stores in Mexico and one store in the US.

The company will not reveal who the US retailer is but it is thought to be one of the company’s major customers, possibly a department store.

This pilot project is investigating whether RFID technology can be used to manage the interchange between store room to store shelf more effectively.

The chips send out a signal that can tell the retailer and manufacturer exactly when a shelf runs out of a certain style or colour or size of trouser, which should mean sales assistants will no longer leave customers hanging while they “just check in the back.”

According to a Levi presentation at a recent information technology conference, the introduction of RFID in a Mexican store last year reduced stockouts by 56% and generated an increase in sales.

Also, the whole stocktaking process has been speeded up. A cycle count at the Mexican store used to take four employees two full days to complete, a process they did every six weeks.

RFID now allows one person to complete the audit in 45 minutes and it can be done every day.

Potential benefits…
The potential benefits for shelf-management, ordering and just-in-time-delivery are clear and it is no wonder that a range of companies are investigating how they might use RFID.

Retailers like Wal-Mart and Target, for example, are looking at how they can use this technology to track shipments to a store (reducing delays) and also allow employees to prioritise the restocking of shelves.

…and pitfalls
But some RFID providers are also talking about the sort of Minority Report world where embedded chips would allow retailers and manufacturers to spy on their consumers (patents are pending).

It is this future use of the technology that worries privacy advocates, and in 2003 a boycott campaign led by Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN) forced Benetton to ditch its RFID project.

Liz McIntyre of CASPIAN said: “Making sure shelves are always stocked is just the start. The industry has other plans and some companies are talking about tracking people through what they wear so the appropriate ads could be flashed at them as they passed billboards. This would also allow governments to track individuals and it would only take a stroke of a bureaucrat’s pen to create the Big Brother society.”

Levi Strauss rejects any suggestion that it plans to spy on consumers and says that staff at the retail outlets using RFID are told to remove the hang tags at the cash register.

Director of communications Jeff Beckman said: “The idea of people walking around with RFID jeans and being monitored is just not going to happen. We are committed to doing this in the right way and we are doing it in a way consistent with our company’s values.

“The people who will benefit most from RFID are consumers who will no longer find certain types of product are not available.”

However, given the sensitive nature of this subject it is perhaps unfortunate that the trial only came to widespread attention only after CASPIAN uncovered it.

Beckman says Levi’s has made no secret of the project and that it was discussed at IT conferences. But there is a difference between saying it was “no secret” and actually telling the public what is going on.

The decision by Levis and its retailers to keep quiet has played straight into the hands of groups like CASPIAN and if the industry wants to avoid accusations that it is using Big Brother technology, it should consider being a lot more open about what it is doing and why.

The US government might get away with spying on its citizens but retailers and manufacturers will face much tougher resistance from consumers if they try the same thing.

By David Robertson.

Talks at a conference organised last week in Brussels by the European Commission’s directorate general for Enterprise and Industry rallied back and forth.

Speakers from the Commission told the European textile and clothing industry to anticipate changes and take risks by applying modern change management, while industrialists among the audience swiftly countered that they expected the Commission to take more, and tougher, action.

Günter Verheugen, EU vice-president and European Commissioner for Enterprise and Industry, declared that for strategic, economic and social reasons, Europe needs a strong industrial base.

He said it was a dangerous perception “that Europe could do without industry.” Musing on the consequences of globalisation, he added: “We can not prevent change, we can only manage change. And to do that, we need to anticipate.”

Verheugen said he fully supports the strategy followed by EU trade commissioner Peter Mandelson in the Doha Round. The EU won’t accept compromises that weaken its industry he explained, with the basic rule in the Doha being ‘cuts for cuts.’

Verheugen warned European textile and clothing industrialists that they can buy some time in their trading relationship with China, but not prevent full competition in the longer term.

“Don’t forget that the EU is the world’s largest producer of textile goods, not China,” the European Commissioner concluded.

Adapting to new challenges
Two companies – the French group Trèves and the Slovakian producer of medical textiles, Tytex Slovakia – and representatives from Italy’s Tuscany textile region, explained how they managed to successfully change their strategies and products to adapt to new challenges.

