Analysis of Value Chain and Sources of Differentiation in International Fashion Markets

Abstract

1. Introduction The growing liberalisation of foreign trade for clothing products, tied to greater internationalisation of the economy, have notably changed the environment in which Galician companies operate. On the one hand there are commercial opportunities for growth in foreign markets, as well as the possibility of finding raw materials and low labour costs. However, there is growing competition from Southeast Asian countries such as China, India, Hong Kong which, thanks to their very low labour costs, are absorbing more and more both basic clothes-making tasks as well as those tasks that generate greater value (Buelens, 2005)--e.g. clothing products that have a high value-added-. Within this new international context, it is very appropriate to analyse the entire value chain to detect both those strategic activities (and stages of the chain) as well as the competitive factors. This will enable greater orientation of both production decisions--e.g. subcontracting--as well as commercialisation decisions. Therefore, this paper aims to make progress in the strategic analysis of the value chain of the textile-clothing sector. This aspect is extremely important, especially if we analyse international markets, given that some value chain activities may be subcontracted or relocated in other markets. Thus, those liberated resources would be concentrated on those activities that could potentially generate greater value-added, which would lead to greater competitiveness and a better market focus. More specifically, the aim of this paper is to address three issues. Firstly, to define those priority or basic activities of the value chain, which would enable us to know which activities should be subcontracted and which ones should not. At the same time, we aim to identify the competitive factors on which Galician companies must act to improve their competitive position in the international fashion and clothing market. Next, we attempt to analyse the sources of competitive advantage on which companies will build the strategy, as well as defining the main sources of differentiation. Lastly, using the Treadgold (1990) methodology, we will analyse the international projection of different companies. To satisfy these aims, our research involved in-depth interviews and questionnaires targeted at executives from the Galician clothing and textile sector. We start with a review of the literature that covers the main concepts used in this paper and the principal findings which, at an empirical level, have been carried out in the research into internationalisation of the textile-clothing sector. More specifically, those related to the study of the value chain, strategy and subcontracting decisions. The methodology and the results we hope to achieve are explained hereunder. 2. Review Literature 2.1 Value Chain and Internationalisation The value chain of the textile-clothing sector comprises three levels: fibres and textiles, apparel or clothing and distribution (Dicken, 2003). In turn, two very different activities can be clearly distinguished: textile and clothing. Firstly, the textile sector is capital intensive, and there are barriers to access in the form of investments in technology, innovation and development of new materials (synthetic, chemical or artificial fibres) or in new manufacturing techniques or fabric production. Elsewhere, the clothing sector is labour-intensive and easy to access. The countries where these tasks are carried out have reduced labour costs, such as the case of Southeast Asian countries (China, India, Bangladesh, and Singapore) or Eastern Europe, mainly the former. These countries have a clear advantage in terms of cost and have developed labour-intensive tasks, while more developed countries have focused on capital intensive tasks. However, as we will see, the current dynamics are changing for some territories or regions, such as the specific case of China. In turn, clothing articles can be separated into basic products and fashion product, with the latter contributing greater value-added and thus a higher price. …