Posts Tagged ‘textiles’

Pacific gets pretty specific

February 26, 2009

Big news down under this week has been the announcement that our largest clothing/textile firm is shutting down its local manufacturing and shifting all such activity offshore, principally to Asia. Pacific Brands which controls a huge portfolio of household names in Australia, has conceded that it can’t compete with lower cost environs.

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At the same time it has indicated it will be paring back its range of offerings very considerably, as it has a very unbalanced portfolio. The top 20 brands make up two thirds of sales, the Top 10, 49 percent, the Top 5 a third. More than 200 make less than $0.5m a year each.

It has been asked what the impact of the current financial crisis will have on firm boundaries (i.e. how far they stretch themselves in terms of range of products and activities). Pacific Brands look to be reducing their extent of horizontal reach (or perhaps their extent of duplication within existing product markets). Carrying slow-moving product is a lot harder to justify when your financiers are looking over your shoulder and are nervous about debt levels.

yakka-shortsWhat is missing in the above linked discussion about boundaries, is the actual physical dimension – namely whether firms might be more or less likely to redistribute activities in the current climate. It would seem Pacific Brands have been contemplating this shift for quite a while. Australia has been pretty ruthless in cutting protection of the textile, clothing and footwear industry (although there was a stay on proceedings for a few years), and the firm can now very easily bring in overseas product. The rapid drop in the Aussie dollar during the crisis could have justified a delay, but it would be simply postponing the inevitable. It may well be a good time to lock in any necessary asset purchases, supply contracts and the like in Asia as firms there also deal with high uncertainty about some of their key export markets.

Such relocation to a substantially lower cost location could be seen as a de facto substitute for the sort of vertical specialisation Lien predicts. The firm might be more comfortable substituting one hierarchical governance arrangement with another, even if the new FDI-driven one is presumably more complex, rather than taking on the vagaries of market transactions (especially as the latter will shift in nature as the economy inevitably recovers).

I will keep an eye out for more instances of substantial readjustment of firm boundaries in these tumultuous times. Feel free to share your examples too.

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The International BS Book Club

October 15, 2008

I have just finished reading a fascinating book on international business which you may find highly relevant and thought-provoking. It’s be a US economist Pietra Rivoli, and called The travels of a t-shirt in the global economy: an economist examines the markets, power and politics. The book explores many issues of interest to readers of this Blog.

Rivoli explores the emergence of cheap t-shirts from China and elsewhere, and the companies, processes
and supply chains behind this story. She explores why the t-shirts are so cheap, why the US can no longer compete in the market, and how the politics of trade have shaped firm behaviour. Rivoli goes right back to the 18th and 19th century to explore how the US usurped Britain as the dominant player in this industry (and also how Britain wiped out India as a comptitor before that).

Rivoli explores the incredible technological innovations that have kept US cotton growers competitive, but argues that clothing manufacturing has been less successful in recent years, losing out first to Japan, then Hong Kong, Taiwan and now China.

She heads to China to see what the factories look like there, what work in the factory means to young Chinese women and to explore the entrpreneurialism involved in building relationships with the big buyers of these products. Rivoli argues that China does have huge advantages because of labour laws and because of the enormous population of available workers.

She also finds that China is limited in its success by very effective quotas that limit the amount of textiles that can be exported to the US. These quotas have lead to expansion of t-shirt manufacturing in a range of countries including Mauritius, Bangladesh, Honduras, Vietnam and Pakistan. Rivoli highlights the enormous bargaining power of US senators and congressmen in influencing the quota levels and the extent to which the US uses these quotas as a bargaining chip in negotiations with a wide range of countries. Only now in 2008 are some of these quotas finally being removed allowed freer trade in some clothes into the US.

A truly fascinating section near the end of the book looks at recycled t-shirts (and clothing more generally). Here the US is a net exporter and provides a huge amount of clothing to developing nations. The markets for these goods is much freer and the goods are highly idiosyncratic (she refers to them as snowflakes as new used t-shirt is the same). The stories of marketplaces in Tanzania showcase some fantastic entrepreneurship and innovativeness.

US National Public Radio provides some (print) excerpts from the book and some short (audio) interviews with participants:

Excerpt One: “How Student Protests Sent a Business Professor Around the World

Excerpt Two: “Texas Cotton: Farmer Profits at Every Step” and the Radio Segment (click “Listen Now”)

Excerpt Three: “The End of Quotas and Rise of China” and the Radio Segment (click “Listen Now”)

If you want to get a nuanced, balanced insight into one startlingly complex industry and its international machinations, this is a great place to start. There is also a book about underpants out there which I haven’t yet read.

Do jeans make you blue?

October 13, 2008

The manufacturing processes behind common consumer products are not often discussed in the media. Clothing is one exception, as there are sporadic debates and exposés about the likely sweatshop roots of popular brands. This story from the Saturday Age looks at the world of jeans manufacturing. It claims to expose a variety of production processes which may be harmful to the folks making the jeans (and the components thereof) and to the environment where the manufacturing occurs (often developing countries).

Multinationals have to be very careful about the perceptions of the impact of their products, in terms of both workers’ rights/experiences, and also the environment. This article suggests that the jeans being sold in Australian vary considerably in terms of the damage they have done before we buy them.

It is far from a simple cheap labour/low cost strategy story either, as the firms offering these products are often engaged in these practices so as to achieve differentiation in the highly competitive fashion market. You might even argue that they are highly innovative and adventurous firms. Also, the firms whose brands appear on the jeans are typically not directly involved in the production process themselves. They might, therefore, claim little/no awareness of, or responsibilty for, any damage done.

This not an issue that will go away. It remains to be seen whether consumer behaviour is significantly altered by such revelations, and whether firms can create any genuine advantage from taking a more socially responsible position by altering manufacturing practices.