The Multifibre Agreement (MFA), an international arrangement governing trade in the textile and clothing industry, was introduced in 1974 at the Uruguay Round of General Agreement for Trade and Tariff. The MFA includes a system of import quotas that can be applied on a country-by-country basis. In 1994 the World Trade Organization replaced the MFA with the Agreement on Textiles and Clothing, which includes a 10-year phase-out of quotas. Quotas are set to end on December 31, 2004.
How will this affect the global textile industry? Two textile experts discuss the impact of the more open market and other trends in the industry. Genichi Tamatsuka '98 is president and COO of casual clothing chain Fast Retailing, based in Tokyo. Fast Retailing operates over 600 retail stores under the name UNIQLO. Michael Crotty '74 is CEO of TexStyle Inc., based in Cincinnati. TexStyle designs, markets and sells ready-made home textiles and apparel, primarily to the U.S. consumer market.
Q. The Multifibre Agreement is set to be completely phased out by 2005. What will be the global changes in the textile industry once quota restrictions are lifted? How are your companies preparing for the change?
Tamatsuka: Obviously, this will knock off a line in the cost equation for apparel companies, and they will be revisiting their countries to source from. Garment factories will be competing on a much more level playing field, and those with strength in quality, cost and capacity for the manufacturing itself will have the advantage. However, most people believe there will be some kind of replacement measure enforced by the U.S. for some years after 2005.
Crotty: If it actually happens by December 31, 2004, there will be a tidal wave of product from China in 2005 and onward. If it is delayed, the tidal wave will be delayed but not stopped. Four years ago, we established a Chinese representative office and a wholly owned subsidiary, Golden Pacific Fashion & Design (Shanghai) Co., Ltd. to be ready for this watershed event.
Q. How will individual countries be affected?
Tamatsuka: China has built up a very efficient and scalable system for sourcing fabric and manufacturing garments. There will be a certain amount of consolidation among the Chinese companies, but we believe they will at least sustain their position in the global market.
Smaller countries such as Indonesia, Sri Lanka, and Bangladesh that have relied on quotas for their competitive advantage will probably lose ground in the short term. They will have to establish a firm advantage based on something other than scale to stay competitive. Collaboration with the source for raw material may be one of the answers.
Q. Where will the strongest manufacturing centers be in the next five years?
Tamatsuka: China definitely. India is another country that may become a big player, based on their abundant work force and recent investments in the textile area. Tight relationships between textile or material vendors and sewing companies will be essential to meet retailers' requirements for short lead times and high quality.
Crotty: I agree on China and India. Raw materials capacity and total costs along with geographical proximity to the major markets of the U.S. and Europe will also allow several NAFTA countries and Turkey and Pakistan to maintain some of the "quick response" replenishment business.
Q. Where are you seeing the greatest growth in consumer markets?
Crotty: We're currently seeing growth in the U.S. Soon this will include China, Canada, Europe, Japan and Russia.
Tamatsuka. The overall apparel market is not really growing, but certain segments, e.g., the casual clothing market that we are in, is growing at a high pace in countries such as Korea and Taiwan.
Q. What trends do you see shaping the textile industry in the next 10 years?
Crotty: Information technology will allow for Vendor Managed Inventory (VMI) programs to be set up by Asian producers to supply the U.S., European and Japanese markets. There will also be a significant increase in direct importing by the major retailers from all over the world, especially from China. Expect the continued globalization of Wal-Mart, Carrefour, IKEA, etc., and the reduction of tariff rates to play a role.
Tamatsuka: We can expect a closer collaboration between big retailers and big textile companies. We will also see strategic relationships between companies that will enable development of new textiles at prices that we have never imagined.
Q. You mentioned the globalization of retailers like Wal-Mart and Carrefour. Specifically, how does this trend affect your companies?
Crotty: This globalization, along, with their emphasis to buy direct, offers us many opportunities to expand our U.S. market share and expedite our own globalization efforts.
Tamatsuka: The existence of top global players such as Wal-Mart and Carrefour greatly affects local, domestic players. Their way of doing business and solid business infrastructures provide a model for competition. As the earth is getting smaller, no one can survive without deep thinking about how to compete in the global environment.
For more information:
Genichi Tamatsuka ’98
www.uniqlo.co.jp/english
Michael Crotty '74
mike.crotty@texstyle-inc.com
www.texstyleinc.com