The family firm Trèves, which this year celebrates its 170th anniversary, has evolved from a modest weaver to an important supplier of technical textiles for the car industry.

In 2005, Trèves employed 7,500 people, achieving a turnover of EUR900m. The key to its success is high investment in R&D (7% of turnover) and human resources (3.5%-5% of annual salary costs go towards education and training).

The Slovakian company Linda Chemes was set up in 1995 to produce ladies’ pantyhose for the local market. The company had 70 employees and achieved an annual turnover of EUR2m.

“We made beautiful products, but we lost money,” managing director Stefan Jursa recalls.

In 2000, Linda Chemes was partially taken over by the Danish group Tytex and, under the name Tytex Slovakia, transformed in a producer of incontinence pants. Today, Tytex Slovakia employs 253 people and has excellent prospects. “Our target market – people above 60 – is increasing rapidly,” Jursa exclaims.

Tuscany, and especially the textile district of Prato (Europe’s most important wool centre), is a successful example of change management at a regional level.

The scope of most textile and clothing enterprises in the region is very small: 12,000 companies employ 74,000 people, an average of 6.2 people per company.

However, as Carlo Longo, president of the Prato Industry Association explained, thanks to cooperation between the SMEs and intelligent competitive strategies (repositioning of production towards high added value niches, huge investments in education and training, and a focus on innovation), the textile district of Prato has not only survived but successfully transformed itself in a sustainable industry cluster.

Industry appeals
Taking advantage of the presence at the conference of EU vice-president Verheugen and of Pedro Ortún, director for Enterprise and Industry, several industrialists made urgent appeals.

Filiep Libeert, president of Euratex, begged the European Commission to correct the present imbalance in market access, to tackle predatory pricing, to fight counterfeiting and piracy and to handle REACH-obligations with care.

Speaking for Eurocoton, the Belgian industrialist Jean-François Gribomont criticised the fact that the USA, Brazil and South Africa are protected against a range of Chinese textile imports until the end of 2008, while the EU is only protected until the end of 2007. He asked the Commission to help restore a fair power balance between industry and distribution.

Franco Castro, director of Texinov, a French technical textiles producer, suggested the Commission follow his example: visiting schools and luring students to the textile sector showing them amazing examples of textile products.

Bernd Stadler, head of international affairs at Hugo Boss, was surprised that speakers at the conference only referred to changes caused by globalisation.

In the last decade, he pointed out, European retail and consumers have changed enormously. The independent clothing retailer has nearly vanished, and consumers want more creativity and speed. This offers huge opportunities to European manufacturers he said.

By Jozef De Coster.

GM cotton could allow African farmers to increase their yields, improve efficiencies and reduce their costs as they cut back on the amount of insecticide need for pest control, according to GM backers such as biotech firm Monsanto.

But resistance from local farmers to high seed costs and tough times for existing GM cotton growers in South Africa – the only African country where GM is commercially grown – may mean that Africa’s potential as a key supplier is still some way off.

“There are several countries that are expressing increased interest [in GM cotton] including Egypt, Burkina Faso, Mali, Nigeria, Zimbabwe, Tanzania, Uganda, Zambia and Kenya,” according to the International Service for the Acquisition of Agri-biotech Applications (ISAAA), which with Monsanto promotes the use of agricultural biotechnologies in developing countries.

Egypt has already tested GM cotton in contained facilities and there is a probability that it may field-test GM cotton in the near term. Burkina Faso has also conducted trials.

Cotton battleground
But it is in Mali, already sub-Saharan Africa's largest cotton producer and one of the world’s poorest countries, where the battle for Africa’s GM cotton future lies.

The Mali government, the country’s agricultural research institute IER, biotech firms Monsanto and Syngenta, and the US development agency USAid have teamed up to test a five year GM cotton programme.

But local farmers have already given a frosty reception to the new cotton and have instead urged more be done to reverse the slump in world cotton prices which have slashed the value of the country’s “white gold” of traditional cotton which is planted across 600,000 hectares of semi-arid Mali.

“We do not ever ever want GM seeds. Never,” according to Basri Lidigoita, a woman farmer who spoke out against GM on a “citizens jury” that was held in southern Mali at the start of this year to debate whether GM cotton should be planted.

