Other cost factors in addition to wages are important. The
OECD (1983:88) found that the landed price of cotton y a m
and fabric imported from South Korea was higher than Germany
and the US due to higher transport and capital costs. On the
basis of 1987 data, Anson and Simpson (1988:63) compare all
manufacturing costs, with some consideration of proximity to
markets embodied in transport costs. In spinning, wage rates
in India were only 13% of those in Hest Germany and South
Korea had a similar wage cost advantage. But wage costs
accounted for only 40% of manufacturing costs in spinning
and 39% in weaving. Once productivity differences were taken
into account, the gap in total manufacturing costs nar r o w .
Indian manufacturing costs become 67% of those for West
Germany while South Korea's are 53% - if the final elements
of freight and insurance are added West Germany needed a
tariff of 22% on South Korean yarn to compete on the basis
of price alone. In the case of India, a tariff of 21% is
needed. Cable and Baker's 1983 comparison based on 1978 data
showed that West Germany needed a 3% duty on y a m from South
Korea and 12% on cloth, whilst the US needed no protection
at all. Their conclusion (1983:57) was that 'in
textiles... .low labour cost countries are unlikely to have a
strong trading advantage.' Productivity differentials tend
to narrow the comparative advantage of even the lowest waged
LDCs.
Theoretical analysis indicates that a narrow focus on labour
68
developments in raising productivity and reducing unit costs
of production. In fact, it has been argued that the most
important aspect of new technologies is their potential to
initiate the relocation of labour intensive production
processes back to the developed economies (Jenkins 1984,
Kyoung Cho 1985, Lipietz 1987). To what extent are new
technologies reshaping the international structure of
textile production?
A long run trend of the textile industry has been towards
more capital intensive production methods. In textiles,
capital intensity (capital stock per worker) has risen in a
large range of developed countries at a rate in excess of
that for manufacturing as a whole. The level of investment
per head in textiles in the EC rose to Ecu2.394 in 1984, an
increase of 125% on its 1977 value. So, despite the fact
that labour costs form a relatively high proportion of total
costs in textiles and clothing (eg. in 1986, 28% of total
costs in textiles, and 34% in clothing), in state of the art
European and American textile mills labour costs can be
limited to between 8% and 20% of the value of sales (Textile
Horizons Nay 1986:12) (14). The main stimulus to
technological development, and investment in labour
displacing technologies such as rotor spinning and
shuttleless weaving, has been the need for firms to cut unit
production costs to compete more effectively with lower
waged economies (OECD 1983:18). In addition. West European
countries have engaged in scrapping redundant machinery -
42% of 1973 weaving capacity and 23% of ring spindle
69
Are new technologies initiating a relocation of production
back to developed countries? Recent data on textile
Machinery shipments tend to support the idea of a technology
induced comparative advantage. Over the period 1977-86,
European countries accounted for 79% of total shipments of
the higher productivity open end rotor spinning systems,
whilst Asia took only 9%. In weaving, similar trends were
noticeable. Investment in the less productive shuttle
technology occurred predominantly in Asia (three quarters of
the total). The major individual investor was South Korea
with 30% of all shipments of shuttle looms. During 1976-85,
Asia accounted for one third of shipments of shuttleless
looms but it was Europe which held the major share in the
newer technology wivh 4,4% of the total. Although a number of
the Asian NICs are investing heavily in shuttleless
technology (in 1985, Asia was the dominant purchaser with
40% of the demand for shuttleless looms) textile machinery
shipments to Asia slumped in 1985. Compared to 1984, there
has been a decline of 7% for shuttleless looms and 31% for
shuttle looms. One estimate puts the value of textile
machinery imports by Asia in 1984 at one third less in real
terns than 1980 (Textile Outlook International November
1986b:26). This has been attributed to the critical balance
of payments position of many LDCs and the negative impact of
import restrictions on investment plans.
