The Role of Price and Cost Competitiveness in Apparel Exports, Post-MFA: A Review

Abstract

In the wake of China's tremendous surge in apparel exports in the first months of quota removal there is a growing view that price, unit costs, and volumes appear to be crucial determinants of export competitiveness in the world without quotas. This has led many countries and firms to try to increase their scale of production and lower production in the hope of maintaining their place in the global division of labor in textiles and apparel. This paper reviews a growing body of literature that focuses on the institutional organization of global trade and production networks to question this view. It shows that in an environment characterized by fragmented demand and volatile markets where buyers are increasingly demanding good quality, variety, and timely delivery in addition to price, large scales of operation can add to unless they are embedded within other capabilities of timely supply and low inventories that the environment demands. It also shows that the popular attribution of China's remarkable export performance in textiles and apparel to its low unit and large scales of production is, in part, a misreading of the China story. China's are low, and its production scales enormous, but they are embedded within crucial abilities that lower the costs of large scales of operation (i.e., of rigidity) in the context of uncertain markets. China's low cost producers, for example, are deeply embedded within the marketing, distribution and supply management networks of locally rooted Hong Kong, Taiwanese and South Korean 'triangle manufacturers' who understand global markets well and have a long history of doing business with the most demanding of industrial markets. These intermediaries have mastered the capability of managing diversified production networks to deliver a wide range of quality products in a timely way. Access to these institutional resources and the ability to supply quality products on time makes China much more than a mere low-cost apparel exporter. The review highlights alternative, more dynamic paths of growth that apparel producers can adopt other than those based solely on price.