Status of the global textile and apparel industry with uncertain economy and rising wages.
After over-reacting to the economic slowdown in 2008, global textile consumption expanded by 2.8% in the recessionary environment of 2009, and by 5.3% in a scenario of faster-than expected growth in 2010. The banking crisis in Europe, the tapering off the effects of expansionary policies applied during the recession, and concerns about the sustainability of sovereign debt in major developed economies resulted in a deceleration of global economic activity in 2011 to 3.9%. World textile consumption echoed that deceleration expanded by only 1.9% to 73.8 million tons in 2011. The growth of demand in developing countries more than offset the decline in industrial countries. The market share of all developing countries in world end-use textile consumption amounted to 61.9% in 2011, from which 49.5% corresponded to developing Asia.
World end-use cotton consumption contracted to 1.2 million tons (-4.9%) to 23.8 million tons in 2011, while non cotton-fiber consumption increased by 2.6 million tons (5.5%) to 50.1 million tons in 2011.
Based on slower projected economic growth for the short run and long-term average growth rate for the medium and long-term, world textile fiber consumption reached 106 million tons in 2010, and 130 million tons in 2025.(ICAC) The global textile and clothing trade between 2000 and 2011 has advanced by over 100% from US$ 352 bn in 2000 to US$ 706 billion in 2011. The global textile and clothing exports in 2011 expanded by over a hundred billion dollars over 2010.
Asian region was the leading region and with export value of US$ 404 bn accounted for 57.2% of total textile and clothing exports in 2011.The top five exporters of textile and clothing during 2011 were China at US$248 bn, Italy at US$ 38 bn, Germany at US$ 36 bn, Hong Kong at US$ 36 bn and India at US$ 29 bn.
Emerging countries are cited as having long-term investment potential, yet they have underperformed since late 2010, taking a closer look at these countries, you'll see that a key reason for underperformance has been the persistent inflation.
Emerging countries have generally being growing at too fast, for example; China economy grew at 10.3% in 2010, while Brazil economy grew at 7.6% with strong economic growth, with this the demand for labour has increased, which has put upward pressure on wages, particularly in China, higher wages can stoke inflation, as wages is an input for a broad range of product and services.
However main reason that inflation has been rising is due to higher food prices. Food accounts for 20-50% of household spending in emerging markets compared to less than 14% in the United States.
However, according to ILO Report, Wage growth remains far below pre-crisis levels globally and has fallen into the red in developed countries, despite continuing increases in emerging economies. Global monthly wages grew by 1.2% in 2011, down from 3% in 2007 and 2.1% in 2010, according to Global Wage Report 2012/2013.
These numbers are even lower if China is excluded from the calculations.
'The report clearly shows that in many countries, the crisis has had a strong impact on wages and by extension workers" states ILO Report, "But the impact was not uniform. There are also considerable differences in wage levels across countries. A worker in the manufacturing sector in the Philippines took home US$ 1.40 for every hour worked, compared to less than US$ 5.50 in Brazil, US$ 13 in Greece, US$ 23.30 in the United States and almost US$ 35 in Denmark.
With China's wages rising fast, there is a momentum for emerging countries to position themselves into the global value chain. China is now moving to a new era of transformation and faces major challenges in its labour market being unable to control wage increases. In some provinces for instance between 2009 and 2012 wage have increased by 70% of their minimal wage, other regions are in the order of 40%-60%. This is partly because China's population is aging rapidly, its working age population is expected to shrink as early as 2015. For instance people above 60 years of age will represent 16.4% of the population by 2015, while they only represented only 8% in 1980. In addition to China, the wages are also rising in Bangladesh, Cambodia, and Vietnam, etc.
Manufacturing costs are mounting in China. Wages and benefits of workers have already increased considerably for the last decade and were going up by 15-20% per year, while the USA wages rose moderately by 3-4 %. Yet, Chinese manufacturing will not decline in spite of its higher costs as its industrial might is growing and the country will remain a formidable competitor. With its massive skilled workforce and well established infrastructure, it will be still more attractive than its neighboring countries, for industries with economics of scale and high end manufacturing.
There are signs that textile and clothing production is starting to move gradually back to developed countries after being seriously eroded by competition from low-cost Asian producers, but such moves are extremely limited. The textile and apparel production will not probably come back to the USA, but regional sourcing from Mexico and Central America could be boosted by the surge of Chinese costs.
Furthermore the reemergence of the Western Hemisphere is becoming a viable alternative to China and its Asian neighbours. With favorable trade agreements and tariff exemptions, Latin America is becoming more of an attractive sourcing option for products looking to find the right conditions that entail proximity and speed to market, and well managed supply chain.
The recent passage of additional FTA's with the USA is offering new opportunities for US companies to expand sourcing with these free trade partners, in addition to Mexico and Central America.
Today in this scenario a cheap labour force, favorable trade agreements and the proximity to end markets, which were traditional ingredients for developing countries to enter the textile and apparel industry are not sufficient to move up the apparel value chain.
Therefore the developing economies if they want to compete against dominant exporters such as China, they have to move up the apparel value chain, the production process has to be upgraded, and produce higher value-added products.
The way is to produce higher value-added products is to evolve from simple cut, make and trim (CMT), to original equipment manufacturing (OEM) and then to original design manufacturing (ODM). Once ODM is achieved, they may move to most advanced process original brand manufacturing (OBM).
For instance, some developing countries has upgraded the assembly to OEM/Full package. And some also upgraded from assembly to ODM models, including its own design. Yet most LDC,s are still at the CMT stage.
Further, it is important, the presence of a domestic or regional textile industry to emerge as accelerator of the transformation. This benefits countries in moving from CMT to OEM/Full package, with a domestic supply chain in place. In some countries domestic supply chain is already strong, wherever some benefits from regional textile opportunities and develop links with their textile industries, However this was neither the case for most of the LDC,s where no established domestic or regional textile industry exists.
The relocation of the textile and apparel production-upstream, midstream and downstream from developed countries in the West, has shifted to developing countries in the East over the past two decades. This has enabled corresponding rise of activities for the developing nations of the East.
The industrial revolution which made European countries as well as United States and Japan to become the leading world economies, but now China ,India are making a comeback and Asia is assured to remain the most populous and economic vibrant region in the foreseeable future.
Textile and Apparel market are likely to remain subdued in 2012, given the considerable uncertainty in the global economy. The IMF has lowered its forecast for World Economy Growth in 2012 to 3.5% from 3.6% (in April). Euro zone and USA debt concerns, weak market conditions in the EU and the USA, have increased market volatility and has affected exports of several countries. Further in many developed markets, high level of government and household debt are dampening growth prospects and developed economies will stay in the slower lane. Although Japan supply chains has been recovering at a rapid pace, the slower -than expected recovery in the USA, and more worryingly the spectre of an EU's sovereign debt crisis, are major causes for concern and as a result many countries has revised downward growth of Gross Domestic Product (GDP).
Nevertheless, emerging countries, and in particular the so called BRIC countries-comprising Brazil, Russia, India and China-will continue to sustain the global trade growth over the coming years.
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|Publication:||Pakistan Textile Journal|
|Date:||Jan 31, 2013|
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