Globalization of Production in the Textile and Clothing Industries Essay

easternmost europiuman full reintegration into the worldly concern economy had already started during the eighties, merely the decease of the decade and the beginning of the nineties apothegm a sudden spurt in that direction. This has interpreted the turn non hardly of a swift trading reorientation towards the West, especially the EU, and to a fault of immature forms of inward impertinent direct enthronization (FDI), subcontracting and cooperation agreements with westerly enterprises.As a consequence, east europium has be decrease deeply entangled in the larger process of globalisation of payoff characterizing the outside(a) economy, where firms operations atomic number 18 becoming much more(prenominal)(prenominal) interlacing and pervasive than tralatitious arms-length trade and traditional inter subject field investment, including two(prenominal)(prenominal) internationalist achievement and sourcing. Therewith the process of transition to the mart appears to be more and more intertwined with Hesperian firms strategies.It is then of well-nigh inte sojourn to analyze the ex ext of such(prenominal) resettlement, its various forms and the manageable impact on both the relocating and the boniface countries. International relocation can be analysed from different points of view. The perspective of the present written report is to concentrate on peerless of the around important trade eccentricners of eastern Europe Italy and on 2 industrial sectors in which the latter is specialised in output and exports cloths and uniform, which atomic number 18 in addition of paramount enormousness in Eastern Europes exports.A few data on performance, workout, investment and foreign trade whitethorn suffice to demonstrate the enormous grandness of these industries for Italy. In 1993 this surface bea produced almost 40% of the entire EU production of textiles, including knitwear. The a nonher(prenominal) major EU count ries followed instead distanced France (17% including business firm textiles), Germany (16%) and the UK (11%). The correspondig employment for Italy was 30% of the EU intact, winning into account also the firms with less than 20 employees. The second most important surface area Germany employed just fractional of that amount. in the complete investment, both outlying(prenominal)e and per head employed, reveals a similar pattern, these devil countries beingness followed by France and the UK. The ranking is similar in the garment intentness. In 1993 Italy delineated 41% of total EU production, 24% of total recitation (including firms with less than 20 employees) and headed the investment ranking, both in absolute terms and on a per capita employed basis. It should be added, in this respect, the particular proposition consumption habits of Italians, who devote to tog a much mellowed schooler contribution of their total consumer spending than the early(a) Europe an nationals.The splendour of the internal grocery store luff is still when paralleled by the place of the devil sectors in Italian foreign trade. During the last few years Italy has been the second or ternary world exporter both of textiles and of clothing products, if one excludes Hong Kong imputable to the paramount importance of its reexports. She is the archetypal Western supplier of the G7 markets for clothing and start on a par with Germany for textiles. The industry presents the second, and growing, largest positive trade balance in Italian foreign trade.The two sectors unitedly represent 11% of her total exports, but a much lesser look for at of her imports (5%). However imports tend to grow faster than exports. A growing number of enemys is gaining market lots in the EU, at the expense of the traditional leaders like Italy and Germany. Import incursion, which has near doubled in the last ten years, is but one of the components that, starting from the rece ntly eighties, is exerting growing pressure on the all industry at a EU take. Production is falling and grate productiveness rising much faster than in average manufacturing.The result for the EU has been 639,000 jobs helpless in 1988-94, equal to almost 30% of all job losses in the manufacturing industry. Italy was also hit, although less than other European countries for the reasons indicated later. What is the particular place of Eastern Europe in this process? The CEECs represent barely slightly 3% of Italian total trade in textiles, but a much larger share in Italian imports of clothing 15% -, their importance in Italian exports of the aforesaid(prenominal) being minor (2%) (table 1).Almost half of the Italian imports of clothing from Eastern Europe come from Romania and more than one fifth from Hungary, the rest being spread among the Czech and Slovak Republics, Bulgaria and Poland, in the order. Together with an increasing deficit for Italy, the share of clothing i n total Italian imports from each CEEC has been increasing recently in all ends, and particularly so from Romania and Bulgaria, where it right a mood stands at 41% and 27%, respectively, and from Hungary (12%).The two sectors behave asymmetrically clothing looms from two to eight times larger in Italian imports than exports, plot textiles are far more important in Italian exports, at the exception of exports to former Czechoslovakia. This was also the only country with which Italy ran a deficit in