Industrial cluster series May 2006 Issue 5 IN THIS ISSUE : I. Introduction 1 II. Highlights of the 2 textile and apparel industry III. Textile and 4 apparel clusters IV. Textiles and 15 apparel sourcing Appendix 1 18 Major textile clusters Appendix 2 19 Major apparel clusters Map:Major textile and 10-11 apparel clusters Textile and Apparel clusters I. Introduction China is the world s largest producer and exporter of textile and apparel, accounting for one-fifth of the world s total production. With its abundant supply of low-cost and skilled labour, the country has attracted textile and apparel manufacturers from around the world to set up production bases. One of the noteworthy features s textile and apparel production is the presence of industrial clusters. These textile and apparel clusters are mainly located in the cities or towns of the coastal regions, particularly in the Yangtze River Delta (YRD), the Pearl River Delta (PRD) and the Bohai-rim region. In each of the localities, hundreds and even thousands of textile and apparel manufacturers have clustered together. Enterprises of related industries, which serve the clustering enterprises, are also located nearby. In most cases, specialized wholesale markets are also presented to act as trading platforms for the finished products. Today, the textile and apparel clusters have become principal sourcing bases for textile and apparel products that are sold in the international markets. Raw materials and processed apparel products are often cheaper and their quality are increasingly up to the global standards. Yet, sourcing involves significant difficulties and challenges, particularly under the new quota-free regime for the textile and apparel industry. This issue will cover various aspects of the textile and apparel industry in China: Section II will highlight the industry s performance; Section III will give a brief description of the textile and apparel clusters; and last but not least, Section IV will discuss the sourcing potential and major difficulties encountered by enterprises when they perform bulk purchase from China. It will also give a snapshot on the impact of the new textile and apparel regime on production and sourcing strategies. MEMBER OF 13/F, LiFung Centre, 2 On Ping Street, Shatin, Hong Kong. Tel: (852) 2635 5563 Fax: (852) 2635 1598 E-mail: lfdc@lf1937.com http://www.lifunggroup.com/ Contact person: Ms Teresa Lam & Mr Antony Cheng
May 2006 Issue 5 Industrial cluster series II. Highlights of the textile and apparel industry Exhibit 2: Foreign trade of the textile and apparel industry in 2004 1. Production and sales The textile and apparel industry is one of the pillar industries of China s economy. According to the China National Textile & Apparel Council (CNTAC), the total sales of the industry in 2004 amounted to 2,640 billion yuan, grew by 22.8% year-on-year (yoy); of which, the total sales of textile and apparel enterprises above designated size reached 1,548.1 billion yuan, up by 24.2% yoy. It was estimated that around 80% of the total sales of all textiles and apparel enterprises above designated size were generated from industrial clusters. This indicates that the phenomenon of industrial clustering has become a distinctive feature in shaping the development of the textile and apparel industry. Statistics also revealed that the total industrial output of all textile and apparel enterprises above designated size reached 1,610.7 billion yuan in 2004, accounting for 8.6% of the country s total. Exhibit 1: Industry performance of enterprises above the designated size in 2004 Textile and apparel industry Country total (in billion yuan) (in billion yuan) Industry % of total Industrial production Value 1,610.7 18,722 8.60% Sales revenue 1,548.1 18,781 8.24% Value-added 398.9 5,481 7.28% Total profit 51.3 1,134 4.52%, National Bureau of Statistics 2. Foreign trade Leveraging on the low labour cost, the industry has successfully attracted huge foreign direct investments (FDI) in the past 20 years. Hong Kong s textile and apparel manufacturers have started to invest heavily in Guangdong since the early 1980s and made use of the region as a manufacture powerhouse; and most of their products are exported overseas. It was the same case for Taiwanese textile manufacturers in. Thus, the industry is very export-oriented. Meanwhile, the private sector plays a significant role in driving the industry s total exports it accounted for about 95% of the industry s in 2004. As shown in Exhibit 3, the export value of state-owned enterprises shrunk by 4.69% to USD 4.88 billion in 2004, which contrasted the rapid growth of the private enterprises figures. Exhibit 