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• The Value Chain in TC Industries in Domestic and
  International Markets
• The Role of SMEs in the TC Industries The
  Economics and Business of Fashion
• Presentation by
• Mr. Matthias KNAPPE
• Caserta, Italy 30 November 2005

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Technical cooperation arm of WTO and UNCTAD for
operational enterprise-oriented capacity building
for trade promotion and export development. for
developing countries
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Context

• Global TC trade 453 billion (clothing 258 bio
  )
• TC 7 of global merchandise trade
• LDC share of world clothing trade 5
• Many DCs LDCs depend on clothing exports or
  regard clothing as a future export sector, but
  not the domestic maket
• WTO TC is a normal sector

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Characteristics of TC industry in DCs

• Most LDCs have no integrated TC industry
  (clothing exports 8 times textile exports)
• SMEs mainly produce clothing and not textiles
• Poor market diversification
• Poor product diversification
• Mainly CMT/maquila  full-package  to be
  developed (incl. product dev. design)
• Fashion for the domestic market is minimal

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Structure
Market Pressure for SMEs in DCs
The Role of SMEs in the TC Value Chain
Fashion Products a Result of Services
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1. Prices are falling
Source Textile Outlook International No. 116
March-April 2005
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EU Import Price Development for Clothing
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2. Consolidation (at 4 levels) what are the
consequences for SMEs?
Source US Department of Commerce Report to the
Congressional Textile Caucus on the
administrations efforts on textile issues
Washington, September 2002
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Example Liz Clairborne

• 2004 Top 50 Vendors represented 80 of our
  volume
• 2010 Top 25 Strategic Partner Suppliers will
  represent 80 of our volume

Source Liz Clairborne
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3. Move towards a Service Industry Have SMEs the
vision?
Value-Added
Time
2005
1970
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4. Pressure from Frequent Fashion Changes Demands
Quick Response

• From 2 to multiple selling seasons
• More fashion products with short product life
  cycles vs. basic products with regular
  replenishments
• Quick response a  puzzle  of many variables
  along the value chain
• This  puzzle  needs to be solved first
• Difficult with practices establised over decades
• Stop  firefighting  new business strategies,
  processes procedures

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5. Pressure to Form Strategic Alliances

• Quota system forced retailers to take over value
  chain responsibilities
• These responsibilities be given to suppliers
• To do so trustworthy partners are needed
• Virtual vertical operations integrated system
  between manufacturer and retailer

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Summary Market Pressure

• Prices are falling
• Consolidation
• Move towards a service industry
• Frequent fashion changes
• Strategic alliances

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Structure
The Role of SMEs in the TC Value Chain
Market Pressure for SMEs in DCs
Fashion Products a Result of Services
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The TC Value Chain
Fibres
Yarn
Fabrics
End-Users
Man-made
Ginning Carding Combing Spinning Yarn dying
Weaving Knitting Bleaching Dying Finishing
Apparel
Home Furnishing
Natural
Industrial Goods
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Fashion Quick Response Services
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Design Product Development
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Reality Complex Complicated Value Chain

• Multiple points of communication
• Limited process Visibility
• Not centralized
• Multiple versions
• Duplication of efforts
• Lack of control

Source Liz Clairborne
Source PTC
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Structure
The Role of SMEs in the TC Value Chain
Market Pressure for SMEs in DCs
Fashion Products a Result of Services
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To sell Fashion SMEs need to take over VC
Responsibilities i.e. Provide Services

• SMEs need to diversify marketing
• Everybody offers good quality, competitive
  prices on-time delivery
• Therefore, provide services buyers want
• 1) make and send the garment quickly to my store
  (participate in the fashion VC)
• 2) Organize everything and Ill pay you (service)

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Material Sourcing No.1 service demanded by
buyers
Cost structure of a woven shirt up to the FOB
point
75 of cost sourcing
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Number 2 service Use of e- technology

• The new trading environment forces the adoption
  of  e  solutions along the VC
• Trend is led by US buyers and HKG trading houses,
  followed by EU buyers
• E-applications are used throughout the value
  chain trend full VC  e  integration
• Quick responds demands  e  design and logistics

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3. Assist buyers in selling fashion

• The need to understand
• markets,
• buyer requirements,
• buyers customer requirements, and
• competitors
• Need to diversify product range,possibly markets
• Need to match factory size, customer size and
  product

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The Fundamental Relationship Matching the
Elements
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Small Customer Fashion Product Mass Factory
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Mass Customer Commodity Product Small Factory
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Small Customer Fashion Product Small Factory
300 Machine Factory
Giorgio Armani
Cashmere Mens Jackets
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Result of Services Ability to Produce Fashion
Products Quick Response

• Understanding of the market, customer
  customers customer
• Material sourcing prerequesit to understand
  engage in fashion production
• E-business prerequisite for fast delivery
• Partnership prerequisite for engaging in fashion
  products
• Matching the elements of a partnership

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Structure
Market Pressure for SMEs in DCs
The Role of SMEs in the TC Value Chain
Fashion Products a Result of Services
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Summary

• SMEs in DCs do mainly CMT but no fashion products
• Post-quota situation puts pressure on SMEs to
  take over VC responsibilities
• Moving into fashion is a process, starting with
  material sourcing
• Fashion products a result of services
• Industry consolidation competitive pressure
  implications on IP

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The Fashion Process in DCs and IP

• Most design does not start from original concept
• Use of existing info (design, colours, fabrics)
• Shopping the stores ( cutting copying)
• Visit fashion shows (and cutting copying)
• Possibilities in niche markets for national,
  ethical folklore design
• Exploit fashion potential collaboration of SMEs
  in the north and south

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THANK YOU ! For more information http//www.intrac
en.org/textilesandclothing
Contact Matthias Knappe, Senior Market
Development Officer Knappe_at_intracen.org