The debate took place in Sikasso in the south of the West African country, where two-thirds of the country's cotton is produced. Farmers protested that GM crops would plunge them into dependency on Western GM seed suppliers and ruin their own seed culture.

“Considering that in Mali the number of small scale producers represents 98% of the farming population and that the technology (crop genetic modification) is only viable for large scale producers – who represent only 2% of the farming population – this new technology should not be introduced,” added the London-based International Institute for Environment and Development.

With presidential elections on the horizon, the Mali government is not expected to rush the issue of GM cotton in its most vital industry.

Controversial trials
Trials in Mali and elsewhere across Africa will also have to be viewed against the backdrop of South Africa whose experience with GM cotton at the other end of the continent remains controversial.

South Africa is the continent’s only GM cotton producer more than a decade after biotech crops were first planted in Africa. GM cotton now dominates cotton planting, representing 90-92% of the total 20,000 hectares of cotton planted in the country.

But even in South Africa GM cotton farmers are having problems selling to the international textile or clothing industry.

Instead they are being forced to fight for their survival against cheap Chinese textile imports and even cheaper non-GM cotton supplies from neighbouring Zimbabwe which can even undercut South African labour costs.

The minimum monthly wage for a South African farm worker is around ZAR900
(US$150), according to the South African department of agriculture. Hard pressed Zimbabwe farm labourers will work for food and shelter as that country descends into economic chaos.

“Without the GM technologies that our growers are using which deliver production efficiencies, the cotton industry [in South Africa] would have collapsed completely several years ago,” said Andrew Bennett of Monsanto South Africa.

“There are no import tariffs to protect the local industry any more, as there were a few years ago. South African farmers struggle to compete with farmers in neighbouring countries who are not bound by laws stipulating minimum wages,” he said.

Monsanto, which holds the patent on Bollguard GM cotton, promotes its use on the grounds that a farmer will only have to spray the crop once or twice instead of six times a season.

But the results of GM cotton in South Africa are disputed by Biowatch South Africa which argues that the cotton has aggravated rather than alleviated poverty in Makhathini Flats in KwaZulu-Natal province, which is the main GM cotton producing area in the country.

Biowatch found SA cotton growers more than US$3.2m in debt because of the high cost of GM seed and poor rains. 

Last year, Spain-based Inditex, owner of the ubiquitous Zara chain in Europe, delivered revenues of EUR6.74bn (US$8.66bn), eclipsing the EUR6.2bn clocked by Swedish
archrival Hennes & Mauritz.

The Artexio, Spain-based retailer also expanded faster than H&M, of Stockholm, rolling out 443 stores compared to 125 stores for its Scandinavian competitor.

But despite its booming performance, H&M says it doesn’t need to smarten up to the Spaniards.

“We have been working alongside Inditex and Zara for a long time and this is nothing dramatic for us,” H&M investor relations director Neils Vinge points out. “We do our thing and they do their thing and we don’t plan to do anything specific to compete with them.”

Moreover, “success is not a matter of size but of delivering fashion and quality at the best price,” Vinge adds.

Industry observers agree, noting that H&M and Zara use different strategies to ring up sales in the $735bn specialised-retail market, now dominated by Gap of the US.

Unlike Inditex, H&M targets a more budget consumer and has a wider age appeal, experts say.

Moreover, while both chains are expanding strongly across Europe, H&M is targeting the US as its other key international market, while Zara is concentrating on Asia-Pacific, notably Japan.

Finally, there’s plenty of market room for both companies to coexist, observers reckon.

“Better operating margins”
According to H&M’s Vinge, H&M is more efficient at profit-making than Inditex. The chain reported net profit of EUR993m in 2005 compared with EUR803m for Inditex.

“Our EBIT (operating) margins are better than Inditex’s,” added Vinge.

Moreover, asked whether H&M plans to hasten its stocking times, which observers give Zara “bravos” for, Vinge says that the company is doing well with its current schedules, which range from two weeks to six months depending on the item. That compares with
an average of two weeks for Zara.