The predicament of the South Korean textile industry
illustrates the problems facing LDCs. In the 1970s, textile
exports rose by 31% per year but this figure fell to 7% in
70
has also experienced difficulties moving upmarket. Outmoded
technology accounts for 50% of the capital stock in textiles
(Textile Outlook International November 1987). The
Phillippines textile industry has also suffered from poor
quality, outdated machinery. It is estimated that 50% to 60%
of textile machinery needs to be replaced. Indonesia too
needs to scrap around 18% of its existing spinning machinery
and 34% of weaving capacity (Textile Horizons January
1988:64). Although the best practice Mexican spinning mills
achieve productivity levels common in Western Europe, a
significant proportion achieve only one half or a third of
this level (Lindquist and Sanchez 1988:15). Turkey's low
labour cost advantage has also been negated by low
productivity rates. Barchard (1986:21) argues that:
'Turkish textile firms have grown up in a management culture where labour is cheap and the solution to most problems is to throw some bodies at it'.
The result is that 60 per cent of looms are over twenty five
years old (Barchard 1986).
In contrast, recent years have seen a burst of investment in
developed economies. In the US, investment in textiles rose
6% in 1983, and 24% in 1984. For the EC, surveys suggest
that between 1982-84 investment in textiles and clothing
rose 40% in Italy, 32% in France, 25% in West Germany, and
24% in the UK (15).
Thus, a major trend in the textile industry has been the
utilisation of more capital intensive production methods.
This enables firms to raise productivity levels and thereby
71
or i n e d l a t e shift in comparative advantage against L D C s ,
but it is liksly that investment in highly productive
textile machinery and its more rapid diffusion to developed
economies has maintained, at an aggregate level, their net
surplus in textile trade.
3.7.2 Clothing Industry
Hitherto, international comparative advantage in clothing
has been largely determined by differences in labour costs.
The gap in wage rates between developed economies and LDCs
has been considerable even though this has been partially
offset by higher productivity in developed economies (cf.
Hoffman 1985:373). Table 9 gives cost data for shirt
manufacture in a number of different countries. Both Hong
Kong and South Korea are able to produce a cotton shirt at
two thirds of the price of the sane garment in West Germany
and Portugal is clearly the cheapest producer within the EC.
Table 9; Costs of clothing production - cotton shirts, 1985 (DM per piece)
DI B u t C t n u i Portugal Sont! lor«« long long
Labour coat 1.21 4.3« 1.41 1.0S 0.00 Total aanofactarinq coat ll.ff 11.17 11.14 9.40 9. SI Coat index (Boat Gerainy ■ 10») 12.11 ISO.00 74.00 42.40 41.20
Source: Anson a Simpson 1988:65
The materials handling process which accounts for about 80%
of the total time required to manufacture a garment, has
72
process has generally resained highly labour intensive. In
fact, the underlying product and process technology has
changed little in sore than fifty years. At the national
level, the low capital and technological reguiresents for
production have facilitated the easy entry of small firms.
Typically in OECD countries, firms with less than 50
operators account for 75% of enterprises in the sector but
only 25% of total employment (Hoffman 1985). It is therefore
unsurprising that the clothing sector was one of the first
sectors where LDCs achieved rapid growth of manufactured
exports to developed economies.
There are, however, signs of fairly rapid technological
change in the industry. Sophisticated CAD and CAM
installations in the pre-assembly phase and numerical
control and microcomputer based sewing machine robotic
handling devices and automatic transfer systems have become
more commonplace. However, the rate of diffusion of
microelectronic technology in developed economies has been
much slower in clothing than textiles. The prevalence of
small firms has been identified as a fundamental obstacle to
the technological transformation of the industry, in the
sense that such firms have neither the financial resources,
scale of output nor the managerial skills to support
investment in expensive automated equipment. Rush and Soete
(1984:183) argue that this type of capital investment makes
economic sense for large multi-plant firms only, with
turnovers starting at $20 million. So far it is principally
larger firms wit h sales above $50 million that have
cutting systems. Currently the diffusion of eicroelectronics
in the assembly phase of production is even more limited and
the one machine/one operator link has not been broken. On
average, only 5% of the sewing machines used by large firms
in Hoffman's (1985) sample had microelectronic controls.