3: Export values of state-owned enterprises, private enterprises and foreign enterprises Exporting goods value on delivery Types of ownership (in billion USD) Growth rate in 2004 Stated-owned enterprises 4.88-4.69% Private domestic enterprises 38.2 16.04% Foreign enterprises 33.5 20.60% Most of these textile and apparel enterprises are located along the coastal region, particularly in, Guangdong, Jiangsu, Shanghai, Shandong and Fujian. As shown in Exhibit 4, the total export value of the six provinces totaled USD 19.4 billion in 2004, accounting for 81.5% of the country s total textile and apparel exports. Exhibit 4: Textile and apparel product exports by province, 2004 The gross import and export value of textile and apparel reached USD 114.189 billion in 2004, up by 18.86% yoy, taking up 9.89% of the country s gross import and export value of foreign trade. The exports were USD 35.769 billion, representing an increase of 25.2% over previous year; while imports were USD 61.616 billion, increased by 18.69% yoy. The industry created a trade surplus of USD 80.6 billion, which is 2.52 times of the country s total trade surplus and is the highest for a single sector. Hence, the textile and apparel industry is one of the most important contributors to the overall trade surplus. Note: Numbers in billion USD Total: $97.38 2 3
May 2006 Issue 5 Industrial cluster series 3. Textile vs. apparel sector Exhibit 7 Number of textile and apparel clusters Taking a closer look at the textile and apparel industry as a whole, 53% of the industry s production in 2004 was textile; while 47% was apparel products. However, apparel represented 63% of the industry s exports. Compared to the textile sector, the apparel sector focused more on the export market (see Exhibit 5). Exhibit 5: Textile and apparel production and exports in 2004 % of industry production (by foreign enterprises) % of industry export Apparel 47% 63% Textile 53% 37% According to the China Apparel Industry Development Report 2004/2005, China s apparel exports are mainly low to middle-end products, of which the prices are 20-50% lower than the world average. Due to intense competition and its position on the low end of the textile and apparel production chain, profit margin of the industry remains low (see Exhibit 6). However, apparel products yield slightly higher profit margins than textile products. Reasons could be that apparel involves more value-adding components (design and production differentiation) than textile commodities, which are mainly semi-finished products. Exhibit 6: Textile and apparel sales figures Sales revenue Total profits Profit margin (billion yuan) (%) Apparel 388 15.3 3.94% Textile 934.7 28 3.00% Note: 2004 figures of all state-owned enterprises and non-state-owned enterprises above designated size III. Textile and apparel clusters According to the CNTAC, there were 38 major textile clusters and 48 major apparel clusters (see Exhibit 7). Each of these clusters specializes in the production on one or more textile or apparel products. A complete list of the major textile clusters and apparel clusters is shown in Appendix 1 and 2 respectively. All of these clusters are located along the coastal provinces, namely, Guangdong, Jiangsu, Fujian, Shangdong and Hebei. Among the 38 textile clusters, 24, or more than two-third of them are located in Jiangsu and. On the other hand, Guangdong, which is the largest apparel production base in terms of production volume, only has 3 textile clusters. As for the 48 apparel clusters, over one-third of them are located in Guangdong and one-fifth in. It is then followed by Jiangsu and Fujian, with 8 and 7 apparel clusters respectively. The followings are some descriptions of the major textile and apparel clusters in and Guangdong. 1. The textile and apparel clusters in The textile and apparel industry is the most important industry in. According to the CNTAC, s textile industry accounts for nearly 25% of the province s gross industrial ouput value. Nationally, the province is the second largest textile and apparel producer and exporter, producing about one-fifth of the national total. The province also has huge production capacity in 2004, it produced 578 million tons of chemical fibres, making it the largest production base of chemical fibres. Unlike the case in Guangdong in which the clusters were mainly driven by foreign investments, local enterprises played a more significant role in the development of s textile and apparel clusters. After years of hard work, the province has developed a robust textile and apparel sector in which enterprises are able to build up a complete value chain from designing to manufacturing and to distributing the products. Below are some examples of the development of selected textile and apparel clusters in. 4 5
