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Learn how global sourcing affects decision-making in the fashion industry and its impact on competitiveness and profitability. Explore the advantages, disadvantages, and ethical concerns associated with importing goods. Understand the importance of domestic production and the rise of sweatshops and industrial piracy. Discover the role of free trade and protectionism in global sourcing.
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Global Marketing Fashion Merchandising
Decisions about sourcing, or choosing where to manufacture or purchase goods, impact a company’s competitive edge and profitability. • Many textile and apparel manufacturers, as well as retailers, have turned to global sourcing. By producing or buying goods in other countries at lower costs, US companies can compete more successfully in the global marketplace. • Global sourcing, however, raises issues about imports and exports.
Goods that travel between countries are imports and exports. • Imports come into a country from foreign countries. • Exports are sent out from one country to others. • The balance of trade compares the values of a country’s imports and exports. • For any country, the products that originate there and the companies that reside there are known as domestic. • The US imports 3x’s the amount of textile and apparel products that is exports. Thus, the value of exported goods is lower than the value of imported goods.
The apparel industry faces tough competitive challenges as the global clothing market grows. Production costs are cheaper in many other countries. Standard of living are lower. People are paid much lower wages. Employers in many foreign countries don’t provide healthcare benefits, contribute to retirement plans, or offer many of the other benefits that US workers have. This means that apparel from foreign sources can be sold at lower prices than clothing manufactured in the US.
Sourcing and Off-Shore Production • Some companies are very committed to domestic production and want to label their products “Made in the USA.” • Other companies are concerned about producing their goods at the best possible price, regardless of manufacturing location.
Sourcing and Off-Shore Production • With off-shore production, domestic companies manufacture merchandise in foreign countries. They can lower costs and compete more effectively with low-cost imports. Some people see this as a threat to American labor; others believe it’s the only way for US manufacturers to remain competitive.
Advantages and Appeal of Imports • Lower Costs: Gives higher value and higher retail markups/profits. • Product Uniqueness: Offers styling trends and labor-intensive finishes. • Not Made in US: Some goods are only available if imported. • Different Quality: Lower for discounters and higher for upscale goods.
Advantages and Appeal of Imports • Smaller Orders: Offshore plants accept small quantity jobs. • Design Reputation: Foreign designers offer prestige/snob appeal. • Private Label Goods: Exclusively manufactured to store’s specifications. • Helps Poor Nations: Provides jobs for human survival.
Disadvantages/Problems with Imports • Bad Timing and Flexibility: Long lead/response times cause early buying. • Weak Supplier Loyalties: Will take better offers and not produce yours! • Legal/Financial Problems: Ties up money; currencies fluctuate; can’t sue. • Misunderstandings: Language and cultural differences.
Disadvantages/Problems with Imports • Less Control of Product: Quality/size can be wrong if not supervised. • Hidden Costs: Travel, communications, freight, lost sales. • Frequent Buying Mistakes: Unsuitable or overbuying in foreign setting. • Hurts Our Economy: Takes jobs away from our workers.
Sweatshops • Sweatshops got their name from working condition in the nineteenth century. Clothing manufacturers profited by paying their employees very low wages for working excessive hours under unsanitary conditions. Profits were said to be “sweated” out of the workers. • Unfortunately, sweatshops still exists. This is because of pressure to produce goods at a low cost.
Industrial Piracy • Well-known labels and logos on apparel and accessories attract consumers. Demand for these items has led to such unethical practices as trademarks infringements and counterfeit goods. • Counterfeit items are made with unauthorized use of registered trade names or trademarks. • Typically, counterfeit goods are of much lower quality and sold at a far lower price than the authentic merchandise. • The Trademark Counterfeiting Act of 1984 created criminal sanctions against domestic manufacturing of counterfeit goods. • This covers everything from fake levi jeans, to fake Rolex watches.
Free Trade/Protectionism • Protectionism is an economic policy which restricts trade through methods such as: tariffs, restrictive quotas, or any other government regulation which would make imports cost prohibitive.
Laws and Regulations • A quota is the set amount of specific merchandise that a country’s government allows to be imported. In general, quotas are expressed as numbers of units rather than dollar amounts. • Silk is not produced in the US, silk doesn’t have quotas. • Cotton is produced in the US, so the amount of cotton that can be imported from other parts of the world is limited.
Laws and Regulations • A tariff is a tax on imported items. The amount is usually a percentage of the items appraised value. The tax rate varies according to the individual item and its country of origin.
Laws and Regulations • Trade Agreements • International agreements affect how the US trades with other countries. There are three major trade agreements. • Most-Favored Nation Status(MFN) • Certain countries are granted lower tariff rates. Some developing countries can ship goods to the US duty-free(no tax) to help improve their economic situation. • North American Free Trade Agreement(NAFTA) • Approved in 1994, this agreement created Free Trade, or the movement of goods not restricted by tariffs or quotas, between the US, Canada, and Mexico. The aim is to create economic growth in all three nations. • Caribbean Basin Initiative (CBI) • This program offers trade protection to US manufacturers, while encouraging growth of apparel industries in Latin America.
Laws and Regulations • Trade Agreements • International Trade Laws • The World Trade Organization (WTO) • The global international organization that deals with trade between nations. • It is to increase international trade by promoting lower trade barriers. • It also handles trade disputes and monitors trade policies.
Fashion Industry Trends • Advanced Technologies • CAD – Computer Aided Design • CAM – Computer-Aided Manufacturing • These computer systems control the production steps in textile and apparel manufacturing. • CIM – Computer-Integrated Manufacturing • This system links computers to direct the entire production process. • QR – Quick Response • This technology covers management systems and business strategies that reduce the time between fiber production and the sale of the finished product.
Fashion Industry Trends • Business Growth • Mergers and acquisitions • Companies merge or purchase other companies to form larger corporate organization. The goal is to increase sales, reduce operating costs, and obtain financial resources. • Ex. Gap Inc. owns: Gap, Banana Republic, Old Navy, and Forth & Towne stores, • Ex. Limited Brands owns: The Limited, Express, Victoria’s Secret, and Bath & Body Works. • Brand Extension • Start with children’s clothing and extend to adult clothing • Crossover merchandising • Apparel to fragrances and cosmetics • Licensing • Private labels • Merchandise carries a store’s name or a brand name developed exclusively for a store. • Ex. One of JCPenny’s private labels is Arizona.
