Europe and

Global Value Chains

Gary Gereffi, Duke University

Global Apparel/Clothing Europe

Conference at the University of North Carolina, Chapel Hill

October 15-16, 2004

4 Themes

• Apparel Value Chains: Dispersion and Consolidation

• The Emergence of Central and Eastern Europe

• The Impact of Quota Phase Out in 2005

• What Is Europe’s Future Role in Global Apparel Sourcing?

Apparel Value Chains:

Dispersion and Consolidation

Apparel Value Chain: Dispersion

• 1970s - Global buyers source from East Asia• Retailers –JC Penney, Kmart, The Limited, Gap• Brands – Liz Claiborne, Nike, Polo, Calvin Klein

• 1980s – U.S. buyers use East Asian firms to source from new locations under quota system

• 1990s – Central and Eastern Europe expand OPT with EU• Mid-1990s – Post-NAFTA: Mexico shifts from assembly

(maquilas) to full-package production for USA• 2000 – AGOA grants tariff preferences to sub-Saharan

Africa • 2005 – Quota phase out … and global consolidation!

Apparel Value Chain: Consolidation

• Buyers-Wal-mart is largest U.S. apparel retailer and buys 14%

of all Bangladesh garment exports

• Suppliers– Li & Fung (Hong Kong trading company) has offices

in 56 countries and 400 factory relationships– Supply chain rationalization: fewer, larger factories

• Countries– Apparel exports from China account for 20% of world

total ($41.2 B in 2001)

Global Consolidation: China and Wal-Mart

Wal-Mart is the largest retailer in the United States, with sales of more than $245 billion a year. More than 80% of the 6,000 factories in Wal-Mart’s worldwide network of suppliers are in China. Wal-Mart spent $15 billion on Chinese-made products in 2003. Nearly one-eighth of all Chinese exports to the United States were imported by Wal-Mart. About two-thirds of China’s exports are shipped from factories wholly or jointly owned by foreign investors. If Wal-Mart were a separate nation, it would rank as China’s fifth-largest export market, ahead of Germany and Britain. There are 31 Wal-Mart stores in China.

Figure 1: Northeast Asia's Apparel Exports to the World (SITC 84), 1985-2001

0

5

10

15

20

25

30

35

40

45

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

South Korea Taiwan Hong Kong China

China

Hong Kong

South Korea

Taiwan

US$ billions

Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).

Figure 2: Shifts in the Regional Structure ofUS Apparel Imports from 1990 to 20031

The rings indicate the share of total U.S. imports in U.S. dollars by partner country:

1. 10% +2. 6.0% - 9.9%3. 4.0% - 5.9%4. 2.0% - 3.9%5. 1.0% - 1.9%

Total value of U.S. clothing imports was $25.0 billion in 1990 and $68.1 billion in 2003.

1The 2003 position corresponds to the ring where the country’s name is located; the 1990 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time.

Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. imports for consumption, customs value.

Coming on StrongJordanPeruColombiaRussiaLesotho

Central America and

the Caribbean

Northeast Asia

Southeast Asia

Europe

China

1

2

3

4

5

Hong Kong

South Korea

Taiwan

Thailand

Indonesia

India

Turkey

Italy

Macau

North America

South Asia

Pakistan

Bangladesh Sri Lanka

Malaysia Philippines

Singapore

Canada

Mexico

Guatemala

ElSalvador

Costa Rica

Honduras

Dominican Republic

CambodiaVietnam

The Emergence of

Central and Eastern Europe

Table 1

Patterns of Entry to World Market and Apparel Concentration Ratios for World's

Top non-EU Apparel Exporters, 1980-2001

Region/Country

Apparel exports to the world market

(US$ billions)

Apparel as percent of total national exports

1980 1990 1995 2001 1980 1990 1995 2001

Northeast Asia China 1.7 10.2 24.4 41.2 8.6% 15.7% 16.2% 13.8%

Hong Kong 5.3 15.7 21.4 24.2 25.4% 18.7% 12.3% 12.3%

South Korea 3.1 8.3 5.0 4.7 17.0% 12.4% 4.0% 2.9%

Taiwan 2.6 4.2 3.5 3.0 12.3% 5.8% 2.8% 2.0%

Central and Eastern Europe Turkey 0.1 3.4 6.4 7.1 4.6% 25.9% 28.4% 21.4%

Romania 0.4 0.4 1.4 3.0 3.1% 7.6% 17.3% 24.6%

Poland 0.6 0.4 2.4 2.0 4.2% 3.0% 10.1% 5.4%

Hungary 0.3 0.4 1.1 1.4 4.0% 3.8% 8.1% 4.4%

Bulgaria 0.0 0.1 0.4 1.1 0.0% 4.0% 7.9% 18.8%

North America Mexico 0.1 0.1 2.9 8.5 0.3% 0.4% 3.5% 5.0%

World Totals 39.6 110.6 168.7 217.0 2.0% 3.2% 3.2% 3.3%

Source: World Trade Analyzer, based on United Nations trade data. Apparel is defined as SITC 84.