“We source about 60% of our wears from Asia and get all the high-fashion items to stores as fast as our fastest rivals,” Vinge comments. With basic garments, we don’t need such a quick turnaround time.”

Vinge adds that H&M is very cost conscious and careful about its operations and that it will stick to its current strategy in the future.

“We our going to focus on improving ourselves and beating our own targets,” he says.

Inditex has outlined an ambitious growth strategy which calls for it to double its store count to 5,000 stores in five years, up from 2,700 now. In turn, H&M says it will grow its store numbers by 10-15% in coming years from nearly 1,200 shops currently.

That strategy is likely to grow sales slower than Inditex, which analysts expect to raise turnover by 20% a year compared to 12% for H&M.

But they are also upbeat about H&M’s outlook, mainly because of the company’s efficient management and strong profitability ratios.

“H&M doesn’t need to increase its expansion. They are getting double-digit earnings growth and have huge cash flow generation – they are doing well enough on their own merit,” says a London-based retail analyst.

The two companies are similar, yet different, beasts he notes.

Diverging strategies
While they both target the fast-fashion ready-to-wear market, H&M sells to a younger consumer, has more basics and lower price points.

“They have a very different expansion policy than Inditex, which is more about dominating the globe by having stores in every large city,” says the analyst, adding that H&M prefers to penetrate fewer markets more deeply.

H&M is also expanding from Northern to Southern Europe, while Inditex is doing the opposite and can raise prices as a result, boosting its revenues, adds the analyst.

Caroline Taylor, an analyst at market researcher Mintel, agrees that H&M can do well with its current strategy. She points out that H&M’s sourcing, while slower than Inditex in some areas, is more geographically diversified, giving the Swedish concern greater flexibility to adapt to shifting consumer trends in different markets.

“My feeling is that because Inditex’s operations are so concentrated in La Coruna, their future expansion might be more difficult than it predicts,” says Taylor.

However, Inditex’s diverse brand portfolio, which includes other expansionist chains such as Massimo Dutti, Bershka and Stradivarious, sets it apart from H&M.

“Inditex has a larger chain portfolio, increasing their demographic appeal. Plus, they are still in fewer markets than H&M so this gives them more places to go to,” Taylor adds.

US market seen key for H&M
Analysts also see enormous growth potential for H&M in the US where some predict it could roll out 600 stores in the medium term, up from roughly 100 now. So far Inditex has pursued a measly expansion in the US, where it has opened just 19 Zara stores.

“H&M has been there for six years and they are likely to step up their expansion soon,” says the anonymous analyst, who works for a big investment bank. “We expect a lot of their future growth to come from the US where we see a potential for 600 stores.

Adds Taylor: “H&M has expanded sensibly in the US and they are making gains in New York and Boston. If things go well, the potential for growth is massive.

Taylor adds that H&M’s market target is different from that of Gap, which leads the US market, a factor that will help the retailer to consolidate its presence.

Paul Barrett, a retail manager at market researcher Euromonitor, adds that the world’s specialty-retail market is still big enough for H&M and Inditex to strike gold in.

“I think there is a place in the sun for both H&M and Zara,” Barrett says. “They can coexist because when you take them together there is still a lot of expansion room for both companies. They don’t have to grow by shooting each other down.”

Brenda Barnes, CEO of Sara Lee, announced the giveaway of Courtaulds Textiles to Hong Kong investor group PD Enterprises just a few days before Britain's annual Baishakhi Mela on 14 May.

She was probably unaware of the symbolism: the world’s largest Bengali festival outside Bangladesh is hardly news in Sara Lee's Chicago headquarters. But London's Brick Lane, site of the Mela, was developed, like Courtaulds, by Huguenot (French Protestant) silk workers, and is now almost entirely populated by Asians.

Londoners take a passing pride in the street's church – built by the Huguenots, turned into a synagogue once the Huguenots got rich and moved out, and now a mosque. But the area's peaceful morphing into an Asian community has never really been news; just a fact of life.

Courtaulds in 1978 was the world's largest textile company. In 2005 it still contributed US$560m to Sara Lee's sales, mostly Marks & Spencer private label.

