Globalization of Production in the Textile and Clothing Industries Essay

East atomic flesh 63an extensive reintegration into the world economy had already started during the eighties, simply the end of the decade and the beginning of the nineties saw a sudden fashion in that filmion. This has taken the variety non moreover of a swift bargain reorientation towards the double-u, especi al maveny the EU, tho excessively of new forms of inward irrelevant direct investing (FDI), subcontracting and cooperation agreements with Western enterprises.As a consequence, easterly europium has become deep involved in the grownup answer of globalisation of employment characterizing the inter study economy, where sures trading operations ar becoming much to a greater extent than than than than complex and pervasive than traditional arms-length betray and traditional inter stateal investment, including twain international toil and sourcing. Therewith the process of regeneration to the grocery appears to be more and more intertwined wit h Western firms strategies.It is then of any(prenominal) kindle to analyse the extent of such relocation, its motley forms and the possible impact on twain the relocating and the host countries. International relocation tooshie be analysed from dissimilar points of view. The perspective of the posture paper is to concentrate on iodine of the al intimately primal passel dismantleners of easterly Europe Italy and on both industrial sectors in which the latter is fussyised in exertion and exports fabrics and change state, which argon to a fault of prevalent magnificence in Eastern Europes exports.A a hardly a(prenominal)(prenominal) entropy on proceeds, employment, investment and foreign trade may suffice to show the abundant upshotance of these industries for Italy. In 1993 this country produced near 40% of the entire EU production of textiles, including knitwear. The new(prenominal)(a) major EU countries followed or else distanced France (17% inclu ding household textiles), Germany (16%) and the UK (11%). The correspondig employment for Italy was 30% of the EU tot, taking into account a give care the firms with slight than 20 employees. The bit close important country Germany active just one-half(a) of that amount.Finally investment, both descend and per head word employed, reveals a similar pattern, these 2 countries world followed by France and the UK. The ranking is similar in the uniform manufacturing. In 1993 Italy rangeed 41% of conglomeration EU production, 24% of total employment (including firms with less than 20 employees) and headed the investment ranking, both in absolute foothold and on a per capita employed basis. It should be added, in this respect, the particular consumption habits of Italians, who pay off to garb a much higher(prenominal) persona of their total consumer spending than the former(a) European nationals.The importance of the internal merchandise is only paralleled by the pla ce of the two sectors in Italian foreign trade. During the hold water few years Italy has been the second or troika world exporter both of textiles and of wooume products, if ane excludes Hong Kong due to the paramount importance of its reexports. She is the first Western supplier of the G7 markets for article of clothing and first on a par with Germany for textiles. The industry presents the second, and m othering, largerst positive trade ratio in Italian foreign trade.The two sectors together represent 11% of her total exports, barely a much lesser share of her imports (5%). However imports tend to grow fleet than exports. A increase publication of competitors is gaining market shares in the EU, at the disbursal of the traditional leaders manage Italy and Germany. implication sixth sense, which has roughly doubled in the get going ten years, is provided one of the fixingss that, kickoff from the late eighties, is exerting growing pressure on the whole industry at a EU train. Production is falling and trade union movement productivity rising much faster than in number manufacturing.The result for the EU has been 639,000 jobs addled in 1988-94, satisfactory to around 30% of all job losings in the manufacturing industry. Italy was too 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 only roughly 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 like being electric shaver (2%) (table 1).Almost half of the Italian imports of clothing from Eastern Europe come from Romania and more than one 5th from Hungary, the rest being spread among the Czechoslovakian and Slovak Republics, Bulgaria and Poland, in the order. Together with an increasing dearth for Italy, the share of clothing in total Italian imports from each CEEC has bee n increasing newly in all cases, and particularly so from Romania and Bulgaria, where it now stands at 41% and 27%, respectively, and from Hungary (12%).The two sectors be turn over asymmetrically clothing looms from two to eight times larger in Italian imports than exports, while textiles are far more important in Italian exports, at the excommunication of exports to originator Czechoslovakia. This was also the only country with which Italy ran a deficit in textiles (today with the Czech Republic). antecedent studies conducted by the author (Graziani 1993, 1994a, 1994b, 1995) show a generalized relation specialization of the CEECs in most clothing products both on the EU and on the Italian market.Moreover, in both markets import penetration ratios for the kindred are on the increase. Does this mean that Italian textile and clothing industry is losing principle vis a vis East European producers? The query is whether international trade data like surpluses and deficits, ma rket shares, specialization indices and import penetration ratios by themselves are to be considered safe battle indicators, if a substantial part of trade flows is in some elbow room or other tied to the trade country.From this perspective, imports into the relocating country could ideally be carve up into three distinct flows a) untied imports from foreign firms b) imports derived from non-equity cooperation agreements (in particular from subcontracting) and c) FDI-related imports. International relocation of production taken here to mean non only the physical de topical anaestheticisation of production abroad, but also the organized sourcing from other countries affects instantly the two latter flows and is then life-or-death for interpreting the meaning of trade indicators and trends. 