2.0 Understand the Fashion Merchandising Process Objective 2.04 Understand the Global Nature of Fashion

A Global Perspective The international environment for fashion merchandising is constantly changing. Globalization is the growth of international commerce and communications that makes national boundaries less important, especially in economic matters. International trade has grown faster for fashion goods than for any other commodity.

Trade Trends and Policies Trade involves imports, exports, and exchanges of money. Imports are goods that come into a country from foreign sources, or what a country buys from other countries. U.S. is the greatest consuming market of soft goods in the world so every country wants to send us their imports.

Trade Trends and Policies Import penetration is the percentage of imports in a country’s total market consumption. It measures foreign against domestic goods. Imports account for over 60% of the total U.S. textile and apparel market. China provides the largest amount of those imports. Sweaters and Jacket/Coats have the highest import penetration.

Trade Trends and Policies A countries balance of trade is the relationship between the values of its imports and exports, described as being a deficit or a surplus. A trade deficit occurs when imports exceed exports. The U.S. has a large trade deficit with many more products coming into the market than being sent out to other countries.

Trade Trends and Policies A trade surplus exists when exports exceed imports. Japan has a trade surplus because it sends more products out to the world markets than it brings into the country.

Regulating World Trade The World Trade Organization (WTO) is the international trade accord that reduces tariffs, quotas, and other trade barriers around the world. An agreement of over 150 countries that negotiates and enforces global trade rules.

Relationship of Textile/Apparel to Developing Nations Structural adjustment refers to the process of industries and economies adapting to long-term shifts in competitiveness. As nations develop, they respond to market supply and demand conditions with better education, training and use of resources. This causes an ongoing global shift in apparel production.

Relationship of Textile/Apparel to Developing Nations A comparative advantage is the ability of one nation to produce certain goods or services better than other nations because of specific circumstances. Different amounts of resources, such as raw materials, labor and capital are available for use in different amounts and skill levels as nations emerge through the development process.

Relationship of Textile/Apparel to Developing Nations Developed countries import more goods. Developing countries export more goods. Companies in developed countries outsource their manufacturing to contract factories in developing countries. This takes advantage of low wage rates. Ex: U.S. company having their garments manufactured in Mexico.

Trade with Developing Nations Before trading with developing nations, countries should learn about the other countries: Political Stability: the degree to which a country’s laws and regulations are subject to change and are enforced. Economic Climate: purchasing power and standard of living. Infrastructure: involves the existence and conditions of roads, transportation systems, electricity, telephones, technology, etc. Culture: set of social norms or values.

World’s 3 Major Trade Regions Asia-Pacific plus India Europe plus North Africa The Americas

Asia-Pacific Plus India Japan is an exporting leader because of its smart, aggressive marketing strategies. South Korea, Hong Kong, and Singapore are industrialized nations that each have small land mass and limited natural resources. They must trade to survive. Import raw materials and food, use their labor and marketing skills effectively, and export quality manufactured goods.

Asia-Pacific Plus India Has millions of individuals doing handicraft work and sewing in their homes. Exports huge amounts of apparel, as well as having a ripe domestic market for the future. Vietnam, Cambodia, Thailand, Indonesia and Sri Lanka are also among the countries gaining in textile and apparel manufacturing.

Asia-Pacific Plus India China Largest exporter of manufactured textiles and apparel in the world. Some consumers have opposed buying goods from China because of alleged human rights violations and unfair trade practices. The majority of clothing for sale by U.S. retailers is made in China.

Europe plus North Africa The European Union (EU) is a family of over 25 European countries united for economic stability and with common policies of free trade among the members. The EU represents over one-quarter of the world’s gross domestic product and has many more consumers than the U.S. market. European businesses are efficient, competitive and innovative with creative advertising and marketing strategies. There is now free trade of goods, services, labor and capital among European nations.

