GLOBAL APPAREL

SOURCING
DS - INTERNATIONAL BUSINESS JURY
ASSIGNMENT
MFM-Semester 1
National Institute of Fashion Technology,
Bhubaneswar

Submitted To:
Prof. Binaya Bushan Jena

Submitted By:
Pragati Joshi
Yashi Shrivastava
Narmada Guha Roy
Contents

● Introduction
● Historical Context
● Factors Affecting Global Sourcing
● Events that Changed Global Sourcing
● Risks & Mitigation in Global Sourcing
● Global Trends in Migration to Low-Cost Countries
● Sourcing Desitional Analysis: China & India
● Sourcing Destination Analysis: Bangladesh & Vietnam
● Sourcing Destination Analysis: Brazil & Eastern Europe
● Measures of Improvement - Reshoring
● Measures of Improvement in General
● Conclusion
Introduction
Global sourcing has always been
a challenge that requires
effective strategizing and
GLOBAL
coordination. While it has been a SOURCING
preferred practice in trade to
operate at the lowest cost
possible, the status quo has
changed due to some massive
shifts in global sourcing. INTERNATIONAL
PURCHASING
DEFINITION:
Global sourcing refers to a
procurement strategy that a business
DOMESTIC uses to find the most cost-effective
SOURCING location for manufacturing one or
more of its products across
geopolitical boundaries
MARCO POLO, 1300S
● International Procurement and
worldwide trade existed long
before the 20th century.
● Already Marco Polo or Jakob
Fugger (the Rich) can be considered
as pioneers in this area and even
centuries earlier there was trade
between different countries
wherever goods were bought from
and sold.
Historical Context of
Global Sourcing
INTRODUCTION OF MULTI FIBER
AGREEMENT , 1974
● In 1974, the MFA was introduced
as a short-term measure.
● It was meant to allow developed
countries to adjust to imports from
the developing world.
● The Agreement on Textiles and
Clothing (ATC) to abolish MFA and
the integration of textiles and
clothing into the multilateral
trading system before January
2005.
INTRODUCTION OF GLOBAL SOURCING, 1980

● The term "Global Sourcing" was coined in the 1980s

of the 20th century – connected with the increasing
procurement from the so-called "Tiger States".

● It started primarily with the decoupling of various

OFF SHORING, 2000
aspects of manufacturing activities. ● The offshoring movement, began
● Therefore, research was conducted mainly on in the early 2000s in which it
manufacturing firms to set up their operations helps firms reduce costs and
worldwide and started to buy from suppliers in increase customer satisfaction.
many countries to exploit best-in-world sources. ● Between 1992 and 2005, U.S.
● As a result, supply chains became more global and firms outsourced more than
complex. tripled the value of services by
using offshoring

WORLD RECESSION, 2008
● The full impacts of recession can be dated
to the collapse of the Lehman Brothers
bank in New York in September 2008.
● One informant in Hong Kong, sourcing for
the lower end of the US garments market,
described how US demand seemed to
collapse quite suddenly as credit
restrictions tightened sharply and retailers
ran down stocks rather than reordering,
● Industrial production in high income
countries dropped by 23% in the last
quarter of 2008
RANA PLAZA DISASTER, 2013
● The Rana Plaza disaster of 2013 in which
1,134 people died and 2,500 others were
injured.
● The global outrage against brands that
sourced from cheap labour destinations
without caring a fig about workers or
working conditions put companies on the
back foot.
● As wages, ethics and factories came under
the scanner, things are now certainly better
for workers than earlier in Bangladesh.
● Some of the companies still continue to do
business with Bangladesh whereas some
have relocated.
 Factors TRADE POLICIES
LOCATION
Affecting (TARIFFS & QUOTAS)
HUMAN TOLL
Global PROTECTIONISM
TIME TO MARKET
Sourcing LABOUR LAWS & REGULATION
TOTAL LANDED COST
(LABOUR, PRODUCTION &
TRANSPORTATION etc.)
FINANCES
PRODUCTION QUALITY
OPERATIONAL CAPABILITY
VALUE ADDED SERVICES
AVALABILITY OF TECHNOLOGY &
RAW MATERIAL QUANTITY REQUIREMENT

COMMUNICATION/ IT CAPABILITY RESPONSIVENESS OF SUPPLIER

SUPPLY & VALUE CHAIN MANAGEMENT LEAD TIME & DELIVERY RELIABILITY
Events that Changed Global Sourcing
COVID 19

● European and American retailers cancelled many orders

● Sourcing destination countries left to deal with high inventory and cut wages
● Relocating to the other sourcing countries that are resuming activities faster than Asian countries or that are
closer to retailers
● The pandemic thrown a spotlight on risks associated with high supply chain interconnectedness and
challenges associated with global sourcing