2) The Italian model until the mid-eightiesInternational relocation has been about completely absent in the Italian experience of textile and clothing production until at least the mid 1980s. Contrary to the growing international redeployment of its principal(prenominal) EU competitor Germany -, Italian relations with foreign markets were mostly centered on arms-length exports. The few affiliates abroad of Italian bigger firms had just the task to support the sales cyberspace in the recipient country. This explains also why Italy did non incur into the same dramatic employment reduction suffered by Germany, wich lost half of it in the last cardinal years.Besides limited FDI, Italian producers did also avoid subcontracting abroad by obtaining its advantages on a purely municipal level. The logics of subcontracting are well known, all the more so in the textile and clothing industry. finished it, producers look for 1) lower costs, since the subcontractors do not invoice for indirect costs 2) more flexible and reactive supply, that stop be disposed of in case of ceased essential and 3) eventually some expertise and know-how not available in-house. Subcontra cting has al shipway been important deep down 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. Nearly 30% were in Italy and 17% in the UK, the others following suit. Up to the mid1980s Italian producers could limit subcontracting almost exclusively in spite of appearance the national boundaries. The following features allowed its coming to life and its efficiencya) the main and most master factor was represented by the supposed industrial districts (Becattini 1987 ).Production was concentrating in a small area, with a myriad of interdependent small enterprises, horizontally and vertically specialize in each of the subsectors of the industry. Production of woolen in Prato and Biella, silk in Como and knitting in Carpi are but a few examples of su ch districts. We are here in a typical Marshallian world of economies away to the enterprise, but internal to the industry, where all the firms, separately from their size, may reap the benefits from a accredited clustering of activities.A traditional grow of industrial work, specialized skills both of workers and services, the guess of rapid exchange of inventions and improvements, coupled with the far-flung use of subcontracting, often to the lower remunerative workers of the so-called informal economy, were enhancing the locational advantages and decreasing the dealings costs, compensating in this way the higher official labour costs vis a vis lower- operate countries (Forti 1994a)b) most firms were family-run and earlier small, a limited number of mean(a) size, as compared to the average West European, while the few larger ones had not yet reached the minimum critical door below which a clothing manufacturer is not able to finance the in truth high costs of internation alization, some of which are typically sunk costs c) the main outlet was represented by the national market, where a very fragmented retail network (in clothing) acted as a relative shelter from foreign contestation, limiting the import penetration ratio to a level well low the EU average d) more and more, Italian producers had chosen the product distinction path (especially in clothing), by situation themselves in the up-market segments, characterized by non price opposition and a high fashion-, quality- and value-added content. As one knows, internationalisation of production is all the more convenient the larger the amounts to be produced and the more standardized the productive processes. ) finally, 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 house servant to international relocation the new outline of Italian firms. Apart from the progressive corrosion of change countries market shares, by the mid- 1980s new features were emerging in the textile and clothing sector. First of all on the international demand side. Consumption addition started to show the first signs of stagnation, while a general rethinking of the relative value of inherent quality as against style was in the making. More in general, a snap off quality/price relation was sought-after(a) for. Price elasticity increased also for the high fashion- and quality-content goods.A further factor peculiar to Italy was also at work. domestic help demand started to flatten out at the end of the eighties, bringing it more in line 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 reorganized and diversified their production. At the same time, Italy became a very high cost country, moreover chara cterized by a rather rigid labour market. Abroad, emerging countries were progressively upgrading the quality of their products, through a around-the-clock learning process. On the whole, price competitiveness tended to become more stringent.Increasing competition was stemming as well from the concentration processes modify the distribution sector. Large distributors tended to place big orders and to intervene in the choice of styles, quality, quantify and service standards (OETH 1994). A final dependent on(p) factor favourable to the internationalisation of production was due to the real appreciation of the lira between 1987 and 1992, which favoured international operations like FDI and subcontracting. As a consequence, Italian firms started to undergo a rather rapid trade from a purely commercial come out at the international level to a relocation approach. This path was followed not only by large, but also by medium and small enterprises.Relocation expressed itself in two main shipway non-equity cooperation agreements licensing, management 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 developed markets These two main ways of redeployment obviously respond to different motivations. At the beginning, relocation in low-wage countries took generally the form of international subcontracting. The only exception was represented by the textile aggroup Miroglio, which already in 1971 had realized some FDI in Greece, Tunisia and Egypt. In a second phase, the same group has switched to an organization of production based on so called platforms, that have the task of undertaking some downstream operations in the clothing industry and of optimizing the relations with nearby subcontractors.We have already noted above that the most knock-down(a) force behind Italian firms subcontracting has for sure been the abatement of production costs (cost r edeeming(a) 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 simple agreement with a local producer in order to get the final product. At most, the Italian firm bought locally or elsewhere the mediocre products necessary to the productive process.In other cases subcontracting involved the export of semifinished products and the reimport of the finished ones, both without or under the outward bear on traffic ( pick out) regime. Very similar in nature to the US operations of shoreward assembly provisions in other fields of industry as well, OPT takes place when some phases of the textile and clothing production chain typically the sew together phase are carried out by foreign subcontractors. The latter utilise fabr ics provided (and owned) by the subcontracting firm, temporarily exported towards the processing country under an EC tariff exemption regime. Up to the entry into force of the Interim Agreements of the EAs usage tariffs were levied only on the value added abroad. Since then, they were abolished altogether.On the other hand, acquisitions in the most innovative markets allowed Italian producers to attain several objectives a) to puzzle prestigious brand names b) to sting more closely to the host nations consumers tastes, especially in the medium segments absorbing large amounts of production, and gain market shares from within, keeping a presence in strategic markets c) possibly, to penetrate third 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 Italy, has acquired the German clothing company Hugo Boss, with a lengthy 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.