May 2006 Issue 5 Industrial cluster series (1) The children s wear cluster in Zhili Town Zhili town is located about 15 kilometers from Huzhou City in. It covers an area of 135.8 square kilometers with a population of 180,000, in which 80,000 are from other parts of China. In Zhili, over 70% of the households are engaged in apparel processing activities. The town is well-known for its children s wear production. There are over 5,700 enterprises specialize in children s wear manufacturing, employing over 80,000 people and accounting for nearly one-third of the town s total industrial output. The town produces about 180 million pieces of children s wear annually, representing a national market share of 21% in the product of the same kind. The products are sold across China and to over 15 countries or regions worldwide. The town has two important wholesale or commodity exchange markets selling children s wear, namely, the China Zhili International Children s Wear Market, and China Zhili Commercial Town of Children s Wear. They are able to attract millions of businessmen from different parts of China such as Hunan, Hubei, Heilongjiang and Xichuan to source various types of children's wear. Over the years, Ningbo has developed a complete product chain from designing to manufacturing and to exhibiting the apparel products. (4) The textile clusters in Shaoxing Shaoxing is located in the mid-northern part of. It is one of the largest textile counties, with over 2,5000 key textile and apparel enterprises. The county is also the base of chemical fibres in, with an annual products of 2.7 billion metres of all types of fabrics. Shaoxing has a well-developed wholesale market the China Light Textile City ( ). It is the largest textile wholesale market and recorded a turnover of 25.8 billion yuan in 2004. It is also the largest market for cloth in the world and the largest fabrics distribution centre in Asia. 2. The textile and apparel clusters in Guangdong (2) The apparel manufacturing and exporting city Pinghu Pinghu is a small city in. With an area of around 500 square km, it has about 1,300 apparel enterprises, employing over 140,000 workers. It produces an annual output of roughly 300 million pieces of apparel, accounting for 10% of the apparel production in and 2% of the national total. The city focuses on the production of eight categories of apparel, namely work suits, casual wear, cotton jackets, imitation leather wear, raincoats, knitwear, women s wear and down apparel. Pinghu has attracted investors from all over the world such as the US, Japan, Korea, Singapore and Hong Kong. Currently, there are over 200 foreign-funded apparel enterprises in the city; and around 95% of the products are exported to some 56 countries. Therefore, the industry is very export oriented. On the other hand, the Pinghu government has been keen on fostering brand development among the apparel enterprises. Of the 1,300 apparel enterprises in Pinghu, only very few have developed recognizable brands. Thus, the local government is offering incentive schemes to boost brand creation - an example is the cash reward for enterprise which can first gain a place in the Top 100 Brands list. (3) The apparel clusters in Ningbo 1 Ningbo is perhaps the most important apparel manufacturing city in it produces around 1.3 billion pieces of apparel products each year, which accounts for 40% of the provincial production capacity and 12% of the national total. Major products manufactured in the city include male suits, knitted garments and children s wear, which account for 44%, 65% and 76% of the province s total production respectively. The city has about 2,000 apparel enterprises, account for about 5% of the national total. Its products are exported to places all over the world, making it one of the largest apparel manufacturing and marketing bases in Asia. 1 The apparel clusters in Ningbo are not included in the list released by the CNTAC; yet the city is one of the largest apparel manufacturing and marketing bases in Asia. Guangdong s apparel production is the largest, accounting for 26% of the national total. It is also the largest textile and apparel export base in the country and the third largest in the world. It contributes to about 20% of China s total textile and apparel exports. On the other hand, the apparel exports of Guangdong account for 5.2% of the world s total, making it an important sourcing base of apparel products internationally. The textile and apparel industry in the province is rather external-driven, i.e. mainly