UNIT C

The Business of Fashion

3.04 Describe the fashion

industry from a global perspective.

U.S. and world trade policy

Imports: Goods that enter a
country from foreign sources.
Imports account for approximately
60% of the total U.S. textile and
apparel market.
Most U.S. imports come from
Mexico and China.
Sweaters and jackets/coats
account for the largest number of
imports.

U.S. and world trade policy

Exports: Goods sent out of a
country to other countries.
Balance of trade: The
relationship between the
values of a countrys
imports and exports;
expressed as a deficit or a
surplus.

U.S. and world trade policy

Trade deficit: Occurs when
imports exceed exports.
The U.S. trade deficit is large.
More products are imported into
the U.S. market than are being
exported.
Textile/apparel products are a
large part of the U.S. trade deficit.

U.S. and world trade policy

Trade surplus: Occurs when
exports exceed imports.
Japan has a large trade surplus.
A large trade surplus results in
large amounts of money for the
exporting country.

U.S. and world trade policy

Free trade: Governments
policy for allowing goods to
flow freely in and out of its
economy without
interference.

U.S. and world trade policy

Protectionism: Opposite of free trade;
includes many government-imposed
trade restraints which form barriers to
free trade.
Tariffs (duties): Charges (taxes) paid on
goods coming into a country; raise the
prices of imported goods.
Quotas: Limitations established by the
government on quantities of certain goods
that can enter a country during a specified
time period.
Standards: Certain levels of quality
specified for imported goods to prevent substandard products from entering a country.

Advantages of U.S. protectionism

Job protection for U.S. workers
Helps strengthen U.S. industries and
enables them to compete internationally
Reduces the U.S. trade deficit
Keeps inferior and unsafe products from
entering our market
Maintains a strong manufacturing base for
national security, enabling manufacturers to
convert to war-effort production if
necessary
Inhibits overseas competitors that pay low
wages, provide no benefits, and take
advantage of child labor

Disadvantages of U.S.
protectionism
Encourages trade retaliation, which lowers
exports of all industries
Loopholes and corruption enable merchandise to
enter the market anyway.
Penalizes consumers with fewer choices and
higher prices
Causes less competition
Hard to retract after it is in force
Does not encourage all industries to compete
equally
Less damage to national interests

World Trade Organization (WTO)

An international trade agreement that
reduces tariffs, quotas, and other
trade barriers around the world.
Agreement of more than 130 countries

Negotiates and enforces global trade rules

Exists to liberalize trade and serve as an
international trade court to settle
differences among member nations
To be phased out by 2005, which will then
allow countries to compete with very few
trade barriers

Offshore production
The use of foreign workers in one or more
countries to complete the manufacturing
steps for goods that carry the producers
label.
A garment may travel through four countries
before the manufacturing process is complete.
Offshore production allows U.S. companies
and retailers to take advantage of lower labor
costs. These wages generally do not include
overtime pay or fringe benefits.
Garments that bear the name of an American
designer are not necessarily manufactured in
the U.S.

Offshore production (cont.)

Textile and apparel industries are usually
the first industries to appear in
developing nations.
Much of the manufacturing of apparel is
done by hand, offering employment
opportunities to low-skilled workers.
As countries develop, they begin to
utilize more technology, workers become
more skilled, and the quality and quantity
of textiles/apparel production begins to
increase.

Trading with developing nations

Political stability
Developed countries have laws that
favor international business.
Countries with nonmarket economies
(communism) limit ownership of
private businesses.
Some developing countries use
corrupt business practices.
Before doing business in foreign
countries, terrorism and political
upheaval must be evaluated.

Trading with developing nations

(cont.)

Economic climate
Purchasing power and standard of living
Costs of doing business with that nation
Countries with low purchasing power and
standards of living may offer low-wage
manufacturing opportunities for U.S. firms if
no trade barriers exist in that country.
U.S. firms may open retail establishments in
countries with high purchasing power and
standards of living, if the operating
expenses are not excessive.

Trading with developing nations

(cont.)

Infrastructure
Adequate communications,
roads, transportation, and
public utilities are essential in
conducting business in foreign
countries.

Culture
A nations culture and values
affect the way in which many
foreign countries conduct
business.

Worlds major trade regions

Asia-Pacific plus India
Europe plus North Africa
The Americas

Asia-Pacific plus India

Japan is an exporting leader
because of effective marketing
strategies.
South Korea, Taiwan, Hong Kong,
and Singapore
Industrialized nations with outstanding
technology

Small land mass with limited natural

resources
Import raw materials and export quality
goods

Asia-Pacific plus India (cont.)

India
Sewing and handcrafting of apparel done in homes

Exports apparel but accepts no imports

China
Exports low-wage goods
Beginning to accept imports in order to become a
member of WTO

Largest exporter of manufactured textiles and

apparel in the world
Many manufacturing firms participate in unfair
trade practices and violate human rights

Europe and North Africa

European Economic Community
(EU): Fifteen developed countries
which represent 20 percent of the
worlds gross domestic product and
more consumers than the U.S.
market.
Euro: A common monetary unit
among eleven of the EU countries.
Makes it easier to conduct business
among these nations.

Europe and North Africa (cont.)

Total free trade among European nations
European businesses are efficient and
innovative, with creative advertising and
effective marketing strategies.
Some low-wage production in North
African countries
The industrialized countries of Europe
provide business opportunities for
American manufacturers and retailers.

The Americas
Unified trade region as a result of
NAFTA
North American Free Trade
Agreement (NAFTA): A trade
agreement between the United
States, Canada, and Mexico that
formed the worlds largest free trade
area.
NAFTA eliminated trade barriers on
textiles and apparel.

The Americas (cont.)

Canada
High wage rate
Sends upscale garments into the U.S.

The Americas (cont.)

Mexico
Low manufacturing wages

Large, young, eager workforce

Caused the closure of some U.S. factories
Developing market with increasing standard
of living
Large potential for American retailers
Sears, JCPenney, Wal-Mart, and Price/Costco
currently have stores in Mexico.
Many U.S. apparel firms are entering into
production in Mexico.

Counterfeiting issues
Counterfeit fashions: Exact copies of
garments that are registered with the U.S.
Patent and Trademark Office.
Can cost brand-name companies up to 22
percent of sales
WTO requires all member countries to pass
laws prohibiting the counterfeiting of
apparel.

Current penalties for counterfeiting are low;

lack of enforcement of counterfeiting laws
causes the problem to continue to exist.

Counterfeiting issues (cont.)

Counterfeiters benefit from marketing paid for by
the legitimate sellers and producers.

Oftentimes, profits from counterfeit products are

used to finance terrorism and drug smuggling.
Almost every brand of apparel is being
counterfeited.
Blue jeans and athletic shoes are the most
commonly counterfeited items.
Twenty percent of the Gross Domestic Product of
China comes from counterfeiting.
Poses a threat to the reputation and sale of items
that are legitimately trademarked

Labor industry abuse

Sweatshop: The Department of Labor
defines a workplace as a sweatshop
if it violates two or more of the most
basic labor laws including child labor,
minimum wage, overtime, and fire
safety laws.

Labor industry abuse (cont.)

Over 2,000 illegally operating sweatshops exist in
the U.S.
Most sweatshop workers are immigrant workers.
Most immigrant workers in sweatshops do not
complain about working conditions for fear of
losing their jobs or fear of retaliation from
employers.
Since the mid 1990s, many apparel companies and
designers have come under strong criticism for
supposedly unknowingly utilizing sweatshop
producers in the manufacture of their apparel.
Examples: Nike, Kathie Lee Gifford, Disney, Guess