With clothing or textiles dominating Britain's exports for most of the past thousand years, you might have expected some British concern about Courtaulds’ latest woes. But although unions are understandably concerned about yet another change of owner, the British have reacted as phlegmatically to Courtaulds’ apparent demise as to a soothing plate of Brick Lane chicken tikka masala.

But why is divesting Courtaulds costing Sara Lee so much? Apparently the group got nothing for the business, but retained "certain obligations of Courtaulds," with a US$483m pension contribution merely "the most significant."

And that’s after it had pumped in US$33m working capital. If dumping the former pride of Britain’s textile industry costs over US$500m, is there no future in supplying the world’s clothing retailers?

Value in private label

PD Enterprises isn’t shy of spending money: it started by buying a group of Pacific Dunlop brands in China and the Philippines for US$390m. And there’s still value in private label apparel contractors.

Negotiators don’t come sharper than Hong Kong’s Li & Fung – which has just paid US$37m for Oxford Industries’ women’s wear division (plus, Oxford claims, a further US$30m in the small print). The division sells to Target and Wal-Mart, and contributed a mere US$260m – half Courtaulds’ sales – to Oxford’s US$1.3bn turnover in 2005.

Most major Asian clothing businesses want to buy into the major retailers’ local suppliers – the people who design private label clothes, then take all the risks associated with getting them made and shipped into the stores.

When things go right, for an intermediary like Li & Fung, they offer a huge opportunity for rationalising the supply chain, and using better access to Wal-Mart and Target to push its sales heavily.

But things can very easily go wrong for private label suppliers too. In 2000, M&S supplier Bairdwear practically disintegrated when M&S stopped dealing with it. And Li & Fung backed away from bidding for another then M&S clothing supplier, Coats Viyella, when the retailer was unable to give the assurances about long-term contracts.

Direct sourcing

For the past few years, the major retailers have all been musing about more direct sourcing from factories – and performance has been declining at the largest private label supplier, Jones Apparel.

Even if the retailers don’t go direct, there's no law of nature saying all clothes must be designed in the country they’re going to be worn in. True, Gap has recently decided it’ll sell more clothes in Europe if it designs them there. But France's Groupe Mulliez has also just announced a pilot to design a significant proportion of its range in Bangalore

This is because Western private label suppliers carry a lot of overhead. Designers aren’t that cheap. And firing them if a major contract walks out can itself be an expensive business.

So buying a private label business in a country like Britain with reasonably tight redundancy laws can be risky – especially if the company is heavily dependent on one client.

That risk is lower if, as at Oxford Industries, business is spread over a number of clients.

The cost of managing problems is also lower in a country where redundancy rules are laxer – as in the US. And the potential if things go well is obviously a lot greater if the business supplies Wal-Mart than if it’s supplying M&S, whose clothes sales are about a quarter of Wal-Mart’s US$27bn.

Now almost all those risks were there when Sara Lee paid US$239m for it six years ago – a pretty bad time to pay 20 times earnings for a clothing manufacturer. Legal and actuarial changes make this a bad time to sell a British business with Courtaulds’ mix of workers and retirees.

So there’s no big lesson in Sara Lee’s quandary. Sara Lee has simply displayed truly dreadful timing. In its long history, so have a lot of Brick Lane’s businesses. But the Lane’s still there.

The Economic Partnership Agreement (EPA) currently being negotiated between Indonesia and Japan, and due to be completed later this year, has the potential to bring considerable benefits to Indonesia’s textile and clothing industry.

In a statement that followed a recent meeting with its country’s textile associations, the Japan External Trade Organisation (JETRO) said Japan is keen to reduce its dependence on China as its main source of textiles and clothing and sees Indonesia as one of its main alternative suppliers.

Currently, about 58% of Japan’s textile imports and 81% of its clothing imports come from China compared to Indonesia’s share of just 6.0% for textiles and 0.6% for clothing.

Global competition
Before quotas on the textile and apparel trade between WTO members were abolished at the end of 2004, Indonesian exporters primarily sold their products to the US and EU where they were able to fill their quotas by offering lower prices than non-quota countries. Only a small number of Indonesian companies exported to Japan.