driven by foreign investments. Foreign investors, particularly Hong Kong manufacturers have shifted their operations to Guangdong in the past two decades to take advantage of the lower production and labour costs. In turn, the Mainland manufacturers leverage on Guangdong s proximity to Hong Kong to conduct business with the outside world. They also obtain up-to-date technology and fashion information from Hong Kong. The province boasts a number of renowned clusters specialize in the production of various textile and apparel products. Examples include: (1) The leisurewear cluster in Shaxi Shaxi town is located in the west of Zhongshan and is one of the largest industrial towns in the PRD. With a land area of merely 55 square kilometers, Shaxi has about 1,000 textile, apparel, and related manufacturers. The town specializes in the production of casual wear, including sport wears, T-shirts, vests, shirts, hooded coats, duckfeather coats, jeans, sweaters, pants and dresses. Its production accounts for 7% of the country s total production of its kind. Shaxi is very much exposed to foreign trade. Leveraging on its superior geographical location, it is able to obtain raw materials with lower transportation cost than other inland cities. Moreover, the town is able to specialize in higher value-adding activities, such as fashion design because of the massive foreign investments as well as the abundant supply of talents. Since 2000, the town has been hosting the International Casual Wear Fair & China Casual Wear Expo, which is the only casual wear expo. It is no wonder the most important city for sourcing casual wear products. 6 7
May 2006 Issue 5 Industrial cluster series (2) The denim wear cluster in Xintang Xintang Town is situated at the gateway between Guangzhou and Hong Kong. It is the largest denim wear producing town. With a land area of less than 85 square kilometers, Xintang produces over 200 million denim wear a year. For every hundred pieces of denim wear produced, 60% is produced in Xintang. Its denim exports account for 30% of China s total. On the other hand, proximity to highly internationalized cities such as Hong Kong and Shanghai allows the apparel clusters to sell their products to the world market efficiently and conveniently. For instance, despite Ningbo has developed its own clusters with sound marketing facilities, it still needs to leverage on Shanghai s extensive network of trade. (2) Extended production chain Xintang is a typical example of foreign-investment driven industrial cluster. It was an agricultural village back in 1970s. In the early 1980s, a Hong Kong businessman brought 30 knitting machines and set up a denimprocessing factory in the town to utilize its convenient geographical location and cheap labour. The small processing business was able to reap substantial profits, which later on triggered an upsurge of denim processing manufacturers among the locals. The town now has over 2,000 denim-related factories, employing approximately 80,000 workers. The local manufacturers followed the business model of Hong Kong s factories and started to take processing orders from overseas. The town is now responsible for around 30% of the country s denim exports, which are being sold to Europe, U.S. and other regions. Thus, foreign investments not only foster the development of local industries, but also link them with the world market. (3) Textile materials cluster in Xiqiao With an area of only 177 square kilometers, Xiqiao has 1,286 fabric enterprises and more than 30,000 units of fabric machinery. It has the capacity to produce 1 billion meters of fabrics annually. In China, many enterprises in the textile and apparel clusters started off being small and engaged mostly in lowvalue added processing activities. Overtime, they gradually expanded their business scope. As a result, more types of activities come into play and eventually cover nearly all stages of the value chain. This is the vertical expansion along the value chain. On the other hand, the enterprises also make use of the modern technology and equipment to expand the product range. This is the horizontal expansion into more diversified product groups. Today, most of the textile and apparel clusters cover the entire apparel value chain, from producing textile fabrics, to processing ready-to-wear apparel and to distributing the final products to consumers. Most of the welldeveloped clusters have established wholesale markets or commodity exchange markets to sell or exhibit their products. By involving in the lower stream of the value chain, clusters are able to create their own brands and enjoy higher profit margins. Hence, the