The Americas The North American Free Trade Agreement (NAFTA) set up an open trading zone among the United States, Canada and Mexico. Trade barriers on textiles, apparel, and other goods have been diminished, creating a single North American market.

The Americas Canada Mexico High wage rate Sends upscale garments into the U.S. market. Mexico Low wages for manufacturing Some U.S. firms have production agreements in Mexico. Has a large, young workforce ready to be employed, but low education levels must be supplemented with training.

The Americas In the past, garment manufacturers could export cut components and trims of garments for assembly elsewhere. The garments were then reimported with duty being paid only on the value added. Value added is the increase in worth of products as a result of a particular work activity, such as the sewing. Ex: If the cut fabric parts of a jacket are worth $8 each when they are shipped offshore, and each sewn jacket is worth $10 when it comes back into the country, the value added while it was out of the U.S. is $2 per jacket.

The Americas Caribbean and Central American countries were not included in the original NAFTA. They then requested parity, which is equal treatment. These laws give duty-free and quota-free trade to such countries as the Dominican Republic, Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua, Panama, Brazil, Columbia and Peru.

U.S. Fashion Importing Advantages: Low wage rates in foreign countries make a big difference in the final cost. If imports are cheaper for retailers to buy, and can be sold to consumers at about the same prices as domestic goods, retailers can benefit with higher margins. Can import new and different items that no other store has. Foreign sources are more adventurous with design innovation and are willing to produce style numbers in smaller quantities.

U.S. Fashion Importing Disadvantages: Hidden sales, distribution and management costs. Added transportation and insurance costs and import fees. Long delays can occur in receiving merchandise because of shipping distances, customs procedures, and port security checks. Hard to monitor production, resulting in wide quality and fit variations. Currency fluctuations can dramatically change profits.

Methods of Offshore Sourcing Purchase through Domestic Wholesale Importers: Import merchants buy and import goods A resident sales agent connects import buyers with the manufacturers. An import commission house also serves as a brokerage between domestic buyers and foreign sources. Buying Directly from Foreign Sources: Export sales agents represent select manufacturers, but do not maintain a wholesale inventory.

Methods of Offshore Sourcing Using Foreign Contractors: Foreign contract manufacturing dominates most high-volume, lower-priced apparel sourcing. Large U.S. manufacturers and retailers may have an American supervisor stationed in a foreign country, who keeps tabs on all of the contract production in that region of the world. Licensing Agreements: Allow U.S. companies to produce and/or market products of foreign firms in the U.S., in return for a royalty or fee.

Methods of Offshore Sourcing Franchising: Retail franchises of foreign firms in the U.S. Joint Ventures: Agreements that bring necessary skills or products of two companies together for added strength. Company-Owned Foreign Facilities: A company-owned facility might be established or bought from local owners. It can use available raw materials, send goods to the U.S., and have direct access to the foreign market.

U.S. Fashion Exporting Products sent out of the U.S. to other countries. Japan, Europe and Canada account for most U.S. textile and apparel export sales. The “Made in the USA” label is especially desired by the 16-35 age range.

U.S. Fashion Exporting Advantages: More customers, increased sales Increased profits from higher volume that gives lower average unit costs Extended demand for seasonal products among the different world climates Year-round production runs that increase productivity levels Better domestic methods as a result of knowledge/technology learned overseas. Longer product life cycle

U.S. Fashion Exporting Disadvantages: Having to make long-term commitments to develop overseas markets. Customizing marketing practices for foreign preferences and cultural differences. Trade barriers Warehousing and transportation problems Have to invest abroad for effective production and market access.

International Retailing International retailing, often called cross-border retailing, involves retail company operations that serve customers in multiple countries. Consumer all over the world need items that American companies have, and ambitious firms are taking advantage of these market opportunities.

Multinational Corporations (MNCs) Operate globally. They have direct investment in several different countries. By specializing in certain tasks in the best areas of the world, they can take advantage of low wage and tax rates and other comparative advantages.