Table 2

Region/CountryPopulation (millions)

GNP (US$ billions)

GNP/capita (US$)

Apparel exports to the world market

(US$ billions)

Hourly apparel labor costs (wages & fringe

benefits)

2002a 2002a 2002a 2001b US$, 1998c

Northeast Asia China 1,281 1,237 4,475 41.2 0.43 Hong Kong 7 162 26,235 24.2 5.20 South Korea 48 477 16,465 4.7 2.69

Taiwand 22 289 12,900 3.0 4.68

Central and Eastern Europe Turkey 70 183 6,175 7.1 1.84 Romania 22 44 6,325 3.0 1.04 Poland 39 188 10,185 2.0 2.77 Hungary 10 66 13,130 1.4 2.12 Bulgaria 8 16 6,910 1.1 na

North America Mexico 101 637 8,705 8.5 1.51

World Totals 6,201 32,252 7,650 217.0 na

Sources: a World Bank, World Development Indicators Online, 2003 b World Trade Analyzer, based on United Nations trade data. Apparel is defined as SITC 84.c Werner International, Inc. "Hourly Labor Cost in the Apparel Industry."d Population and GNP data for Taiwan are from the Taiwan Statistical Databook 2003.

National Income, Apparel Exports, and Hourly Wage Rates for World's Top Apparel Exporters, 2001-2002

Table 3

Position of Apparel Among Leading Export Items, 1980-2001

Exporting Country SITCa Description 1980 1990 2001 1980-90 1990-2001

Northeast Asia China 84 Apparel 4 1 1 Up Same Hong Kong 77 Electrical machinery 1 1 2 Same Down South Korea 77 Electrical machinery 1 1 11 Same Down Taiwan 77 Electrical machinery 1 5 13 Down Down

Central and Eastern Europe Turkey 84 Apparel 6 1 1 Up Same Romania 84 Apparel 3 4 1 Down Up Poland 78 Road vehicles 6 10 5 Down Up Hungary 76 Telecommunications 8 9 6 Down Up Bulgaria 84 Apparel 7 6 1 Up Up

North America Mexico 78 Road vehicles 27 35 6 Down Up

World Totals 78 Road vehicles 15 9 8 Up Up

aSITC refers to Standard International Trade Classification categories.bRankings are based on the position of apparel in each economy's total world exports, using two-digit SITC categories

Source: World Trade Analyzer, based on United Nations trade data.

Top export item, 2001 Apparel Rankb Trends in apparel ranking

Figure 3: Shifts in the Regional Structure of EU 15 Apparel Imports from 1990 to 2001

Africa

1

2

3

4

5

H Kong

TurkeyChina

Eastern Europe and ex-USSR

Other Europe

Northeast Asia

North America South Asia

Tunisia

IndiaMorocco

Poland

Romania

Bangladesh

IndonesiaCzech

Republic

Hungary

Thailand

Pakistan

Sri Lanka

Switzerland

USA

Taiwan

Bulgaria

Malaysia

South Korea

Mauritius

Vietnam

Lithuania

Singapore

1This chart excludes intra-European trade among the 15 member states of the EU (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom). Total apparel imports are for the EU countries.

Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Article of apparel and clothing accessories”).

The rings indicate the share of total European imports in U.S. dollars by partner country:

1. 10% +2. 6.0% - 9.9%3. 4.0% - 5.9%4. 2.0% - 3.9%5. 1.0% - 1.9%

Total value of extra-regional European clothing imports was $22.8 billion in 1990 and $51.3 billion in 2001.

Southeast Asia

Table 4

Top 10 Suppliers of Apparel to the European Union -- 1989, 1994, 2000(% of total EU apparel imports)

1989 1994 2000

Hong Kong 15.1 China 13.5 China 15.6

Turkey 9.5 Turkey 9.6 Turkey 11.2

Yugoslavia 8.1 Hong Kong 9.4 Hong Kong 6.6

China 7.5 Tunisia 5.5 Romania 5.4

South Korea 5.9 Morocco 5.4 Tunisia 5.4

Morocco 4.8 Poland 5.2 Bangladesh 5.4

India 4.6 India 4.9 Morocco 5.0

Tunisia 4.4 Indonesia 3.6 India 4.2

Austria 3.4 Romania 2.9 Poland 3.8

Thailand 3.1 Bangladesh 2.8 Indonesia 3.8

Source: EUROSTAT, 2001.