textile and apparel industry performs a pivotal role in speeding up the development of the service sector. (3) Existence of wholesale market/commodity exchange market in or near the cluster The textile industry in Xiqiao has formed a comprehensive production chain from product R&D, material production, weaving dyeing & finishing, fashion design, to sales and exports of finished apparel. The city leverages extensively on one of its well-developed wholesale market - Xiqiao Light Textile City. Xiqiao Light Textile City is the largest textile commodity exchange/wholesale market in Guangdong; its turnover amounted to 17 billion yuan in 2004. There are three specialized sections dealing with fabrics, denim and upholstery; and other sections such as raw materials and clothing accessories. 3. Characteristics of the textile and apparel clusters (1) Strong linkages with the outside world As mentioned, wholesale markets or commodity exchange markets selling apparel products often exist in major apparel clusters. They act as major distribution channels for mass apparel products produced in the cluster. The markets offer a wide variety of low-and-mid-range unbranded apparel products. Price range of the products is from a few dozen yuan to more than a hundred yuan. According to the Statistical Yearbook of China Commodity Exchange Market, there were 252 textile and apparel commodity exchange markets with an annual turnover exceeding 100 million yuan in 2004. There were altogether 273,137 stores; and the total turnover amounted to 316 billion yuan. Exhibit 8 indicates the Top 20 textile and apparel commodity markets. The textile and apparel clusters have built strong linkages with the outside world. Geographically, all major textile and apparel clusters are located in the coastal regions. They rely on some of the major logistic infrastructures to convey the imported fabric from or finished products to other countries. For instance, Humen Town in Dongguan has a well-developed port, which greatly facilitates its industrial exports. The Humen port contributes significantly to the development of the textile and apparel industry in the region, making the town No. 1 Fashion Wholesaler in China. Another example is Xintang Town it relies on several land transport infrastructures such as Guangzhou- Shenzhen Railway and Guangzhou-Huizhou Expressway to transport its products to nearby ports with relatively lower costs. 8 9
Major textile and apparel clusters ; Li & Fung Research Centre 10 11
May 2006 Issue 5 Industrial cluster series Exhibit 8: Top 20 textile and apparel markets Textile and Apparel Commodity Market Province Turnover (billion yuan) China Light Textile City in Xiaoxing 25.82 China Eastern Silk Market in Wujiang Jiangsu 25.03 Xiliu Apparel Market in Haicheng Town Liaoning 19.20 Xiqiao Light Textile City Guangdong 16.97 Qianqing Light Textile Raw Material Market in 15.06 China Light Textile City in Xiaoxing Changshu Commercial Town Jiangsu 12.00 Zhili Children s Wear Market 10.54 Dieshiqiao Embroidery Market 10.00 Datang Light Textile and Socks City Co. Ltd. 9.34 Zichuan Apparel City Shandong 7.42 Jimo Garment Wholesale Market Shandong 6.96 Textile Commodity Exchange Market Jiangsu 6.12 in Changshu Commercial Town Sijiqing Apparel Market in Hangzhou 6.07 Yuezhou Light Textile Industrial Park Co. Ltd. In Xiaoxing 6.01 China Leather City in Haining 5.69 Chuangang Bed Lining Products Market Jiangsu 4.00 Luyuan Cotton Wear Market Tongxiang City 3.59 China Textile City in Haining 3.50 Xiangjiang Market in Liucheng City Shandong 3.23 Xiaoshan Industrial Products Wholesale Market Hebei 2.84 in Lunan District, Tangshan City In addition, wholesale or commodity exchange market also provides a platform for small manufactures to be informed of the market trend and other latest information - it lowers information costs for small enterprises, which usually do not have large information network. Besides, it also acts as a trading platform for buyers and sellers. Various kinds of services dedicated to apparel trading and sourcing are available in the market, including logistics, translation, exhibition, finance, and other commercial services. Thus, wholesale market links up all parts of the value chain so that the locally produced goods can be sold to other parts of the world handily. (4) Concerted marketing efforts among enterprises in the cluster Enterprises in the clusters are generally small and fragmented. They often advertise and sell their products collectively in order to gain efficiency. (i) Exhibition Exhibition provides sellers the chance to sell and promote their products. It is usually supported by the town or city government. For