textiles (today with the Czech Republic). Previous studies conducted by the author (Graziani 1993, 1994a, 1994b, 1995) show a conclude relative specialization of the CEECs in most clothing products both on the EU and on the Italian market.to a greater extentover, in both markets import penetration ratios for the same are on the increase. Does this mean that Italian textile and clothing industry is losing ground vis a vis East European manufacturers? The question is whether internation al trade data like surpl utilises and deficits, market shares, specialization indices and import penetration ratios by themselves are to be considered reliable combat indicators, if a substantial part of trade flows is in some way or other tied to the importing country.From this perspective, imports into the relocating country could ideally be divided into trio distinct flows a) untied imports from foreign firms b) imports derived from non- rectitude cooperation agreements (in particular from subcontracting) and c) FDI-related imports. International relocation of production taken here to mean not only the physical delocalisation of production oversea, but also the organized sourcing from other countries affects directly the two latter flows and is then crucial for interpret the meaning of trade indicators and trends. 2) The Italian mystify until the mid-1980sInternational relocation has been almost completely absent in the Italian look of textile and clothing production un til at least the mid1980s. Contrary to the growing international redisposition of its main EU competitor Germany -, Italian dealing with foreign markets were loosely centered on arms-length exports. The few affiliates abroad of Italian bigger firms had just the project to support the sales engagement in the recipient country. This explains also why Italy did not incur into the same dramatic employment reduction suffered by Germany, wich lost half of it in the last twenty years. as rise up as assigned FDI, Italian manufacturers did also ward off subcontracting abroad by obtaining its advantages on a purely domestic level. The logics of subcontracting are well known, all the more so in the textile and clothing industry. Through it, producers look for 1) lower costs, since the subcontractors do not account for indirect costs 2) more compromising and reactive supply, that can be habituated of in case of ceased necessity and 3) in the end some expertise and know-how not purc hasable in-house. Subcontracting has always been important within Western Europe.According to a recent survey, in 1992 the clothing subcontracting sector employed in the EU 800,000 workers, including 200,000 artisans and 150,000 illicit workers (Mercer 1994). This is equal to roughly 26% of total EU employment in the textile and clothing industry. approximately 30% were in Italy and 17% in the UK, the others following suit. Up to the mid1980s Italian producers could limit subcontracting almost exclusively within the national boundaries. The following features allowed its coming to life and its clevernessa) the main and most original component part was represented by the alleged(prenominal) industrial districts (Becattini 1987 ). Production was concentrating in a microscopical area, with a myriad of interdependent subaltern enterprises, horizontally and vertically specialized in each of the subsectors of the industry. Production of wool in Prato and Biella, silk in Como and knitting in Carpi are but a few examples of such districts. We are here in a typical Marshallian world of economies external to the enterprise, but internal to the industry, where all the firms, independently from their size, may reap the benefits from a certain clustering of activities.A traditional culture of industrial work, specialized skills both of workers and overhauls, the possibility of speedy exchange of inventions and improvements, coupled with the general use of subcontracting, often to the lower paid workers of the so-called informal economy, were enhancing the locational advantages and decreasing the transaction costs, compensating in this way the higher official labour costs vis a vis lower-wage countries (Forti 1994a)b) most firms were family-run and rather small, a limited number of mean(a) size, as compared to the average West European, while the few larger ones had not even reached the minimum critical threshold at a lower place which a clothing manufacture r is not able to finance the very high costs of internationalization, some of which are typically sunk costs c) the main government issue was represented by the national market, where a very fragmented retail internet (in clothing) acted as a relative protection from foreign competition, limiting the import penetration ratio to a level well under the EU average d) progressively, Italian producers had chosen the product differentiation row (especially in clothing), by positioning themselves in the up-market segments, characterized by non price competition and a high fashion-, fiber- and value-added content. As one knows, internationalization of production is all the more convenient the larger the amounts to be produced and the more regulate the productive processes. ) lastly, especially in the textile sector, Italian producers had continually fostered technological innovation, obtaining the highest productivity levels in the world, which allowed them to compete worldwide.3) From domestic to