Global Apparel Industry

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Traditionally, national retailers outsource apparel production, via global brokers, to thousands of small apparel makers. The typical apparel manufacturer, usually located in a low-wage country, is a small-scale operation that employs a few to a few dozen workers. In a labor-intensive process, workers make specific pieces of clothing, often in a narrow range of sizes and colors. These pieces are then integrated with the output of hundreds of other such companies spread across dozens of countries. As more companies in more countries make more specialized products—i.e., one factory makes zippers, one makes linings, one makes buttons, and so on—multinational trading companies perform as cross-border intermediaries and supervise the assembly of component pieces into finished goods.

Finished goods are shipped to apparel retailers. Responding to market shifts relentlessly pressured apparel retailers. In turn, they pushed multinational trading companies to improve coordination among themselves and apparel makers. Planning collections closer to the selling season, testing the market, placing smaller initial orders, and reordering more frequently let retailers reduce forecasting errors and inventory risks. The final links are markets and customers. Although tastes overlap among countries, local customers’ preferences traditionally varied. For example, the British seek stores based on social sensitivities, Germans are value conscious, Chinese shoppers are brand aware, and shoppers in the United States look for a mix of variety, quality, and price. Collectively, these conditions create a buyer-driven chain that links fragmented factories, global brokers, dispersed retailers, and local customers.

Industry wisdom spurred firms to choose a “sliver” of a particular activity—to make zippers, manage logistics, focus on store design, or cater to customer segments—instead of creating value across different slivers. Effectively, “do what you do best and outsource the rest”...
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