example, the China s Casual Wear Fair, which is held annually in Shashi Town in Zhongshan, is one of the biggest of its kind in Asia. It is organized by the Zhongshan government. Activities include forums, factory visits and fashion shows. Target customers are businessmen from across China as well as from other countries. Another major annual exhibition is the Strait Textile and Clothing Fair, which is an annual event jointly organized by the Fujian government and the Taiwan Trade Association; and is held in the major apparel town of Shishi in Fujian. The first exhibit was held in 1995, which was then merely a local event. However, from 1998 onwards, the exhibition has enriched with exhibitors from all over China and other countries. According to the organizing authority, the exhibition in 2003 resulted in realized garment transaction of 2.5 billion yuan, and contracted foreign direct investment of about USD 67 million. (ii) Website promotion Enterprises in the cluster may concert their promotion efforts by establishing a website to disseminate trading information to potential buyers. Selected examples are shown in Exhibit 10. Of which, Humen Town s Humen Fashion is perhaps one of the most comprehensive ones. The portal provides a platform for buyers and sellers to post their trading request online. It also links up with the websites of some leading local labels and hundreds of shops at the Humen Fashion City. Source: Statistical Yearbook of China Commodity Exchange Market, 2005 12 13
May 2006 Issue 5 Industrial cluster series Exhibit 10: Selected promotional websites (2) Insufficiency of professional managers Regions Shishi City, Fujian Humen Town, Guangdong Shaxi Town, Guangdong Changshu, Guangdong Website http://www.ssfz.com/ http://www.fumin.com/ http://www.gdfzw.com/ http://www.csfz.cn/ http://www.hzfz.com.cn/ For a textile and apparel enterprise to move up the value chain, the presence of expertise such as professional corporate managers and brand managers, is crucial. Yet, most textile and apparel enterprises are familyowned, which may not be willing to hand over their power to outside experts; or they are too small and lacking the resources to do so. This suppresses human capital formation in the industry. Thus, enterprises are slow in transforming into modern businesses with well-established brands. On the other hand, the lack of professional fashion designers also affects brand creation. 4. Government s role in the textile and apparel industry Today, local governments often act as facilitators in the development of the industry. Some of their major initiatives include: (1) Improving the usage of land resources and facilitating the establishment of wholesale markets. For example, Shishi streets were once packed with garment shops back in a decade ago. The Shishi government then organized a centralized marketplace - the Shishi Fashion City to accommodate the shops in a well-organized manner. The Shishi Fashion City later on became one of the largest fashion markets in Asia. (2) Organizing exhibitions. One of the most prominent is the Shaxi Fashion Exhibition organized by the Zhongshan government. Another well-known large-scale exhibition is the annual joint-exhibition coorganized by Yinxian County and Fenghua County in Ningbo. (3) Supporting human resources development. Well-trained labour is the key to sustainable growth of the industry. Many local governments support and organize various types of training activities. For example, the Ningbo government supports or organizes fashion trainings from short-term courses to university programs. It also encourages cooperation among fashion institutes within and outside the city. 5. Major obstacles affecting the development of the textile and apparel clusters (1) Limited brand development Domestic products prevail in most of the textile and apparel clusters. However, there are very few well-known domestic brands. With their small scale, domestic enterprises put little resource in product development and are generally weak in brand building. Hence, the whole industry is still lacking some famous brands which can drive the industry up along the value chain. This explains the low profit margin of less than 4% for the industry. IV. Textiles and apparel sourcing For more than a decade or two, Made has been a compelling sourcing option for the textile and apparel industry. Raw and processed materials are often cheaper and frequently match global standards of quality. Overall, procurement costs generally run 20-50% below costs for comparable goods in established markets. But surely, doing business involves significant risks and challenges that need to be tackled tactically. 