TAL: Question 2

2. Discuss the dynamics of the apparel value chain (describe and explain) and how the global apparel industry is classified as a buyer-driven industry (features).

Buyer-driven industry is an industry which global value chain is the result of “large retailers, marketers and branded manufacturer play[ing]the pivotal roles in setting up decentralized production networks of exporting countries” (Gereffi&Memedovic, 2003). The difference betweenbuyer-driven and producer-driven is that the former is controlled by downstream actors while the latter is controlled by large manufacturers - relatively upstream actors.

In the past, the apparel value chain was producer-driven (push system). Favored from industrial revolution, the apparel industry adopted the concept of the mass production which specializes in single product type (Cornell University, 2006). Since this production mode took time to process, the apparel value chain “was dependent on materials producers, throughput time (time for a single unit to be produced), and shipping strategies” (Cornell University, 2006). The producers played the central role and pushed the apparel value chain, forming producer-driven value chain.

The value chain has transformed from the producer-driven to buyer-driven. At present, large retailers, marketers and branded manufacturers plays a dominant role as a result of large market share. For instance, the fivebiggest retailors in the US accounted for 68% of the apparel sales in the US by 1995 (Gereffi&Memedovic, 2003). On the other hand, the manufacturers are passive in the value chain. Take the US apparel manufacturing industry as an example, 49% of retail apparel sold in the US were made in the US in 1992(Gereffi&Memedovic, 2003). Yet, it sharply dropped to 12% by 1999 as a result of retailor adopting global sourcing(Gereffi&Memedovic, 2003). Therefore, the apparel industry is now classified as a buyer-driven industry.

This change can be explained by many factors. In this profile, it is suggested there are at least three factors contributing to the result: 1. feature of apparel production; 2. characteristics of the products; and 3. the strategy of downstream players.

1.     Feature of apparel production

The generally low entry level (Gereffi&Memedovic, 2003) and labor intensive feature of apparel production easily generate fierce competition which favor the buyers. Being a labor intensive industry, the entrepreneur can easily set up business as long as there is enough labor supply. With sudden increasing labor supply after China opening up, the competition of apparel production has intensified that the apparel prices relative to general price has decreased sharply as a result (see figure 1). Under this condition, the buyers’ bargaining power raised, reshaping the value chain to buyer-driven.

2.     Characteristics of the product

Cloth has become fashionable goods which poses a disadvantage to the producers in the value chain. The globe economic condition in general has been improving throughout the second half of the 20th centuries (see figure 2). Together with decreasing apparel prices relative to general price, people purchasing power towards apparel increased significantly. Therefore, apparel has changed from necessary goods to fashionable goods with shorter product life cycle. This change amplifies the importance of customers’ information. When compared with producers, the retailers have the advantage to acquire the information, developing buyer-driven value chain.

3. The strategy of downstream players

Downstream players have been implementing strategy to secure market demand which pose disadvantage to apparel manufacturers. Apparel retailers, especially large with global brand, have been spending a lot on marketing campaigns and advertising to develop and maintain their brand name (Gereffi&Memedovic, 2003). This marketing strategy has helped the retailors occupying significant market share, strengthening their bargaining power as a result.

In addition, the downstream players take advantage of the nature of apparel industry through global sourcing. Given the low entry barrier and high labor-intensity of the apparel factories, factories can easily be set when labor cost is low. Together with the help of trade liberalization, downstream players can maintain their advantage with ease as long as theydeveloptransnational extensive production network and source the factories which provide highest efficiency.


Short Conclusion

In brief, the increasing supply rate outracesincreasing quantity demand, leading to the change from producer-driven to buyer-driven global value chain. Thischange is mainly the result of the feature of apparel production which put producer in great disadvantage. The shifting nature of apparel though implies increasing quantity demanded, the wealth margin is token by downstream buyers who gain market share through marketing strategy and taking advantage of fierce completion among apparel producers by global sourcing.

 

Reference:

Barker, Wally 2010, Apparel Industry Series: General Price over the last 100 Years, Available form: <http://www.wallybarker.com/Apparel_history_pricing.html>. [23 March 2014]

Cornell University 2006, “Mass Production”, The Cutting Edge Apparel Business Guide, Available form: <https://courses.cit.cornell.edu/cuttingedge/production/03_production.htm>. [23 March 2014]

Gereffi, Gary &Memedovic, Olga 2003, The Global Apparel Value Chain:What Prospects for Upgrading by Developing Countries, United Nations Industrial Development Organization, Available form: <http://www.unido.org/fileadmin/media/documents/pdf/Services_Modules/Apparel_Value_Chain.pdf>. [23 March 2014]

Our Progress 2012, Discussion: Economic Crisis, Available form: <http://www.ourprg.com/?p=1965>. [23 March 2014]3/30/2014