Marketing Planet

Reorganisation of the world wide textile industry: the role of marketing

Recall

The Uruguay Round of the WTO in 1995 agreed upon the dismantling on tariffs and trade of the textile market. As usual with those macro economical amendments, the current main players would have till 2005 to adept their politics to this decision and help their local companies to prepare.

These companies are mostly European, out of which Italy takes more than half on its account. It was important for the European textile industry to be protected as long as possible and indeed this is what happened. More than 2.7 million people work in the European textile and apparel industry [1]. The worldwide market grew from 1990 from 212 billions Dollars to 2002 with 353 billions Dollars out of which the apparel takes more than 50%. As a result, the stakes for Europe are huge.

European future

With the obligation of Europe, moreover, to open its borders and lower its tariffs for the imports of other textile countries, European companies face a huge difficulty. Many have already started to delocalise and often reduce their workforce in Europe. They are obliged to react, facing the lower priced textile products notably from Asia. From a marketing point of view the following question arose: how will these companies be able to compete to a product “made in Asia†priced 5 times less? But there is also the issue How will the perception of their own image be modified if they mark in their apparel “Italian brand, but Made in Bangladesh†?

The power of the marketing view is however inferior to the financial point of view, who is looking for survival. According to Maslow’s pyramid and logic, in times of difficulty, a financial director will rather look for the advantages of a low priced product and how it can maintain their sales. As a result, a decrease of the existing workforce will most probably be required in order to try to keep the company alive.

Controversy

But these questions on the survival of European companies is not taking into account the current price the European consumers pay for their textile and their market and purchase viewpoint. Due to the high wages in the European market, prices are obliged to remain high, which is the primary reason of the European government to remain high tariffs and trade barriers. The same product can be produced for a lower price in Bangladesh and can improve the consumer purchase power. It seems that on an annual base, a consumer pays an extra 270 Euros to pay the difference of prices in textile industry.

Cleary, it would “kill†the European employment in this sector but would increase the under development countries employment with a probable 19 millions jobs [2]. Taking into account these figures a market should be able to calculate the following: increase of purchase power, would enable to spend this money on other products, creation of about 19 million jobs would decrease poverty elsewhere and create potential customers. As a result, for killing a local textile industry in Europe, existing revenue can be allocated differently and can create higher income for other markets. New business activities can thus be created and find potential consumers. This calculating – and re-allocation - is not easy to propose in a local market view and causes quite some difficulty to be accepted.

International market positions and costs

Whereas Europe would account for most of the textile industry some years ago, currently China is to bypass this position. In the apparel industry, China is already taking twice a much production than Europe is doing. The increase of Chinese apparel into Europe has almost doubled for both the textile and apparel between 1990 and 2002. The future will even increase this trend. The USA importation for the textile industry gives China a current 16% but schedules on a future 50%. Rumours say that the Chinese industry invests heavily in plants for industry covering up to 40.000 jobs for each plant. China’s strong position comes from the low labour costs to which currently no “developed†country can compete with.

The labour cost in China is however not only low one. Labour costs are under 1 dollar per hour for the following countries: China, Ethiopia, India, Indonesia, Sri Lanka, Pakistan and Bangladesh. A per comparison, Portugal is at 4.8 p/hour, Italy at 14 p/hour, USA at 15 p/hour and Japan at 22.8 p/hour. Nevertheless, China is well on its way to become the worldwide provider in textile, since it is currently the only country able to produce cheap and much.

What are the solutions?

Currently these “dangerous†countries are taking over lower quality work from “developed country companies†and they create their own brands for exports. In the future, they will probably increase their shares in both these parts undermining the European market, as well as other “expensive labour markets†. Though there are not plenty possible solutions to reply to this situation and upcoming modification, some possibilities may exist:

  • delocalise the production as much as possible, but invest in research in the original country and keep production of quality apparel in-house.
  • increase the image and quality of the products and position them for a segment that wants to be sure of “European made†clothes. Italy and France have a very high brand image that Asian countries do not have. Reinforce this position will make it more difficult for competition to enter this market.
  • increase the in-house creativity to differentiate and conquer new markets. Asian markets are currently not so much exploring special segments.
  • study how new technologies can improve the distribution channels and decrease production costs and delays. Some textile companies that delocalised to Asia earlier are returning to their origins since the distribution costs for smaller quantities are the expensive and not profitable. Reactivity for mass production is not that easy when your production is not near.
  • study how the "freed" purchase power, due to lower prices, can flow back to your company. What new products can be developed and how to market them: create substitutes, niche products, derived products etc.
  • invest in local low cost production and sell it regionally in these new markets. The benefits can be used to keep more expensive markets open. Be aware not to kill your strengths and origins (don’t kill your chickens, for there will be no more eggs).

Added value and creativity

As one can see, the difficulty European countries will face is how to create added value in their market. The low cost labour is currently used for non employed staff. It takes a certain level of risk with it and thus high quality can take more time or will have to be done in-house. New technologies may bring an answer, but to survive, it is up to the companies to activate themselves and become more creative. Their genuine future lies in the intellectual side of the textile industry and their marketing and strategy should focus on this.

In a recent interview, a Chinese businessman was asked why the Chinese are so eager in purchasing European companies. He answered that the Europeans have the ideas, the creativity and that was what the Chinese were lacking and what they needed to be more competitive.

If the «old» Europe wants to be able to compete, it has to wake up and reactivate itself. Its high quality staff will be their strength, differentiate, increase creativity and conquer.

Footnotes:

[1figures in this article are based on 2002, unless indicated differently.

[2IMF data from 2002