1. Sourcing potentials and difficulties Sourcing potentials: Low cost of production, ever-improving quality, abundant production capacity, and further liberalization following China s WTO entry will further strengthen China s position as the leading global sourcing base. In particular, the lifting of restrictions 2 on foreign ownership of wholesaling, distribution and logistics businesses in December 2004 will greatly encourage and facilitate sourcing from China. Many multinational enterprises increasingly see China not only as an important market but also as a principal supply base for goods sold in international markets. Difficulties & constraints (1) Suppliers are small and fragmented Although many good suppliers exist, it can be difficult for overseas enterprises to spot and trade with them. Most Chinese suppliers are small and fragmented. The challenge is to build a distinctive supplier network in a rapidly changing, highly fragmented and inconsistent supplier market. 2 These restrictions include geographical, equity ratio and quantitative restrictions, as well as market entry thresholds such as minimum assets and annual sales. Foreign-invested commercial enterprises are now allowed to engage in import-export agency and franchising operations. 14 15
May 2006 Issue 5 Industrial cluster series (2) Quality of Chinese suppliers varies In addition, since Chinese suppliers vary greatly in quality levels, lead time, innovativeness and working conditions, buyers must be cautious in committing to sourcing contracts. To illustrate, while product quality in some Chinese apparel manufacturers rank among the world s best, in others it is so unreliable that buyers must place their own staff in the factories to monitor the production lines. world. Besides, after the quota elimination, a lot of new apparel manufacturers will enter the market. Maintaining close connection with this huge number of manufacturers is difficult. Furthermore, as mentioned, the sourcing destinations are very fragmented. Considerable knowledge of the market and the supplier network is needed. Hence, distributors will still play a significant role in the textile and apparel industry. Restructuring the supply chains to eliminate inefficiency in production and sourcing (3) Lacking relevant infrastructure Despite China has developed a number of well-established centres of excellence in which raw materials suppliers and finished products manufacturers are clustered, many Chinese suppliers still lack the infrastructure to automate warehousing and track real time inventory level. This often results in delays, shortages and uncertainties. 2. The new textile and apparel regime: impact on sourcing 3 Starting from 1 January 2005, all quotas on textile and apparel are eliminated for countries that are members of the World Trade Organization (WTO) in accordance with the Agreement on Textiles and Clothing (ATC). The ACT aims at phasing out all the quotas and promoting free trade in the textile and apparel industry. However, it is doubted if the quota-free world is going to be as free as it is perceived to be. (1) More complex rules of game after quota elimination In the post-quota era, some countries may resort to other trade measures like anti-dumping, countervailing duties, technical barrier of trade, etc. to protect their domestic industries from the influx of imports from other countries. Therefore, the rules of game will be more and more complex; trade in textile and apparel is going to be much more complicated and unpredictable. And this will have a strong impact on sourcing. Indeed, the removal of quotas in 2005 urges the apparel producers, enterprises and retailers to rethink their business models, and to restructure their supply chains by formulating new sourcing plans and relocating the production facilities. Apparel enterprises, distributors and retailers need to keep abreast with the latest trade rules, political environment, etc. and be flexible enough to deploy their sourcing network in response to the market changes. Major countries dominate the market while other serve as second-tier suppliers The orders of textiles and apparel are going to be shifted to some currently quota-bounded countries, which have lower production costs, abundant supply of land and cheap labour, and relatively more sophisticated management and infrastructure. The production of textile and apparel is likely to expand massively in the low-cost Asian countries. China will continue to be the dominant factory in the world. The China-specific safeguard measures and other protective trade measures will slow down China s market share gain, but they cannot reverse the trend. However, it