Because of the capital cost of such systems, technology
induced, scale related entry barriers may be introduced into
the industry for the first time (Hoffman 1985).
Technological gradualism can also be linked to labour supply
factors, notably the fact that clothing manufacturers in a
number of developed economies have had access to a large and
plentiful supply of low paid, often ethnic female labour
(Phizacklea 1987). Two factors may change this situation,
notably a discernible trend towards a higher degree of
concentration in the European and American clothing
industries and a variety of public and private sector
research and development initiatives in the developed
economies, notably the EEC, Sweden, Japan and the US
directed towards increasing the automation of garment
manufacturing.
Por example, the Japanese Government through its Ministry of
International Trade and Industry (MITI) has ploughed more
than $53 million into a research and development project
concerned with flexible manufacturing systems, which, it is
hoped, will achieve a 50« reduction in unit production costs
in the industry. Individual companies are also involved in
joint ventures in similar areas, notably, the
74
Evidence on the impact of ■icroelectronic technology in the
clothing industry tends to be asbiguous. Hof f u n and Rush
(1984) give a nuaber of exasples where the use of
aicroelectronics was important in maintaining a firm or
sector's competitiveness. This had occurred in hosiery,
jeans manufacturing, knitted garments, children's clothes
and men's shirts. In hosiery, the use of electronics in toe
closing machinery and knitting equipment had raised
productivity rates and enabled some US firms to close
offshore plants whilst maintaining their market share.
Microelectronics, particularly computer aided design and
computer controlled cutting machinery, had enhanced the
ability of large firms to compete in certain product
categories such as men's shirts and jeans manufacture.
Several US jeans manufacturers had responded to higher
productivity rates in their US locations by closing plants
in Western Europe and reducing their subcontracting from
Asian firms.
A recent survey of a small sample of US firms (Mody and
Wheeler 1987) indicates that in 1985, US clothing firms were
planning to locate future capacity either within the US or
the Caribbean. This represents a shift away from Par Eastern
countries which have traditionally dominated LDC clothing
exports. Mody and Wheeler (1987) point out that the more
time sensitive the product market, the more attractive
become US or US-Caribbean production locations. For
integrated, automated clothing production based in the US,
total time in process and transit is only ten days. This
75
locations; to over two eonths for Korean and Chinese
production using less advanced technologies and to nearly
three Months for US-Asian joint production. They argue that
in the future the tendency to locate outside the US
continent will be weaker than in the past. More generally,
over the next decade, it is predicted that the Asian MICs
will lose ground to China and US/Caribbean joint operations.
These Middle incoMe developing countries, - terned the
'vanishing Middle' by Mody and Wheeler (1987) - face dual
coapetitive pressure froa Western and Japanese firas
adopting new technology and froa lower waged developing
countries, such as China, the Philippines, Indonesia, the
Caribbean, and Mexico.
But Mody and Wheeler's (1987:1271) research also indicated
that, as yet, autoaation does not constitute an instant
coapetitive panacea for the developed countries. Based on a
saaple of six 'price-sensitive' products, US producers using
fully autoaated plants (ie. robotic technology) were lower
cost than Korean producers in only two garaent categories
and case close in a third. Their research suggests that
autoaating the reaaining three garaents (sen's slacks, sen's
and woaen's knitted shirts) would cost so auch that US
producers would still not be reaotely cost coapetitive. When
using the best of currently available technology
(seal-autoaated), US producers in all six product categories
were not price coapetitive with their Korean counterparts.
In fully integrated garaent production, China was the
least-cost in all garaent categories with both Korean and US
76
nature of the evidence appears to indicate that new
technology has not led to an immediate and massive shift in
cosparative advantage against the Third World. Moreover,
there has, as yet, been no quantifiable ispact on
international trade patterns with the developed econonies
Maintaining at an aggregate levol a net deficit in clothing
trade.
