Industry Analysis

Porter’s Five Forces

Buyers
Clothing is one of the three fundamental human needs.
Everybody needs to buy clothing. Clothing includes wearing apparel
such as shirt, pants, among others.
Pants, particularly denim jeans have been termed as the most
popular wearing apparel on earth.1 This clothing product is worn by
almost everybody thus, considering everyone as its consumer.
However, buyers usually buy in smaller quantities and do not purchase
regularly. Buyers can also easily switch from one competitor to another
in case of product dissatisfaction or if they just want to try other
brands.
Personal consumption expenditures in the Philippines have been
fairly resistant to adverse changes in the past and in the current Asian
crisis as well. Although spending on clothes as a percentage of income
has been declining, percent total per capita expenditures on clothing
have been increasing, representing 47 billion pesos in 1997, a growth
rate of nearly 12.6 percent from 1991 to 1997.2
Jeans customization is somewhat an old concept because of the
proliferation of tailoring shops. These shops cater buyers who can be
dissatisfied with the jeans available in the market or who just wants to
alter a jeans bought from a certain store. However, the idea of custom-
fit jeans is still a fresh concept in the garments industry, particularly in
the Philippines. Only few buyers, particularly those in the upper class,
avail/can avail these products because of the products’ perceived high-
end status and high price.

Suppliers
Denim has always been made of cotton. Philippine raw cotton
production supplies less than 3 percent of total domestic cotton
requirements, thus Philippines manufacturers continue to rely on
imports to meet domestic demand. The United States is likely to
remain the largest supplier of combed cotton, followed by Pakistan,
Australia and South Africa. With the end of the quota system for
garments starting in 2005, domestic cotton consumption is forecast to
decline next year. The garments and textile sector is the single largest
buyer of raw cotton and the garments sector is country's second
highest export earner.3

New Entrants
1
A Short History of Denim
2
Cotton Textile and Apparel Products
3
Philippine Cottons and Products
 Barriers to entry include global and local policies implemented in
the textiles and clothing industry, capital requirements, access to
distribution channels, product differentiation, and cumulative
experience, among others.
For instance, the World Health Organization (WHO) Agreement on
Textiles and Clothing (ATC) took effect on January 1, 1995. Under its
provisions, the US negotiated market access with several developing
countries, including the Philippines, which are major exporters to the
US market. The Philippines agreed to improve access to its market.
Under this agreement the Philippines is obligated to reduce and bind
tariffs, and to reduce and eliminate non tariff barriers. In line with its
commitments, the Philippines have bound its textile and apparel tariffs
at the following rates: 20 percent for yarn, 10-12.5 percent for man-
made fibers, 30 percent for sewing thread; 30-50 percent for floor
covering, and 30 percent for textile made-ups. Under its WHO
obligations, the Philippine Government initiated a general tariff
reduction program to reduce tariffs on raw materials to 3 percent and
on finished goods to 10 percent by 2003. In January, 2004, the
Government plans to introduce a uniform 5 percent tariff rate.
Another instance is Value-Added Tax applied to all imports,
assessed at 10 percent of the value of goods, plus duty.
The Philippines is a member of ASEAN and a participant in the
ASEAN Free Trade Area (AFTA). AFTA contains a preferential tariff
scheme (CEPT) which requires intra-regional tariffs to be reduced to 0-
5 percent by the year 2003. Textiles are on a fast-track schedule for
tariff reductions to 0-5 percent by the year 2000. CEPT also requires
intra-regional reduction in non-tariff barriers and harmonization of
customs procedures and product standards.
The Philippine Government provides incentives to promote
investment in preferred activities and geographic areas and for export.
Investment incentives include: income tax holidays; tax deductions for
labor expenses, infrastructure, capital equipment and spare parts, and
investment in less-developed areas. On the other hand, export
incentives include: exemption from advance payment of customs
duties; tax credits for imported raw materials and spare parts,
domestic substitution of imports, export revenue; and various
exemptions for duty on imports. A variety of financing programs and
guarantee schemes is available through state-sponsored institutions.4
Capital requirements include high-speed and highly-efficient
sewing machines, high-quality denim fabric, among others. Human
resources in the form of tailors are also essential in this business.
New entrants will not find it difficult to meet distribution network
requirements since there are various alternative channels for them to
sell their products. New entrants can easily distribute their products
without having to invest in creating new distribution networks.
4
Cotton Textile and Apparel Products
 Product and service differentiation requires vast outlays in
several stages of the value chain, most especially in advertising and
promotion.
Learning curve effects make a difference as companies with
more experience gain advantage through having more cost-efficient
manufacturing processes.