should be noted that although certain low-cost countries, China and India in particular, will remain as the world s major suppliers of textile and apparel, multi-sourcing strategy will still be in place as each country offers different valueadded services to the market. (2) New production and sourcing strategies in the new era After quota elimination, a huge market share shift is expected. Textile and apparel trade has been distorted for years because of the quota system. The elimination of quota enables the market to go back to the regular track. The competitive textile and apparel manufacturers will win the market while the existing beneficiary of quota will lose. As for distributors, they may be exposed to the risk of dis-intermediation, given that retailers increasingly source from the manufacturers directly as a result of the reduction in sourcing complexity after quota elimination. However, since there are other forms of quota in place, sourcing will be more complicated in the post-quota 3 For more information on the implications of the quota elimination, please refer to our Newsletter Issue 18: The Quota-free World Implication of the full integration of ATC. 16 17
May 2006 Issue 5 Industrial cluster series Appendix 1 Major textile clusters Appendix 2 Major apparel clusters Products Cities / towns Provinces Cashmere Qinghe County Hebei Filter cloth Tiantai County Weaving Hutang Town in Wujin District in Changzhou Jiangsu Wangjiangjing Town in Xiuzhou District in Jiaxing ( Longhu Town in Pujiang Fujian Embroidery Sanxing Town in Haimen Jiangsu Chuangang Town in Tongzhu Jiangsu Warp knitting Maqiao Town in Haining Yangxunqiao Town in Xiaoxing County ( Jinfeng Town in Changle Fujian Chemical fabric Huangjing Town in Taicang ( Jiangsu Yaqian Town in Xushan District ( in Hangzhou Zhouchuan Town in Tongxiang ( Dangshan Town in Xushan District in Hangzhou Static flocking Youchegana Town in Jaixing ( Fabric Xiqiao District in Nanhai ( Guangdong Dama Town in Tongxiang ( Knitting textile Jimo Shandong Zhangcha Town in Foshan Guangdong Liangying Town in Qiaonan District in Shantou Guangdong Hengcun Town in Tonglu County Xiangshan County ( Craft textile Wendeng Shandong Jiangzao Town in Tongzhu Jiangsu Cotton textile Zouping County Shandong Tangqiao Town in Zhangjiagang Jiangsu Felt Nangong Hebei Dyeing Changyi Shandong Cloth Yuhang District in Hangzhou Xucun Town in Haining ) Silk Shengze Town in Wujiang ( Jiangsu Polyurethane Jingang Town in Zhangjiagang Jiangsu Textile machine Wangtai Town in Jiaonan Shandong Zhitang Town in Changshu ( Jiangsu Non-knitting Cloth Zhitang Town in Changshu ( Jiangsu Pengchang Town in Xiantao Hubei Linen Zhenze Town in Wujiang Jiangsu Thread Makou Town in Hanchuan Hebei Products Cities / towns Provinces Men s wear Hanjiang Town in Shishi City in Fujian Fujian Huicheng District in Huizhu City Guangdong Rongcheng County in Baoding City Hebei Zhucheng City Shandong Tancheng County Shandong Ruian City Fengqiao Town in Zhuji City Ladies wear Humen Town in Dongguan City Guangdong Leisure wear Lingxiu Town in Shishi City Fujian Xintang Streets in Pujiang City Fujian Yinglin Town in Pujiang City Fujian Shaxi Town in Zhongshan City Guangdong Xiashan Streets in Chaonan District in Shantou City Guangdong Shajiabing Town in Changshu City Jiangsu Haiyu Town in Changshu City Jiangsu Dongqing City Denim wear Dayong Town in Zhongshan City Guangdong Junan Town in Shunde District in Foshan City Guangdong Xintang Town in Zengcheng City Guangdong Sanbu Town in Kaiping City Guangdong Children s wear Fengli Steets in Shishi City Fujian Huanshi Town in Foshan Guangdong Cixian in Handan City Hebei Zhili Town in Hangzhou City Lingerie Shenhu Town in Pujiang City Fujian Yanbu Town in Nanhai City in Foshan Guangdong Chendian Town in Chaonan District in Shantou City Guangdong Gurao Town in Chaoyang District in Shantou City Guangdong Wollen garment Chenghai District in Shantou City Guangdong Dalang Town in Dongguan City Guangdong Xingang Town in Changshu City Jiangsu Hengshan Town in Wujiang City Jiangsu Haiyang City Shandong Puyuan Town in Puxiang City Bridal dress Chaozhou City Guangdong and Tuxedo Hosiery Lishui Town in Nanhai District in Foshan City Guangdong Yiwu City Datang Town in Zhuji City Tie Shengzhou City Glove Gaozhou City Guangdong Feather and down Xintang Town in Xiaoshan District in Hangzhou City Gaoyou City Jiangsu Guli Town in Changsu City Jiangsu Knitted apparels Xinzhuang Town in Changsu City Jiangsu Non-woven apparels Yiwu City Garment for exports Jintan City Jiangsu Pinghu City Garment assessories Baokai Town in Shixi City ( Fujian 18 19
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