Europe and Global Value Chains

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					                  Europe and
           Global Value Chains

         Gary Gereffi, Duke University


            Global Apparel/Clothing Europe
Conference at the University of North Carolina, Chapel Hill
                  October 15-16, 2004
               4 Themes
• Apparel Value Chains: Dispersion and
  Consolidation
• The Emergence of Central and Eastern
  Europe
• The Impact of Quota Phase Out in 2005
• What Is Europe’s Future Role in Global
  Apparel Sourcing?
   Apparel Value Chains:

Dispersion and Consolidation
      Apparel Value Chain: Dispersion

• 1970s - Global buyers source from East Asia
      • Retailers –JC Penney, Kmart, The Limited, Gap
      • Brands – Liz Claiborne, Nike, Polo, Calvin Klein
• 1980s – U.S. buyers use East Asian firms to source from
  new locations under quota system
• 1990s – Central and Eastern Europe expand OPT with EU
• Mid-1990s – Post-NAFTA: Mexico shifts from assembly
  (maquilas) to full-package production for USA
• 2000 – AGOA grants tariff preferences to sub-Saharan
  Africa
• 2005 – Quota phase out … and global consolidation!
  Apparel Value Chain: Consolidation
• Buyers
  -Wal-mart is largest U.S. apparel retailer and buys 14%
    of all Bangladesh garment exports
• Suppliers
  – Li & Fung (Hong Kong trading company) has offices
    in 56 countries and 400 factory relationships
  – Supply chain rationalization: fewer, larger factories
• Countries
  – Apparel exports from China account for 20% of world
    total ($41.2 B in 2001)
Global Consolidation: China and Wal-Mart
 Wal-Mart is the largest retailer in the United States,
 with sales of more than $245 billion a year.

 More than 80% of the 6,000 factories in Wal-Mart’s
 worldwide network of suppliers are in China.

 Wal-Mart spent $15 billion on Chinese-made
 products in 2003.

 Nearly one-eighth of all Chinese exports to the
 United States were imported by Wal-Mart.

 About two-thirds of China’s exports are shipped from
 factories wholly or jointly owned by foreign
 investors.

 If Wal-Mart were a separate nation, it would rank as
 China’s fifth-largest export market, ahead of
 Germany and Britain.

 There are 31 Wal-Mart stores in China.
                       Figure 1: Northeast Asia's Apparel Exports to the World (SITC 84), 1985-2001



US$ billions

    45

                                                                                                                                       China
    40



    35



    30



    25                                                                                                                                 Hong Kong



    20



    15



    10


                                                                                                                                       South Korea
     5
                                                                                                                                       Taiwan

     0
         1985   1986   1987    1988   1989   1990    1991   1992    1993   1994    1995   1996     1997   1998   1999   2000    2001

                                              South Korea      Taiwan      Hong Kong       China



           Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).
                                                       Figure 2: Shifts in the Regional Structure of
                                                          US Apparel Imports from 1990 to 20031
                                                                 North
                                                                America
                                                                                                                            Central
                                                                                                      5                   America and
                                                                                                                         the Caribbean

                                                                                                  4
                                                                                      Canada
                         Northeast
                           Asia                              South                                        Dominican
                                           Macau             Korea                            3            Republic
                                                                                                              Guatemala

                                                                                          2                          El
                                                                                                                  Salvador
                                                             Hong
                                                             Kong                                                     Honduras               Costa
                                               Taiwan                                 1
                                                                                    Mexico                                                   Rica
                                                                              China

                   Singapor
                       e
                                   Malaysia    Philippines
                                                                                                                                 Turkey
                                                Indonesia

                                                     Thailand                                                    Italy

                                                             Vietnam
                                              Cambodia                                                                              Europe
                            Southeast                                  Bangladesh                                                                The rings indicate the share
                                                                                              Sri Lanka
                              Asia                                                    India                                                      of total U.S. imports in U.S.
Coming on Strong                                                                                                                                 dollars by partner country:
Jordan
                                                                                                                                                 1. 10% +
Peru                                                                       Pakistan                                                              2. 6.0% - 9.9%
Colombia                                                                                                                                         3. 4.0% - 5.9%
Russia                                                                                                                                           4. 2.0% - 3.9%
Lesotho
                                                                                                      South
                                                                                                                                                 5. 1.0% - 1.9%
                                                                                                       Asia
1The
                                                                                                                                                 Total value of U.S. clothing
    2003 position corresponds to the ring where the country’s name is located; the 1990 position, if different, is indicated by                  imports was $25.0 billion in
a small circle. The arrows represent the magnitude and direction of change over time.                                                            1990 and $68.1 billion in
Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. imports for consumption, customs value.                       2003.
    The Emergence of
Central and Eastern Europe
                                                   Table 1

                        Patterns of Entry to World Market and
                       Apparel Concentration Ratios for World's
                       Top non-EU Apparel Exporters, 1980-2001

                              Apparel exports to the world
                                                                           Apparel as percent of total
                                        market
                                                                               national exports
Region/Country                       (US$ billions)
                              1980       1990      1995       2001       1980       1990       1995    2001
Northeast Asia
  China                         1.7      10.2       24.4      41.2       8.6%       15.7%      16.2%   13.8%
  Hong Kong                     5.3      15.7       21.4      24.2      25.4%       18.7%      12.3%   12.3%
  South Korea                   3.1       8.3        5.0       4.7      17.0%       12.4%       4.0%    2.9%
  Taiwan                        2.6       4.2        3.5       3.0      12.3%        5.8%       2.8%    2.0%
Central and
Eastern Europe
  Turkey                        0.1       3.4        6.4       7.1       4.6%       25.9%      28.4%   21.4%
  Romania                       0.4       0.4        1.4       3.0       3.1%        7.6%      17.3%   24.6%
  Poland                        0.6       0.4        2.4       2.0       4.2%        3.0%      10.1%    5.4%
  Hungary                       0.3       0.4        1.1       1.4       4.0%        3.8%       8.1%    4.4%
  Bulgaria                      0.0       0.1        0.4       1.1       0.0%        4.0%       7.9%   18.8%

North America
  Mexico                        0.1       0.1        2.9       8.5       0.3%       0.4%       3.5%    5.0%

World Totals                   39.6     110.6      168.7      217.0      2.0%       3.2%       3.2%    3.3%

Source: World Trade Analyzer, based on United Nations trade data. Apparel is defined as SITC 84.
                                                               Table 2

         National Income, Apparel Exports, and Hourly Wage Rates for
                   World's Top Apparel Exporters, 2001-2002

                                                                                      Apparel exports to Hourly apparel labor
                                Population         GNP         GNP/capita              the world market costs (wages & fringe
Region/Country                   (millions)     (US$ billions)   (US$)                   (US$ billions)        benefits)
                                  2002a              2002a              2002a                 2001b                    US$, 1998c
Northeast Asia
  China                            1,281             1,237              4,475                  41.2                        0.43
  Hong Kong                          7                162              26,235                  24.2                        5.20
  South Korea                        48               477              16,465                   4.7                        2.69
  Taiwand                            22               289              12,900                   3.0                        4.68

Central and Eastern
Europe
  Turkey                             70               183               6,175                   7.1                        1.84
  Romania                            22               44                6,325                   3.0                        1.04
  Poland                             39               188              10,185                   2.0                        2.77
  Hungary                            10               66               13,130                   1.4                        2.12
  Bulgaria                           8                16                6,910                   1.1                         na
North America
  Mexico                            101               637               8,705                   8.5                        1.51
World Totals                       6,201            32,252              7,650                 217.0                        na
                            a
                 Sources:       World Bank, World Development Indicators Online, 2003
                            b
                                World Trade Analyzer, based on United Nations trade data. Apparel is defined as SITC 84.
                            c
                                Werner International, Inc. "Hourly Labor Cost in the Apparel Industry."
                            d
                                Population and GNP data for Taiwan are from the Taiwan Statistical Databook 2003.
                                                           Table 3


                  Position of Apparel Among Leading Export Items, 1980-2001
                                  Top export item, 2001                 Apparel Rankb             Trends in apparel ranking
                                 a
Exporting Country           SITC             Description           1980     1990      2001          1980-90    1990-2001
Northeast Asia
 China                       84                 Apparel              4          1         1      Up            Same
 Hong Kong                   77          Electrical machinery        1          1         2      Same          Down
 South Korea                 77          Electrical machinery        1          1         11     Same          Down
 Taiwan                      77          Electrical machinery        1          5         13     Down          Down
Central and Eastern
Europe
 Turkey                      84               Apparel                6          1          1     Up            Same
 Romania                     84               Apparel                3          4          1     Down          Up
 Poland                      78            Road vehicles             6          10         5     Down          Up
 Hungary                     76         Telecommunications           8          9          6     Down          Up
 Bulgaria                    84               Apparel                7          6          1     Up            Up
North America
 Mexico                      78             Road vehicles            27         35         6     Down          Up
World Totals                 78             Road vehicles            15         9          8     Up            Up

a
    SITC refers to Standard International Trade Classification categories.
b
    Rankings are based on the position of apparel in each economy's total world exports, using two-digit SITC categories

Source: World Trade Analyzer, based on United Nations trade data.
                         Figure 3: Shifts in the Regional Structure of EU 15 Apparel Imports from 1990 to 2001

                                             Other Europe                      Switzerland


                                                                                                   5                                 Northeast Asia

           Eastern Europe and                                                                                  Taiwan
                ex-USSR                                                                        4


                                       Lithuania
                                                                                           3
                                                                                                                                   South
                                                                                                                                   Korea

                                          Poland
                                                                                       2

                                     Hungary
                                                                                   1                                                    Malaysia
                                                                          Turkey
                                                                                    China
                          Czech
                                                   Romania                         H Kong                                Indonesia
                                                                                                                                                      Southeast Asia
                         Republic
                                                                                                                                        Singapore


                                                                                                                                       Vietnam
                         Bulgaria

                                                                                                   Bangladesh
                                                                                                                                     Thailand
                                                                                                       India
                                                                                       Morocco
                                                                         Tunisia
                                                                                                                           Sri Lanka
                      USA
                                                                                                                        Pakistan
                                                                                                                                                    The rings indicate the share
                                                                                                                                                    of total European imports in
                                                                                                                                                    U.S. dollars by partner
                  North America                                                                                                South Asia           country:
                                                                                   Mauritius
                                                                                                                                                    1. 10% +
                                                                                                                Africa                              2. 6.0% - 9.9%
                                                                                                                                                    3. 4.0% - 5.9%
                                                                                                                                                    4. 2.0% - 3.9%
1This
                                                                                                                                                    5. 1.0% - 1.9%
     chart excludes intra-European trade among the 15 member states of the EU (Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom). Total apparel imports are f or the EU             Total value of extra-regional
countries.                                                                                                                                          European clothing imports
                                                                                                                                                    was $22.8 billion in 1990
Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Article of apparel and clothing accessories”).                             and $51.3 billion in 2001.
                                               Table 4

             Top 10 Suppliers of Apparel to the European Union -- 1989, 1994, 2000
                                (% of total EU apparel imports)



    1989                               1994                            2000

Hong Kong              15.1        China                 13.5      China             15.6

Turkey                  9.5        Turkey                 9.6      Turkey            11.2

Yugoslavia              8.1        Hong Kong              9.4      Hong Kong          6.6

China                   7.5        Tunisia                5.5      Romania            5.4

South Korea             5.9        Morocco                5.4      Tunisia            5.4

Morocco                 4.8        Poland                 5.2      Bangladesh         5.4

India                   4.6        India                  4.9      Morocco            5.0

Tunisia                 4.4        Indonesia              3.6      India              4.2

Austria                 3.4        Romania                2.9      Poland             3.8

Thailand                3.1        Bangladesh             2.8      Indonesia          3.8



Source: EUROSTAT, 2001.
                                        Table 5

Major Apparel Trading Partners in East-Central Europe and the European Union, 2000
                         (% of total apparel exports to EU)


        2000          Italy     France            UK    Greece   Germany    EU


Poland                 1.0        1.8             1.2    0.0      13.9     25.5

Czech Republic         0.3        0.2             0.6    0.0       5.0      7.4

Hungary                2.4        1.5             0.8    0.0       5.5     13.8

Romania                11.0       3.8             5.2    0.1      12.7     35.8

Bulgaria               1.3        1.6             0.5    2.6       3.3     10.8

Slovakia               1.4        0.3             0.3    0.0       3.7      6.8

Total                 17.4       9.2              8.6    2.7      44.1




Source: EUROSTAT, 2001.
The Impact of Quota
Phase Out in 2005
                Figure 4: Shifts in the Regional Structure of Japanese Apparel Imports from 1990 to 2001

                                                                          5                                Taiwan


                Europe                                                                                                             Northeast
                                           France                         4                                                          Asia


                                                                          3
        United
        Kingdom
                                                       Italy
                                                                          2
                                                                                      Hong
                                                                                      Kong         South
                                                                          1                        Korea
                                                                              China



                                                                                                                           Indonesia




                                                                                                                        Thailand


                           USA
          North
         America                                                                   Vietnam                                                     The rings indicate
                                                                                                                                               the share of total
                                                                                                                                               Japanese imports in
                                                                                                                            Southeast          U.S. dollars by
                                                                                                                              Asia             partner country:
                                                                                                                                               1. 25% +
                                                                                                                                               2. 10.0% - 24.9%
                                                                                                                                               3. 4.0% - 9.9%
                                                                                                                                               4. 2.0% - 3.9%
                                                                                                                                               5. 1.0% - 1.9%

N.B.: From 1990 to 2001, South Korea’s share of Japan’s apparel imports fell from 29 percent to 4.3 percent, while China’s im port share of    Total value of
the Japanese apparel market grew from 19.3 percent to 66.6 percent.                                                                            Japanese clothing
                                                                                                                                               imports was $8.6
                                                                                                                                               billion in 1990 and
Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).                       $19.9 billion in 2001.
                 In 2005, Multi-Fiber Agreement Ends


      MFA                                                                 Quota
                                                  ATC
  (1974 – 1994)                                                          Abolition
                                              (1995 – 2004)
                                                                        from 2005




  Jan. 1, 1995                 Jan. 1, 1998              Jan. 1, 2002      Jan. 1, 2005

16% Integration               Another 17%               Another 18%      100% Integration
                               Integration               Integration



Source: World Trade Organization.
U.S. Integration Schedule Established by CITA
 (Committee for the Implementation of Textile Agreements)



 WTO’s Agreement on Textiles & Clothing (ATC),
 fourth-stage integration deadline:

     January 1, 2005:        49% of total textile & clothing trade


 Proportion of U.S. imports still under quota that will not be integrated until
 2005:

          67% of the total volume of U.S. textile and apparel imports

                   89% of apparel imports

                   47% of textile imports
                                                 Table 6

                      Major clothing exporters' share of the US market 2004



                                   Other
                                   24%
                                                                China
                                                                16%




         Bangladesh
            4%

              India
               4%
                                                                        Rest of Americas
                                                                              16%
             Indonesia
                4%


            Philippines
                4%
                                                           Mexico
                          Taiwan
                                    EU                      10%
                           4%               Hong Kong
                                    5%         9%




Source: Financial Times, July 19, 2004, p. 11.
                                                 Table 7

        How U.S. market shares may rank after elimination of MFA quotas



                                                           Other
                                                           12%       Bangladesh
                                                                        2%
                                                                       Indonesia
                                                                          2%
                                                                         Philippines
                                                                             2%
                                                                           Thailand
                                                                             3%
                                                                              Mexico
                                                                               3%
                  China
                  50%                                                              Rest of Americas
                                                                                          5%


                                                                                  Hong Kong
                                                                                     6%




                                                             India
                                                             15%




Source: Financial Times, July 19, 2004, p. 11.
    MAJOR TRENDS IN THE POST-QUOTA WORLD
China will benefit most from end of MFA

Consolidation is likely to accelerate
   More mega-factories will emerge post-2005
   Retailers will cut down on the number of sourcing countries

Remaining factories will have to provide higher level services
(logistics, customs clearance, and product design)
Time to market considerations will allow regional producers to
maintain a role in apparel sourcing

Pressures for “ethical sourcing,” corporate codes of conduct,
independent monitoring and labor standards will grow
What Is Europe’s Future Role
in Global Apparel Sourcing?
        Research Questions
• What are the distinctive features of full-
  package production in Eastern and Central
  Europe?
• Does full-package apparel production
  constitute upgrading or downgrading for
  ECE economies?
• How extensive are the benefits to local
  workers and firms of OPT and full-package
  production within the ECE region?
              Policy Issues
• How will the major apparel exporting
  countries adjust to quota phase outs?
• What can governments and EU authorities
  do to promote upgrading within the apparel
  value chain of Eastern & Central Europe?
• What policies and institutional conditions
  foster industrial diversification and inter-
  chain upgrading beyond textiles & apparel?