Five Forces
Bargaining Power of Suppliers
In the apparel industry, commodities and undifferentiated products, such as cotton, are purchased in the manufacturing of goods sold to customers. Also, cheap labor is abundant overseas for manufacturing needed products. Switching costs are low for this industry, allowing firms to easily pick and choose which suppliers they would like to do business with since suppliers offer very similar products, which gives suppliers in this industry low bargaining power.
Price Sensitivity
In the specialty apparel industry there are many textile companies to choose from when looking for suppliers, therefore companies are able to pick and choose which manufacturer best meets their needs. This drives suppliers bargaining power down. With apparel manufacturing, cotton represents a large portion of their manufacturing supplies, so firms are willing to consider supplier prices a high priority. The only obstacle that could hinder a firm’s ability to use some suppliers would be trade restrictions (Gap Inc. 10-K 2006). Labor in the US is far more expensive than in foreign countries so many apparel companies choose to outsource much of their manufacturing to countries outside of the US. Throughout the years, the US government has continually tried to increase the required minimum wage which pushes firms in the apparel industry to outsource their manufacturing overseas. Overseas manufacturers with attractive labor costs must remain competitive in order to have customers, which gives suppliers low bargaining power relative to the firm.
Relative Bargaining Power
There are a large number of suppliers for the apparel industry. Retailers have the opportunity to obtain their supplies from more than just one supplier. In the case of Gap Inc., they use 780 different vendors around the world to purchase merchandise from, giving Gap bargaining power. The major suppliers are based in China, representing approximately 20% of merchandise, while the rest is
In the apparel industry, commodities and undifferentiated products, such as cotton, are purchased in the manufacturing of goods sold to customers. Also, cheap labor is abundant overseas for manufacturing needed products. Switching costs are low for this industry, allowing firms to easily pick and choose which suppliers they would like to do business with since suppliers offer very similar products, which gives suppliers in this industry low bargaining power.
Price Sensitivity
In the specialty apparel industry there are many textile companies to choose from when looking for suppliers, therefore companies are able to pick and choose which manufacturer best meets their needs. This drives suppliers bargaining power down. With apparel manufacturing, cotton represents a large portion of their manufacturing supplies, so firms are willing to consider supplier prices a high priority. The only obstacle that could hinder a firm’s ability to use some suppliers would be trade restrictions (Gap Inc. 10-K 2006). Labor in the US is far more expensive than in foreign countries so many apparel companies choose to outsource much of their manufacturing to countries outside of the US. Throughout the years, the US government has continually tried to increase the required minimum wage which pushes firms in the apparel industry to outsource their manufacturing overseas. Overseas manufacturers with attractive labor costs must remain competitive in order to have customers, which gives suppliers low bargaining power relative to the firm.
Relative Bargaining Power
There are a large number of suppliers for the apparel industry. Retailers have the opportunity to obtain their supplies from more than just one supplier. In the case of Gap Inc., they use 780 different vendors around the world to purchase merchandise from, giving Gap bargaining power. The major suppliers are based in China, representing approximately 20% of merchandise, while the rest is