Are LDCs passive victins of a technology induced shift in
comparative advantage? It is certainly the case that the
rate of diffusion of microelectronic clothing technology
appears to be v ery much slower in LDCs than in developed
countries. Less than 7% of CAD systems have been sold to
LDCs and these wen t primarily to the Asian NICs (Hoffman
1985:377). But t h e competitive situation in an industry as
internationalised as textiles and clothing is dynamic and
within the LDCs, both governments and employers are actively
attempting to restructure the industry. In July 1987, the
South Korean Government set up a three year rationalisation
and modernisation programme in which low interest long term
loans were allocated to textile companies for the
replacement of outdated machinery. The cotton spinning,
synthetic fibre a n d weaving industries are engaged in
technological development and many textile firms are now
focusing on specialty products with increasing emphasis
being placed on marketing techniques and the quality
requirements of t h e West European market. Due to rising
labour costs. Ca b l e and Baker (1983:136) argued:
'One inevitable result is that Korea will have to accept that it cannot compete in the way it has before in the more labour intensive garment operations'.
77
Pirms are now beginning to change their competitive
strategies by selling higher value products to MPA quota
areas (ie. the developed economies) whilst expanding lower
cost exports t o non quota areas in Africa, Asia, Latin
America and the Middle East.
The Malaysian Government too has instituted a restructuring
plan to facilitate the introduction of more modern textile
technology and marketing techniques (Textile Outlook
International March 1988). In Hong Kong, and Taiwan, textile
and clothing firms are attempting to move upmarket to higher
value added products with an emphasis on improved quality,
service and design. In 1981, the current Taiwanese ten year
plan set out certain objectives for the industry, including
automation, modernisation of finishing, and upgrading of
design skills as well as diversification into other export
markets. The Turkish Government also recommends a shift to
high value added products, accompanied by better quality and
productivity, as well as the development of garment
manufacture rather than cotton spinning. Perhaps, though, of
most threat t o the industrialised countries are the Southern
European textile and clothing industries, particularly
Portugal and Spain who are not only part of the EEC but also
have a crucial competitive advantage over the Par Eastern
NICs because of their proximity to the markets of Western
Europe and their lower labour costs.
In short, a m a j o r trend in the textile industry has been the
utilisation of more capital intensive methods of production.
78
reduce unit production costs. This has not led to a aassive
or immediate shift in conparative advantage against LDCs,
but it is likely that investment in highly productive
textile Machinery and its sore rapid diffusion in developed
economies has maintained, at an aggregate level, their net
surplus in textile trade. Garment manufacturing, though, is
still a predominantly labour intensive production process.
Pre-assembly microelectronic technology appears to have had
some impact on the competitiveness of a number of firms,
particularly large firms, and their investment decisions.
But as yet, th e r e has been no quantifiable impact on
international trade flows. Moreover, firms in the LDCs,
particularly t h e Asian NICs, have also sought to modernise
and upgrade t h e i r capital stock which has been facilitated
79
3.8 Textiles and clothing; the »it» of »new* competitive ■tratigieB?
So far, the impact of price factors on international
competition in the industry has been considered, but non
price factors - such as speed and reliability of delivery,
product q uality and design - although intrinsically
difficult to measure, are also important features of current
competitive relationships.
In the context of slow growth in the industry, textile and
clothing manufacturers in the developed economies have
sought to maintain their market share by segmenting the
market into heterogeneous niches. Firms have differentiated
their products from those of their low cost competitors by
shifting to t h e production of high value added, high quality
goods. It has also involved engaging in other forms of non
price competition, such as the use of brand names to
differentiate products both from unbranded imports and from
retailer's b r a n d names. Branding enables a company to
command a pr i c e premium but it requires considerable
financial and marketing resources. It is only recently that
clothing firms have had the financial and marketing leverage
to realise its potential. Such techniques have been most
visibly used b y multinational jeans manufacturers who
produce long run s of products in a relatively standardised
form. As the B l u e Bell (Wrangler) Vice President said: