As American countries head towards recession, many will begin to question exactly how the garment industry is affected by global trade in near future. The US has recently found itself approaching what some economics fear could be the next recession and its impact on many industries negatively in terms of profit and human capital. Among the industries that would hit by the recession in the US. Garment industries as they outsource manufacturing and as well as import raw material and other products from foreign countries. America continues to head towards recession; many will begin question exactly how the garment industry is affected by the global trade in coming years.
The world economy is going through a chapter of turbulence as a result of the financial turmoil. The garment industry worldwide has to once again embrace uncertainties, striving to survive a period of slow or even negative growth. The current market is tough for many in the garment-manufacturing sector. A number of factory owners have expressed concerns over a significant drop in orders as their customer cut back on investments, yet some industry players, due to their special business nature, were more confident to ride out the storm and gain progress amid the difficult times.
So far so good
With financial turmoil affecting the business of Garment manufacturers and traders, a less optimistic mood was felt among both importers and exporters at the same time recent apparel show in Asia, including the ITMA Asia + CITME 2008, Intertexture Shanghai Apparel Fabric, and Cinte Tec textile China in Shanghai. At the latest apparel show in Hong Kong, the Inters off Asia Essential-Autumn 2008 held in October, visitors showed concerns over the adversely affected global apparel traffic. US-based importers, including chain stores, slashed import of garments from Asia since October 2008, although some of this was discernible even before the global financial crisis blew up.
Bernd Muller, project manager (Brand apparel fabric and fashion) he said we are presently not feeling the pressure very much, but we may get to feel it in the future. If the crisis continues to persist; than the problem will be of a long-term nature.
On the supply side, there has been an over-capacity in the world for years. Small Asian countries lacking dominant industries other than the apparel manufacturing might find it hard to bargain in the international supply chain. With the abundant global supply, they (Asian textile and apparel manufacturers) may be squeezed in the next 12-18 months Mr. Huang told ATA journal in October 2008. Market segment such as general sportswear, outer wear and outdoor sportswear have paid extreme attention to the latest development and also getting more acceptance in more developed countries. In this increasingly globalize world, Asian suppliers found they were affected by the US financial crisis.
Some Chinese's textile experts, who predicted that the industry was in deep fear in view of rising costs and weakening global demand, depicted a gloomy picture. Some even said the industry could face a large quantity of bankruptcy, especially among export- oriented enterprises by the end of 2008 or nearly 2009. Further efforts to rationalize the international supply chain may be done by banks, which is no longer finance companies easily. Suppliers operate on a high level of financial leverage (i.e. heavy loans) rather than trying to earn through their own manufacturing activities might suffer severely.
The latest data released by the Apparel Export Promotion Council (AEPC) of India (in November 2008) showed that India is exports of readymade garments plunged 6.59% in September 2008 over the same month in the previous year as a consequence of global economic slowdown. The market sentiment is very week said AEPC Secretary General. Vimal Kirti Singh he explained that there was a drop of 20%-25% in the business of winter apparels from India. Orders were deferred or cancelled as stores faced weak sales in the US. There is a gradual deterioration in the growth of readymade garments sector said Mr. Singh in a letter to Joint Secretary at the Ministry of Commerce P.K. Dash in response to queries on the impact of global recession on Indian exports.
Retailers like Steve & Barry and Mervyns filed for bankruptcy, while a number of stores scaled down their operation, including GapInc, Macy and JC Penney. As a result some Indian exports closed their manufacturing facilities. This also adversely affected suppliers in upper stream as generally about 80% of inputs required for the Indian apparel industry were sourced domestically compared to 50% in China. India readymade garment export reached US$9.69 billion, in 2007-08 according to the Indian authorities. The recent US trade data confirmed to the weak market sentiment. While textile exports to the US declined 0.95% in terms for the 12 months ending August 2008, apparel exports were down 4.47% to US$3.05 billion, Data from the office of Textiles and Apparel (OTEXA) and US Department of Commerce Showed. In the first eight months of 2008, apparel exports to the US declined 4.8% to US$ 2.2 billion. Against this background, Rakesh Vaid AEPC Chairman, expected that India will miss the export target for the current fiscal year ended March 2009. President of Tirupur Export Association, Mr. Sakthivel, estimated a 5% decline in export. Tirupur city account for 56% of Indias total knitwear exports.
Others remained positive with their competitive advantages. Even though the end market is in recession, the rapid inflation in China and other market has brought business to India, said Arvind Chief Financial Officer, Jayesh Shah. Arvind ships fabric to garment making centers like Bangladesh, Sri Lanka and Egypt, as well as exporting finished garments to the US. Top buyers like WalMart and Tesco who purchased apparel at around US$1 billion in 2007 recently demanded up to 2% rebate on their existing orders, exporters said. Some players in Bangladesh were also worried, Anisur Rahman Sinha, the owner of Bangladesh biggest garment manufacturer group, and Opex believed that cheap prices would help Bangladesh ride out the turmoil.
Nonetheless, some Bangladeshi players, with the US and Europe being major clients, found difficulties apparent. They were asked to cut orders process and orders were also delayed for spring/ summer season in 2009. Things are very bad. Some of the buyers have made us give rebates on the existing orders said Salim Rahman Managing Director of KDS garments; a large apparel manufactures of Bangladesh. Some were asking rebates for future orders on the ground that they were hit hard by the global financial crisis, according to Mr. Rahman whose company annually exported apparel worth US$150 million. The Bangladesh Knitwear Manufactures Association (BKMEA) in October 2008 reported a 10% drop in knitted items such as T-shirts and pullovers, and some manufacturers said things have been worsening since then. Moreover a number of orders for the spring and summer season were delayed as the retailers were unsure how the economic crisis would play out in the near future.
Former Chairman of the Pakistan Readymade Garment Manufacturer and exporters Association (PRGMEA), Ijal Khokhar commented that in the present economic scenario, it was challenging for Pakistan to meet its exports target and up to 40% shortfall was expected, given that the US and European consumers market become quit Exports from Pakistan in 2008 could decrease by half from the previous years. On the other hand Sri Lanka tried to survive by concentrating on the south- south co- operation. Being members- state of SAARC (South Asian Association for Regional Cooperation) Sri Lanka derived the duty- free route accessible under the SAFTA (South Asian Free Trade Area) agreement to ship garments to India duty -free. Under this agreement Sri Lanka, Sri Lanka exported to India eight million Pieces of garments in 2008.
Although challenges are ahead, industry experts in Asia commented that those who are able to survive or even expand smartly in this adverse environment will find their future brighter when the international market revives.
About the Authors
The views expressed are of authors; Mallikarjuna NL is a Research Student in Department of Studies in Commerce, University of Mysore and Dr. T.S. Devaraja is Reader in Department of Studies in Commerce, University of Mysore.