Table 5

Major Apparel Trading Partners in East-Central Europe and the European Union, 2000(% of total apparel exports to EU)

2000 Italy France UK Greece Germany EU

Poland 1.0 1.8 1.2 0.0 13.9 25.5

Czech Republic 0.3 0.2 0.6 0.0 5.0 7.4

Hungary 2.4 1.5 0.8 0.0 5.5 13.8

Romania 11.0 3.8 5.2 0.1 12.7 35.8

Bulgaria 1.3 1.6 0.5 2.6 3.3 10.8

Slovakia 1.4 0.3 0.3 0.0 3.7 6.8

Total 17.4 9.2 8.6 2.7 44.1

Source: EUROSTAT, 2001.

The Impact of Quota

Phase Out in 2005

Figure 4: Shifts in the Regional Structure of Japanese Apparel Imports from 1990 to 2001

1

2

3

4

5

Europe Northeast Asia

North America

Southeast Asia

China

Hong Kong

Italy

South Korea

USA

Vietnam

France

Thailand

United Kingdom

Indonesia

Taiwan

N.B.: From 1990 to 2001, South Korea’s share of Japan’s apparel imports fell from 29 percent to 4.3 percent, while China’s import share of the Japanese apparel market grew from 19.3 percent to 66.6 percent.

Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).

The rings indicate the share of total Japanese imports in U.S. dollars by partner country:

1. 25% +2. 10.0% - 24.9%3. 4.0% - 9.9%4. 2.0% - 3.9%5. 1.0% - 1.9%

Total value of Japanese clothing imports was $8.6 billion in 1990 and $19.9 billion in 2001.

In 2005, Multi-Fiber Agreement Ends

Jan. 1, 1995

16% Integration

Jan. 1, 1998

Another 17% Integration

Jan. 1, 2002

Another 18% Integration

Jan. 1, 2005

100% Integration

MFA(1974 – 1994)

ATC(1995 – 2004)

Quota Abolitionfrom 2005

Source: World Trade Organization.

U.S. Integration Schedule Established by CITA  (Committee for the Implementation of Textile Agreements)

WTO’s Agreement on Textiles & Clothing (ATC), fourth-stage integration deadline:

January 1, 2005: 49% of total textile & clothing trade

Proportion of U.S. imports still under quota that will not be integrated until 2005:

67% of the total volume of U.S. textile and apparel imports 89% of apparel imports 47% of textile imports

Table 6

Major clothing exporters' share of the US market 2004

Other24%

China16%

Rest of Americas16%

Mexico10%

Hong Kong9%

EU5%

Taiwan4%

Philippines4%

Indonesia4%

India4%

Bangladesh4%

Source: Financial Times, July 19, 2004, p. 11.

Table 7

How U.S. market shares may rank after elimination of MFA quotas

Other12% Bangladesh

2%

Indonesia2%

Philippines2%

Thailand3%

India15%

China50%

Hong Kong6%

Rest of Americas5%

Mexico3%

Source: Financial Times, July 19, 2004, p. 11.

MAJOR TRENDS IN THE POST-QUOTA WORLD China will benefit most from end of MFA

Consolidation is likely to accelerate

More mega-factories will emerge post-2005

Retailers will cut down on the number of sourcing countries

Remaining factories will have to provide higher level services (logistics, customs clearance, and product design)

Time to market considerations will allow regional producers to maintain a role in apparel sourcing

Pressures for “ethical sourcing,” corporate codes of conduct, independent monitoring and labor standards will grow

What Is Europe’s Future Role

in Global Apparel Sourcing?

Research Questions

• What are the distinctive features of full-package production in Eastern and Central Europe?

• Does full-package apparel production constitute upgrading or downgrading for ECE economies?

• How extensive are the benefits to local workers and firms of OPT and full-package production within the ECE region?

Policy Issues

• How will the major apparel exporting countries adjust to quota phase outs?

• What can governments and EU authorities do to promote upgrading within the apparel value chain of Eastern & Central Europe?

• What policies and institutional conditions foster industrial diversification and inter-chain upgrading beyond textiles & apparel?