international relocation the innovative strategy of Italian firms. Apart from the progressive erosion of industrialized countries market shares, by the mid- 1980s new features were emerging in the textile and clothing sector. First of all on the international engage side. Consumption growth started to show the first signs of stagnation, while a habitual rethinking of the relative value of intrinsic spirit as against style was in the making. More in general, a better reference/price relation was sought for. charge elasticity increased also for the high fashion- and quality-content goods.A further factor fantastic to Italy was also at work. Domestic demand started to flatten out at the end of the eighties, bringing it more in chore with the demand patterns of the other industrialized countries. On the supply side, at the domestic level the concentration rate in both sectors was rapidly increasing, while large firms reorganised and diversified their production . At the same time, Italy became a very high cost country, furthermore characterized by a rather situated labour market. Abroad, emerging countries were progressively upgrading the quality of their products, through a continuous learnedness process. On the whole, price competitiveness tended to get down more stringent.Increasing competition was stemming as well from the concentration processes affecting the dissemination sector. Large distributors tended to place big orders and to deputize in the choice of styles, quality, timing and service standards (OETH 1994). A final contingent factor favourable to the internationalisation of production was due to the real appreciation of the lira amongst 1987 and 1992, which favoured international operations like FDI and subcontracting. As a consequence, Italian firms started to undergo a rather rapid shift from a purely commercial approach at the international level to a relocation approach. This path was followed not only by large, but also by culture medium and small enterprises.Relocation expressed itself in two main ways non-equity cooperation agreements licensing, circumspection contracts, but above all subcontracting with some FDI, in lower wage countries equity agreements mostly FDI in the form of acquisitions at first in the most actual markets These two main ways of redeployment obviously respond to different motivations. At the beginning, relocation in low-wage countries took mainly the form of international subcontracting. The only exception was represented by the textile group Miroglio, which already in 1971 had realized some FDI in Greece, Tunisia and Egypt. In a second grade, the same group has switched to an organization of production establish on so called platforms, that have the delegate of undertaking some downstream operations in the clothing industry and of optimizing the relations with nearby subcontractors.We have already note above that the most powerful hug behind Italian firms subcontracting has certainly been the respite of production costs (cost saving subcontracting). East Europeans subcontractors have been used only in a very minor way as carrying out special functions (specialty subcontracting) or else as capacity reservoirs in case of occasional demand surges (complementary subcontracting). It can also take various forms. The most widespread is at the start a unprejudiced agreement with a local producer in order to buy the final product. At most, the Italian firm bought sack upically or elsewhere the intermediate products needful to the productive process.In other cases subcontracting refer the export of semifinished products and the reimport of the finished ones, both without or under the outward processing traffic (OPT) regime. Very similar in personality to the US operations of offshore convocation provisions in other field of industry as well, OPT takes place when some phases of the textile and clothing production chain typically the sew ing phase are carried out by foreign subcontractors. The latter utilise fabrics provided (and owned) by the subcontracting firm, temporarily exported towards the processing country under an EC tariff exemption regime. Up to the door into force of the Interim Agreements of the EAs customs tariffs were levied only on the value added abroad. Since then, they were abolished altogether.On the other hand, acquisitions in the most sophisticated markets allowed Italian producers to attain several objectives a) to acquire esteemed brand names b) to adhere more closely to the host nations consumers tastes, especially in the medium segments absorb large amounts of production, and gain market shares from within, belongings a presence in strategical markets c) possibly, to penetrate trine markets and also reimport part of the production and d) to use the international subcontracting network of the acquired company, especially if it is German. So Marzotto, one of the top textile group in I taly, has acquired the German clothing company Hugo Boss, with a lengthened experience of subcontracting abroad, mainly in Eastern Europe. The aim is to have in a few years half of its production abroad. Another big group, Miroglio, has secured smaller, but more numerous firms the clothing companies Caroline Rohmer and Sym Claverie in France and Glaeser, Flick, Skarabeus and Gili in Germany, plus the German textile company Steiger&Deschler (Ulmia). Finally GFT acquired the third German clothing producer, Baumler.