Fashion Business in Today’s World

1. Fashion Business in Today’s World A Global Perspective

2. Objectives: • Cite U.S. and world trade trends and policy • Explain the relationship of textiles and apparel to developing nations • Identify the world’s major trading blocs • Describe international sourcing for U.S. fashion importing • Point out international market opportunities for U.S. fashion exporting • Explain how to discover offshore sources and opportunities

3. Trade Trends and Policy • Import penetration: Percentage of imports in a country’s total market consumption • U.S. imports 60% of textile and apparel goods • Balance of trade: Relationship between values of imports and exports • Deficit: imports exceed exports • Surplus: exports exceed imports CARGO SHIP

4. Free Trade • Goods flow freely in and out of a country without government interference • Barriers to free trade: • Tariffs (duties) • Quotas: limit goods • Tariff-rate quotas: certain quantity imported free • Voluntary export restraints: applied by exporting country • Standards: certain levels of quality • Subsidies: producers get government money to lower prices

5. Protectionism • Includes many government-imposed trade restraints • Most countries have policies between the two extremes • Arguments for protectionism: • Job protection • Strengthen start-up industries • Compensation for unequal competition • Maintain strong manufacturing base • Protect against unsafe or inferior products • Reduce trade deficit

6. Dumping • The selling of goods at lower prices in a foreign market than in the home market • Illegal to dump in U.S. because domestic firms cannot compete • Reasons to dump: • Create a market niche • Drive out competitors • Lower inventories • Increase profit by increasing production • Retain market share during slack periods

7. World Trade Organization • International trade accord that reduces tariffs, quotas, and other trade barriers of over 130 countries • WTO phasing out in 2005 • Eventually all countries are meant to compete with almost free trade • New import access to fibers and fabrics

8. Textiles/Apparel and Developing Nations • Developing countries start as agricultural societies • Textile/apparel industries are often the first to form in emerging economies • Structural adjustment refers to industries and economies adapting to shifts in competitiveness • A comparative advantage occurs when one nation has the ability to produce a product better than other nations due to specific resources or materials.

9. Trade with Developing Nations • Before trading with a developing nation, consider: • Political stability • Economic climate • Their purchasing power • Costs of doing business there • Infrastructure (roads, power, transportation systems, etc.) • Culture

10. World’s Major Trade Regions • Asia-Pacific plus India includes: • Japan; first to emerge as an export leader • Other “Pacific Rim” countries; limited materials but highly industrialized • India; main exporter of apparel, but accepts no imports; handicraft work in homes

11. European Union and North Africa • European Union (EU) includes 15 developed countries that represent 20% of world’s GDP • Free trade exists among European nations; businesses are efficient, competitive, and innovative • North African nations do some of the low-wage production for the European nations and the U.S.

12. The Americas • North American Free Trade Agreement (NAFTA) has set up a free trade zone among the U.S., Canada, and Mexico • Trade barriers for textiles and apparel are being eliminated • Mexico’s trade is growing • U.S. is looking toward Central and South American markets

13. Item 807/9802 • Section of the U.S. Tariff Code that allows manufacturers to export cut garment pieces for assembly elsewhere; import duty paid only on value added • Developing areas of the Western Hemisphere have lower production costs thus making it cost effective for contracts with the U.S.

14. International Sourcing for U.S. Importing • Low wages make international sourcing desirable for labor-intensive apparel manufacturing • Problems with offshore sourcing: • Hidden sales, distribution, and management costs • Added costs of transportation, insurance, and import fees; delays in receiving • Also hard to oversee quality production • Larger firms have specific buyers to source internationally

15. Buying from Foreign Sources • Import merchants buy and import particular classifications of goods • Resident sales agents represent and are paid by foreign manufacturers, connecting them with import buyers • Domestically, orders can be written from export merchants at market • Export merchants are foreign wholesalers specializing in goods from their home countries

16. Considerations for Foreign Sources • Foreign contractors:Manufacturing hired overseas by U.S. apparel producers • Licensing agreements:Allows U.S. to produce and market foreign goods • Franchising:Retail franchisesof foreign firms in U.S. • Joint ventures:Agreements that bring skills or products of two firms together • Company-owned foreign facilities:U.S. subsidiary operated in a foreign country Contracts

17. International Market for U.S. Exporting • U.S. consumers represent less than 5% of world market and 25% of buying power • Freer trade is opening new markets for U.S. firms • Currently, U.S. biggest foreign markets are Japan, Europe, and Canada • Closeness to Latin America will open that market SEND

18. Improving U.S. Export Competitiveness • Identify overseas markets • Make long-term commitments • Customize marketing practices for cultural differences • Identify market niche • Overcome warehousing and transportation problems • Offer top service and reliability • Improve technology • Invest abroad

19. Benefits of Exporting • More customers • Market diversification • Increased profits • Extended demand for seasonal products • Year-round production • Better domestic methods learned • Longer product life cycles

20. International Retailing • Cross-border retailing: Involves retail company operations serving customers in multiple countries • Greater financial risks, but licensing and franchising help reduce risks abroad • High financial rewards possible if firms understand cultural attitudes and practices

21. Offshore Sources • Key to successful global business is picking the right countries and thinking like the locals • Researching international markets is same as any market research • Awareness of cultural differences vital to success • International trade shows held in U.S. have sections by country; shows also held in various countries

22. Do You Know . . . • What are the benefits of free trade? What are the disadvantages? • In what ways do cultural differences play a part in exporting? Importing?