Globalization in the Clothing Industries

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April 10th 2008

Menno van Geloven
Bianca van der Ha
Steven Langerwerf
Bastiaan van Wijk

Globalization in your wardrobe

The nature of the clothing industry is maybe best noticed after a quick peek in your wardrobe. Soon you find out that few items have actually been made nearby. Instead, the origin of most jeans, t-shirts, or sweaters lies in more exotic locations such as Mexico, Bangladesh, Madagascar or Thailand. The clothing industry as we know it today, exemplifies some characteristic issues that our global economy faces. Due to its global organization, clothing industry flows across borders, linking companies, governments and economies of both developed and developing countries together. Millions of employees work in the industry worldwide. Some countries’ export and employment level depends mainly (if not totally) on the clothing and textile industry. Mainly due to these facts, it is no wonder that the industry has for a long time been subject to a myriad of policies. The global nature of the industry is also reflected in the figures from the World Trade Organization. According to their 2006 estimates, the share of clothing in the total worldwide trade of manufactures trade is 3.8%. This is a substantial amount of money, especially if you consider the amount of jobs that correspond to this. If one looks at the export from individual countries, even higher shares can be found. The highest share of merchandise export is reached in Bangladesh, where clothing amounts to 74% of domestic merchandise export. Other countries that show high export dependence are Cambodia (71%), in Haiti (71%) and Madagascar (69%). The global triad comes apparent when one looks at the magnitudes of trade flows related to clothing. In 2004 the biggest importers of clothing were the Western Europe, North America and Asia. The biggest exporters of clothing in this same year were Asia and Western Europe. One can conclude that the clothing industry is very global and centered on this triad. So, why is this industry so globally organized? The macro-economical reason for this is the wage-difference between countries and the fact that cotton is produced the cheapest in some distinct places. Some other prerequisites for a global organization are: The easy transportation of the cloth due to the high value to weight ratio, the labour intensive production, and the fact that most processes do not require skilled workers or expensive machinery. Hence, barriers to entry on the production side are low, resulting in a situation where a number or producers compete fiercely to produce the cheapest cloth. In search for the cheapest production, work is often outsourced to regions where wages are even lower. As a result, the power of productions workers diminishes and they are often required to work in bad conditions and for even lower wages. There are more downsides to a global organization of the clothing industry. For retailers, there is always a trade-off between costs and minimizing the access to markets (Dicken, 2007). Proximity to markets has lately become an important factor in choosing a place for production. The more buyers will insist on a fast product turnover (and they do), the more they will value the proximity of the production chain. Clearly, for many customers that have a high purchasing power, clothing means fashion and they are not ¬¬happy to be waiting for a ship from China, while the same could be produced in their backyard. In this paper we look at the clothing industry from several perspectives: First we pay attention the direct foreign investment of the industry and input/output figures. After that, we address some issues regarding transnational corporations that are active in the industry, the role nation states have and we finalize this paper by looking at the impact of the on wealth and society. Foreign Direct Investment

One of the indicators of globalization of an industry is foreign direct investment (FDI)....
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