Today, however, market expansion is key if Indonesian companies are to survive the increasingly fierce global competition in their traditional main markets of the US and EU.

Exporters admit that the main obstacle to entering the Japanese market is not the import duty, which currently averages around 6.7%, since textiles and clothing have a GSP facility in this market. Instead, it is the quality requirements, the loyalty of Japanese consumers to buying products made on Japanese machinery, price, and the long consultations necessary to win a contract.

For this reason, negotiators are highlighting the need to get the most out of the economic partnership agreement for each country.

Joint initiatives to promote the competitiveness of the Indonesian manufacturing industry include a Manufacturing Industry Development Center, where Japanese investment and technology will be used to help the Indonesian industry meet the requirements of the Japanese market.

Under the EPA both sides will eliminate tariffs, with the resulting free import duty also helping to improve market access for Indonesia’s textile and clothing industry.

Growth of the labour intensive textile and clothing industry will help solve Indonesia’s unemployment problem, but will also mean people can afford Japanese products like electronics.
 
To secure Japanese investment in Indonesia, though, there needs to be an improvement in the country’s infrastructure, security, government regulations and law enforcement.

Products covered in the EPA
All types of textile and clothing ranging from HS code 50 (fibre) to 63 (clothing and other textile products) are covered in the EPA.

However, for garments the agreed rule of origin is the “fabric forward rule,” which means that from the fabric onward all the processing must be carried out in Indonesia to qualify for free import into Japan. If the fabrics are sourced outside Indonesia the resulting product will be subject to a duty.

This is intended to encourage the growth and development of Indonesia’s weaving and knitting industry which has been in trouble in recent years due to an influx of imported fabrics both through normal procedures and smuggling.

In addition, such a strategic rule of origin for garments will also be very important for the industry’s whole supply chain. It will encourage the growth of the industries below it like fibres and spinning and also the industry above, such as garments and other textile products.

Japanese imports
Statistics from World Trade Organization (WTO) indicate that Japan imported US$5.812bn worth of textiles and US$22.541bn worth of clothing in 2005.

China was the major supplier country for both textiles and clothing, contributing US$3.037bn or (52.3%) and US$18.243bn or (80.9%) of the total respectively.

Other supplier countries for clothing were the EU-25 which shipped clothing with a value of US$1.598bn to Japan giving it a market share of 7.1%, Vietnam US$610m (2.7%), the Republic of Korea US$436m (1.9%), Thailand US$280m (1.2%), Malaysia US$152m (0.7%), India US$141m (0.6), Indonesia US$125m (0.6%) and the Philippines US$98m (0.4%).

Important suppliers for textiles were the EU-25, with a value of US$721m and a market share of 12.4%, Indonesia US$349m (6.0%), the Republic of Korea US$328m (5.6%), China Taipei US$302m (5.2%), United States US$264m (4.5%), Thailand US$178m (3.1%), India US$157m (2.7%), Vietnam US$128m (2.2%), Pakistan US$75m (1.3%), Malaysia US$56m (1.0%) and the Philippines US$30m (0.5%).

EPA opportunities
Because Japan has been always one of the world’s largest importing countries for textiles and clothing, the EPA will definitely not threaten Indonesia’s local industry.

In the long-term it will even be a great opportunity for market expansion. In 2005, the total combined export of textiles and clothing from Indonesia was worth US$8.56bn, including US$474m to Japan.

Assuming that Japan is serious about seeking alternative suppliers for its textiles and clothing, then the EPA will be good news for the industry in Indonesia.

In fact, a very optimistic outlook is that replacing just 10% of the Chinese-made clothing in the Japanese market would enable Indonesia to increase its market share by 1459.44%, from US$125m to US$1.949bn.

This is really a huge market opportunity which also needs huge investment and employment as well. Industrialists and the government must cooperate closely to make sure this great goal comes true.

Each year, the army, firemen, police, post office, railways and other public services in Europe order textiles and clothing worth more than EUR10bn (US$12.9bn).

Promptex, the European federation for the promotion of textiles and leather procurement contracts, points out that more than half of this amount goes to bidders who have their products made – often very cheaply – outside the European Union (EU).

