The Evolution and Consolidation of the Apparel Global Value Chain

The apparel industry has undergone significant changes over the past few decades, particularly with the transformation of the Multi-Fibre Arrangement (MFA) system and the subsequent economic downturn. The MFA, which regulated international trade in textiles and garments through quotas, ended in 2005, removing barriers that had previously protected smaller exporters. This shift coincided with the global economic crisis of 2008-2009, leading to substantial consolidation within the apparel Global Value Chain (GVC).

The Impact of Quota Elimination and Economic Crisis

The removal of quotas and safeguards had a profound impact on the structure of the global apparel industry. The economic crisis exacerbated these effects, resulting in a market dominated by a few large exporters. Many smaller exporters were unable to compete and were effectively cut off from the GVC. This is evident in the increasing concentration of trade among the top 15 apparel exporters. In 1995, these exporters accounted for 79% of global apparel trade, a figure that rose to nearly 87% by 2009. The concentration among the top five exporters increased even more sharply, from 59.5% in 1995 to 71.8% in 2009.

Dominance of Large Exporters

Between 2005 and 2010, the global apparel industry faced numerous challenges, leading to the rise of a few dominant players. Countries like China, Bangladesh, Vietnam, and Indonesia increased their market shares significantly in North America and the European Union. Smaller exporters, especially those from near-sourcing regions like Mexico, Central America, and the Caribbean, struggled to maintain their foothold in the market.

The Shift in Lead Firms' Preferences

Lead firms in the apparel industry have increasingly preferred to work with fewer, larger, and more capable suppliers. These suppliers possess the necessary network and expertise to coordinate supply chains effectively across strategic global locations. This preference is driven by several factors:

• Reducing Complexity: Working with fewer suppliers simplifies operations and reduces management complexity.
• Cost Efficiency: Larger suppliers can achieve economies of scale, lowering costs for lead firms.
• Flexibility: Larger suppliers can respond more swiftly to changes in consumer demand, enhancing the flexibility of lead firms.

From Cut-Make-Trim to Original Equipment Manufacturing

The shift from cut-make-trim (CMT) to original equipment manufacturing (OEM) is a reflection of this trend towards consolidation. In CMT, suppliers perform basic manufacturing functions, while in OEM, they take on more responsibilities, including sourcing materials and managing production processes. This shift allows lead firms to offload logistics coordination and sourcing responsibilities to their first-tier suppliers.

The Rise of Modular Production Networks

Modular production networks have become the preferred model for lead firms due to their cost-effectiveness and specialization advantages. These networks enable lead firms to achieve greater coordination and efficiency while maintaining flexibility. Countries that lack strong sourcing capabilities may find themselves at a disadvantage in this evolving landscape, as they struggle to compete with more integrated and capable suppliers.

Conclusion

The consolidation of the apparel GVC has led to a market dominated by a few large exporters, with smaller players struggling to compete. The elimination of quotas and the economic crisis of 2008-2009 were significant catalysts for this transformation. As the industry continues to evolve, lead firms' preferences for fewer, larger, and more capable suppliers are likely to further drive consolidation. Countries and suppliers that can adapt to these changes and develop strong sourcing capabilities will be better positioned to succeed in the global apparel market.

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