UNIT C The Business of Fashion

1. UNIT CThe Business of Fashion 3.04 Describe the fashion industry from a global perspective.

2. U.S. and world trade policy Imports: Goods that enter a country from foreign sources. • Imports account for approximately 60% of the total U.S. textile and apparel market. • Most U.S. imports come from Mexico and China. • Sweaters and jackets/coats account for the largest number of imports.

3. U.S. and world trade policy Exports: Goods sent out of a country to other countries. Balance of trade: The relationship between the values of a country’s imports and exports; expressed as a deficit or a surplus.

4. U.S. and world trade policy Trade deficit: Occurs when imports exceed exports. • The U.S. trade deficit is large. • More products are imported into the U.S. market than are being exported. • Textile/apparel products are a large part of the U.S. trade deficit.

5. U.S. and world trade policy Trade surplus: Occurs when exports exceed imports. • Japan has a large trade surplus. • A large trade surplus results in large amounts of money for the exporting country.

6. U.S. and world trade policy Free trade: Government’s policy for allowing goods to flow freely in and out of its economy without interference.

7. U.S. and world trade policy Protectionism: Opposite of free trade; includes many government-imposed trade restraints which form barriers to free trade. • Tariffs (duties): Charges (taxes) paid on goods coming into a country; raise the prices of imported goods. • Quotas: Limitations established by the government on quantities of certain goods that can enter a country during a specified time period. • Standards: Certain levels of quality specified for imported goods to prevent sub-standard products from entering a country.

8. Advantages of U.S. protectionism • Job protection for U.S. workers • Helps strengthen U.S. industries and enables them to compete internationally • Reduces the U.S. trade deficit • Keeps inferior and unsafe products from entering our market • Maintains a strong manufacturing base for national security, enabling manufacturers to convert to war-effort production if necessary • Inhibits overseas competitors that pay low wages, provide no benefits, and take advantage of child labor

9. Disadvantages of U.S. protectionism • Encourages trade retaliation, which lowers exports of all industries • Loopholes and corruption enable merchandise to enter the market anyway. • Penalizes consumers with fewer choices and higher prices • Causes less competition • Hard to retract after it is in force • Does not encourage all industries to compete equally • Less damage to national interests

10. World Trade Organization (WTO) An international trade agreement that reduces tariffs, quotas, and other trade barriers around the world. • Agreement of more than 130 countries • Negotiates and enforces global trade rules • Exists to liberalize trade and serve as an international trade court to settle differences among member nations • To be phased out by 2005, which will then allow countries to compete with very few trade barriers

11. Offshore production The use of foreign workers in one or more countries to complete the manufacturing steps for goods that carry the producer’s label. • A garment may travel through four countries before the manufacturing process is complete. • Offshore production allows U.S. companies and retailers to take advantage of lower labor costs. These wages generally do not include overtime pay or fringe benefits. • Garments that bear the name of an American designer are not necessarily manufactured in the U.S.

12. Offshore production (cont.) • Textile and apparel industries are usually the first industries to appear in developing nations. • Much of the manufacturing of apparel is done by hand, offering employment opportunities to low-skilled workers. • As countries develop, they begin to utilize more technology, workers become more skilled, and the quality and quantity of textiles/apparel production begins to increase.

13. Trading with developing nations • Political stability • Developed countries have laws that favor international business. • Countries with nonmarket economies (communism) limit ownership of private businesses. • Some developing countries use corrupt business practices. • Before doing business in foreign countries, terrorism and political upheaval must be evaluated.

14. Trading with developing nations (cont.) • Economic climate • Purchasing power and standard of living • Costs of doing business with that nation • Countries with low purchasing power and standards of living may offer low-wage manufacturing opportunities for U.S. firms if no trade barriers exist in that country. • U.S. firms may open retail establishments in countries with high purchasing power and standards of living, if the operating expenses are not excessive.

15. Trading with developing nations (cont.) • Infrastructure • Adequate communications, roads, transportation, and public utilities are essential in conducting business in foreign countries. • Culture • A nation’s culture and values affect the way in which many foreign countries conduct business.

16. World’s major trade regions • Asia-Pacific plus India • Europe plus North Africa • The Americas

17. Asia-Pacific plus India • Japan is an exporting leader because of effective marketing strategies. • South Korea, Taiwan, Hong Kong, and Singapore • Industrialized nations with outstanding technology • Small land mass with limited natural resources • Import raw materials and export quality goods

18. Asia-Pacific plus India (cont.) • India • Sewing and handcrafting of apparel done in homes • Exports apparel but accepts no imports • China • Exports low-wage goods • Beginning to accept imports in order to become a member of WTO • Largest exporter of manufactured textiles and apparel in the world • Many manufacturing firms participate in unfair trade practices and violate human rights

19. Europe and North Africa • European Economic Community (EU): Fifteen developed countries which represent 20 percent of the world’s gross domestic product and more consumers than the U.S. market. • Euro: A common monetary unit among eleven of the EU countries. Makes it easier to conduct business among these nations.

20. Europe and North Africa (cont.) • Total free trade among European nations • European businesses are efficient and innovative, with creative advertising and effective marketing strategies. • Some low-wage production in North African countries • The industrialized countries of Europe provide business opportunities for American manufacturers and retailers.

21. The Americas • Unified trade region as a result of NAFTA • North American Free Trade Agreement (NAFTA): A trade agreement between the United States, Canada, and Mexico that formed the world’s largest free trade area. • NAFTA eliminated trade barriers on textiles and apparel.

22. The Americas (cont.) • Canada • High wage rate • Sends upscale garments into the U.S.

23. The Americas (cont.) • Mexico • Low manufacturing wages • Large, young, eager workforce • Caused the closure of some U.S. factories • Developing market with increasing standard of living • Large potential for American retailers • Sears, JCPenney, Wal-Mart, and Price/Costco currently have stores in Mexico. • Many U.S. apparel firms are entering into production in Mexico.

24. Counterfeiting issues… Counterfeit fashions: Exact copies of garments that are registered with the U.S. Patent and Trademark Office. • Can cost brand-name companies up to 22 percent of sales • WTO requires all member countries to pass laws prohibiting the counterfeiting of apparel. • Current penalties for counterfeiting are low; lack of enforcement of counterfeiting laws causes the problem to continue to exist.

25. Counterfeiting issues… (cont.) • Counterfeiters benefit from marketing paid for by the legitimate sellers and producers. • Oftentimes, profits from counterfeit products are used to finance terrorism and drug smuggling. • Almost every brand of apparel is being counterfeited. • Blue jeans and athletic shoes are the most commonly counterfeited items. • Twenty percent of the Gross Domestic Product of China comes from counterfeiting. • Poses a threat to the reputation and sale of items that are legitimately trademarked

26. Labor industry abuse… Sweatshop: The Department of Labor defines a workplace as a sweatshop “if it violates two or more of the most basic labor laws including child labor, minimum wage, overtime, and fire safety laws.”

27. Labor industry abuse… (cont.) • Over 2,000 illegally operating sweatshops exist in the U.S. • Most sweatshop workers are immigrant workers. • Most immigrant workers in sweatshops do not complain about working conditions for fear of losing their jobs or fear of retaliation from employers. • Since the mid 1990s, many apparel companies and designers have come under strong criticism for supposedly unknowingly utilizing sweatshop producers in the manufacture of their apparel. • Examples: Nike, Kathie Lee Gifford, Disney, Guess