And it has published a guide for executives involved in awarding public contracts in the textile and clothing sector, instructing them how to take quality criteria into account.

Procurement conference
The first conference on ‘Textile, Clothing and Public Procurement,’ organised in Brussels by the European Commission on Wednesday (24 January), attracted 180 people from across Europe, particularly the buyers and suppliers of textiles and clothing.

Jean-François Gribomont, president of Promptex, pleaded for a shake-up of the way public contracts in the textile and clothing sector are handled.

Instead of more or less routinely awarding the order to the bidder offering the lowest price, authorities and public services should try finding suppliers offering good value for money he said.

If price is the decisive criterion, then lean commercial bidders who outsource production as cheaply as possible outside Europe easily beat European manufacturers who respect social and environmental standards.

In addition, while the European Community’s own procurement market is effectively open to foreign competition, outside the WTO Government Procurement Agreement (GPA), which mainly includes the EU, USA, Japan and Canada), European companies are often excluded from foreign procurement markets.

Promptex estimates employment by the military and civil services in Europe is more than 5 million people. And more than 100,000 European textile and clothing workers are involved in the manufacturing of fabrics, uniforms and other textile supplies for these public markets.

Fabric preferences
A survey carried out by Promptex into public purchases of clothing and fabrics in seven countries in western Europe also revealed that cotton and wool dominate public procurement markets. The market share of 100% synthetic articles (excluding mixtures) is little more than 7%.

However, the prevailing preference for natural fibres does not necessarily reflect a progressive choice for ecological sustainability by the public buyers. The Council Directive 2004/18/EC on public contracts authorises two types of criteria for the award of public contracts, with business being awarded on the basis of the lowest prices and the most cost-effective tender.

According to several speakers at the Public Procurement conference, financial considerations have tended to take priority over quality criteria in the past. But this is already starting to change, with Belgian textile trade unions currently trying hard to convince the national post office not to purchase new uniforms for its personnel simply “at the lowest price.”

There is also a recent and growing trend among public clothing and textile purchasers to take into account other elements, such as the skills of the factories (subcontractors included), the quality of production, the punctuality of shipments, employees’ working conditions (wages, employment of minors), and industrial waste treatment.

Last year, the French Railways (SNCF) withdrew a clothing contract with a Chinese company for not respecting social obligations.

Eurocities, a network of 130 big cities (exceeding 250,000 inhabitants) has a policy of responsible (environmental, social and ethical) procurement, and will soon make available a sectoral guide on textiles procurement. 

Barcelona and Paris are quoted as pioneering cities in this field. In the contract awarding phase, the purchasing department for the city of Paris (46,000 personnel) gives the price of clothing a weighting of only 35%, while quality gets 40% and delivery time 25%.

Manufacturing success
Though public procurement in Europe is a huge market (EUR150bn annually across all sectors), most small and medium manufacturing companies are hesitant about entering it, with many saying they are afraid of the burdensome procedures for awarding public contracts. However, after a big initial investment in time and know-how, they concede that things do become easier.

At the Procurement Conference, a few medium-sized companies explained how they succeed in public markets.

The Italian company Alfredo Grassi (1.5m metres of fabrics and 1.9m garments annually) has a strong position in the Italian uniforms and workwear market, which is estimated at roughly EUR1bn. Grassi gets 55% of its total turnover from public contracts.

Thanks to investments in modern production plants in Madagascar and Tunisia, the French company Paul Boyé Technologies has evolved from a manufacturer of traditional uniforms and combat suits to a specialist in hi-tech protective garments and equipment.

Intense research and development efforts have also helped the Belgian vertically integrated company Utexbel to carve out a niche in the market for anti-mosquito fabrics, destined for the military. Over the last few years Utexbel has sold more than 5 million metres of anti-mosquito fabrics to European and non-European armies.

Probably no other European textile company in the area of public procurement has higher ideals than the French fabric maker TDV Industries. TDV tries to reduce its ecological footprint, to be ethically pro-active and to anticipate future laws.

On 1 January 2007, Romania and Bulgaria will become the 26th and 27th member states of the European Union.

One of the biggest topics under discussion is the future performance of the Romanian garment industry, by far the largest East-European supplier of clothing to the EU.