Substitute Products
Ready-made retail products are considered substitutes for
custom-made clothing. Moreover, denim pants could be replaced by
shorts and skirts as bottom apparel. The denim fabric could also be
replaced by other fabrics such as those used in khaki pants and slacks.

Industry Competitors
The Philippine garment industry dates to the 1950s and the
emergence of cottage-level industries that replaced homework. As the
industry began exporting during the 1970s, it experienced rapid
growth, growing an average of 30 percent between 1972 and 1980.
The industry is at a crossroads of uncertainty regarding the effects of
global trade liberalization. It is expected that the removal of quotas will
cause further erosion in the industry, with only larger, well-capitalized
firms able to survive.5
The garment industry is comprised of many players, both
operating on a large scale and small scale basis. The industry is a
growing one; exports of garments are steadily increasing too as more
foreign companies continues to trust the skills of local manufacturers in
producing quality garments. The local garments and textile industry is
the country's consistent second top performer in terms of export
revenue. The Philippines is also one of the main product suppliers for
high-end clothing brands such as GAP, Old Navy, Ann Taylor, Liz
Clairborne, and Polo Ralph Lauren.6
Customers are free to change their suppliers thus creating high
uncertainty for competitors. In terms of origin and operating styles,
competitors may range from boutiques, specialty stores, bazaars,
tiangges, direct selling agents, department stores to big malls.
A relatively large amount of money is tied in equipments such as
high-speed sewing machines and inventories, but liquidating such
assets is relatively easy.

Market Targeting

Pantsaloon, as a customized and tailored-to-fit jeans boutique,

will focus on the needs of our market specifically as follows: (1) upper
5
Cotton Textile and Apparel Products in Philippines
6
Behind the Seams http://www.philippinebusiness.com.ph/archives/magazine/vol11-2004/11-/forecast.htm\
class male and female residents near our location (Katipunan area,
Loyola Grand Villas, La Vista, Loyola Heights, Blue Ridge, White Plains,
UP Village, etc.); (2) male and female students (specifically college
students from Ateneo de Manila University and University of the
Philippines-Diliman); and (3) young male and female professionals not
more than 29 years of age.
Pantsaloon subdivided the market into location-based segments
(residential areas within a common radius from the location of the
proposed business) because this geographic measure is quantifiable
and accessible. The distribution of population in these areas is
important to the company because the market within these areas
generally tend to share similar values, attitudes, and style preferences,
given that they are in the same level of social class. Despite the
similarities, significant differences still exist among these residents
because of differences in their culture, social customs, upbringing, and
other factors. Hence, other factors need to be considered.
College students, specifically from Ateneo de Manila University
and UP-Diliman, do not have school uniforms. Thus, denim jeans have
been a staple clothing item for them. But with different body structures
as well as different tastes in denim jeans, Pantsaloon aims to address
their dilemma on those differences. Furthermore, individuality is
important to these particular individuals, thus Pantsaloon’s concept of
customization would definitely cater to their need of distinctiveness.
Young professionals also have this need of uniqueness and
standing out among others. They make sure that they are distinctively
different from others, whatever it takes. Having their own source of
income lets them address this need.
Pantsaloon caters to both genders—male and female. Though
females are more known to be fashionable and vain, males nowadays
are also into fashion. Metrosexuality has been a coined term for males
that address their feminine side—the need to look good.