Globalization in Apparel

In a capitalist society, it is generally accepted that management has a fiduciary responsibility to further the interests of stockholders; interpreted as a requirement to maximize corporate profit. In the words of Milton Freidman, “The social responsibility of a business is to increase its profits”. The past few decades have given rise to the globalization of the apparel industry. With this globalization the competition has intensified, necessitating the leading apparel firms to develop extensive global sourcing capabilities. In order to comply with their fiduciary responsibility, current managers at these companies are faced with the challenge of developing and managing a global supply chain, with suppliers, operations and markets in several diverse countries. To succeed profitably at this task, requires the effective and efficient allocation of resources on a global basis. The harsh realities of global competition dictate that management maximizes effectual use of these resources by seeking the lowest cost alternatives available. In an industry such as apparel, where labor cost is a high percentage of the cost of goods sold, managers are compelled to seek countries where labor costs are lower in an effort to maintain profitability and competitiveness. The same forces driving global competitiveness that made Mexico an attractive labor market to the apparel industry initially can in turn influence management to later seek a new venue when the availability of yet cheaper labor creates a more desirable operations environment. In doing so, management is only complying with their due diligence. As long as the local labor laws are complied with, managers are free to reallocate their resources in a manner that will enhance their cost structure resulting in a positive effect on both costs and profitability.

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