Will Romania’s clients such as H&M, Zara, DressMaster, Escada, Lacoste, Dolce & Gabbana and Christian Lacroix start looking for cheaper production locations such as Bulgaria, Moldavia, Ukraine, or even Kazakhstan and Georgia?

Or will they continue ordering from Romanian manufacturers? And if so, are they looking for subcontractors or for ‘full package’ suppliers?

Even though the eventual outcome is unclear at the moment, the natural gravitation of international garment buyers to the cheapest possible production locations around the globe must surely affect Romania’s position.

Rising production costs
In August 2006, average gross earnings in the Romanian textile industry amounted to EUR217 (US$286) and those in the garment industry were EUR190.

However, after Romania’s entry to the EU, salaries and other production costs will inevitably rise, partly because Romania will have to comply with the EU’s social, environmental and security standards.

Romania’s relatively high labour cost is not offset by high labour productivity. On the contrary: data collected by Euratex reveals that in 2005 the annual turnover per employee in the Romanian clothing industry stood at EUR6,650. This is lower than in any Baltic or Visegrad country and only slightly above the turnover per employee in Bulgaria (EUR6,244).

It is unlikely, though, that Romania will lose its status as the number one East-European garment supplier to the EU in the next few years, even though its exports to the EU have fallen in 2005 and 2006.

The main reason that Romania’s garment exports to the EU decreased by 9.4% (from EUR3.89bn to EUR3.65bn) in 2005, and by 3% during the first eight months of 2006, was not that EU buyers sourced more from other East European countries, but that they sourced a lot more from Asia.

At Romanian lingerie and stockings producer Rosko Textil, turnover in 2005 fell 17% to EUR143.2m. Financial officer Ioana Ciulica attributes this to the flood of Chinese products into the EU. Rosko Textil exports 100% of its products to EU markets, as do many other Romanian companies.

Labour shortages
Romanian manufacturers not only fear increasing salaries in 2007 and beyond, but also a growing shortage of labour.

According to statistics, the official rate of unemployment in Romania fell from 8.3% in 2002 to 5.1% in July 2006. Around 2 million Romanians already work abroad, mainly in Italy and Spain.

Another negative for the apparel sector is that net salaries in the Romanian textile and garment sector are more than 30% below the average paid in Romanian industry. Sonoma Sportswear, in Bacau, is testing an original solution by flying in over a hundred Chinese workers to cover the local shortfall.

Adapting its customs tariffs to the EU level is a further important consequence of Romania’s entry to the EU – and is likely to lead Romanian garment manufacturers to source more raw materials like knit yarns and woven fabrics from China and other Asian countries.

At the fabrics and accessories fair RomaniaFabricDays, held in Bucharest last month, Ajay Yoshi, export manager of the Indian suitings producer BSL, explained that currently BSL’s margins on sales of polyester/viscose, woollen and other fabrics into Romania are very small.

However, when import tariffs on fabrics drop from the present level of 18% to the EU-level of 8% from 1 January 2007, BSL will become more competitive.

According to Mr Yoshi, Chinese fabric exporters to Romania may be better positioned in terms of price, but they often fail to offer the right quality.

Quality-oriented garment producers allegedly shun one-thread and piece-dyed fabrics from China in favour of two-thread and yarn-dyed fabrics from other countries.

Foreign investors confident
Some sector observers believe that half of Romania’s 8,000 textile and garment companies could disappear by 2010 and that output will be reduced by 10% to 25% over the same timeframe.

They also suggest that by 2010 CMT – which accounted for 68% of total garment production in 2005 – could have left Romania for countries like Moldavia, Ukraine and Russia.

But even so there seems to be a consensus that Romania’s entry into the EU won’t kill its apparel industry.

It is generally expected that the industry’s proximity to the EU, low standard-minute cost and skilled labour will help it survive – especially if it makes the transition from CMT to full package production.

Recent investments in Romania by denim producer UCO Raymond, the American Jeantex Group, the accessories group Global Textile Center, the ladies’ wear producer Alison Hayes, the label manufacturer Paxar and other foreign companies all indicate that international investors believe in the future of the Romanian apparel industry.