BREXIT

● The trade barriers between the UK and the EU may give benefits to the suppliers from a third country.
● To mitigate the negative impact on textiles and clothing industry, the formation of custom unions and trade
blocs with NTMs must be done in a more comprehensive way as compared to the standard Free Trade
Agreements (FTAs).
● The trade and diplomatic relations between the EU and Southeast Asian countries have been worsening as
the EU is emphasising more on human rights and the environment in its trade policy.
US-CHINA TRADE WAR

● US-China trade war has created an increasingly complex global trade environment, especially for the logistics
industry.
● It is forcing companies to shift their supply chain activities out of China.
● Companies considering whether to diversify their sourcing strategies or move out of China entirely.
● The global fashion industry is increasingly adopting a model where the sourcing portfolio is divided between
China, Vietnam, and other Asian countries – a move that has accelerated since the US heightened its tariff
impositions on China.

WTO AND TARIFF PREFERENCES

● Most-favoured-nation (MFN): Which is to treat people equally.

● Under the WTO agreements, countries cannot normally discriminate between their trading partners.
● Some exceptions are allowed.
● They can give developing countries special access to their markets.
● Encouraging development and economic reform - developed countries have started to allow duty-free and
quota-free imports for almost all products from least-developed countries.
● Freer trade achieved gradually through negotiation
● Lowering trade barriers is one of the most obvious means of encouraging trade.
GLOBAL MANUFACTURING ACCIDENTS &
EVENTS
Risk & Mitigation in
MINIMISE RISK BY PAYING
Global Sourcing HEED TO THE FOLLOWING

TYPES OF RISKS FLUCTUATING CURRENCY RATES

SECURITY RISKS
CULTURAL AND LINGUAL DIFFERENCES
COST RISKS
QUALITY RISKS POOR LOGISTICS AND INFRASTRUCTURE
INTELLECTUAL
PROPERTY RISKS VOLATILE POLITICAL AND ECONOMIC ENVIRONMENT

COMPLEX PROCESS OF SUPPLIER SELECTION AND EVALUATION

DIFFERENT INDUSTRIAL STANDARDS AND REGULATIONS IN COUNTRIES

GLOBAL TRENDS
IN MIGRATION
TO LOW-COST
COUNTRIES

Source: Bain & Company

China
POSITIVES:
● Abundant and cheap natural and human
resources => low production and
manufacturing cost
● Political, economic and social stability
● Better infrastructure, logistics and
manufacturing technology
● Friendly trade regulations and developing
legal system
● One-Stop sourcing
● Short lead-time
● Near-shoring base for Asian market
NEGATIVES:
● Poor quality control
● Low investment in inland transportation
infrastructure
● Tariff war with the US
● Human rights violation in Xinjiang
India
POSITIVES:
● Comparative advantages - high quality
products, low cost labour, strong R&D sector,
technical expertise and experienced sourcing
agents
● Easy communication - english speaking agents
● Best option for China Plus One/Many strategy
● Political, economic and social stability with
established legal system
● More exposure to western culture
● Existence of many international bank branches
NEGATIVES:
● Questionable labour rights compliance
● Corruption
● Unnecessary paperwork in EXIM
documentation
Bangladesh
POSITIVES:
● Government support and duty-free export
● Key denim garment sector
● Deploying and improving new technologies,
the value chain, and production capabilities
● Lowest garment manufacturing cost
● Low labour charges
NEGATIVES:
● Inhumane working condition and violation of
Labour Laws of factory workers
● Inadequate infrastructure and logistics
● Lack of skilled workforce
● High dependence of imported raw materials
Vietnam
POSITIVES:
● Favourable geographical location
● Young and skilled workforce
● Positive trade agreements
● Politically stable
● User friendly administrative procedures
NEGATIVES:
● Poor transportation infrastructure - railways
and road
● Tedious customs procedure .
● Developing supplier market
Brazil
POSITIVES:
● Large labour pool and low labour cost
● Politically stable
● Shorter lead times
● Nearshoring destination to US
● Structured and disciplined procurement
processes
NEGATIVES:
● Ongoing economic crisis.
● High taxes and import tariffs, and complicated
tax system
● Poor international standards compliance
● Corruption
● Poor protection of intellectual property rights
and professional work ethics
● Restrictive labour regulations
Easten Europe
POSITIVES:
● Nearshoring destination to top EU countries
● Emphasis on quality over quantity
● Skilled and specialised workforce
● Growing labour market
● Rapidly evolving technologies
● Cultural compatibility
● Secure laws and regulations
NEGATIVES:
● Complicated taxation
● Comparatively higher production cost
● Workers treated as slaves
● pro-employer environment
 Measures for Improvement - Reshoring

Reshoring/ Nearshoring to be the new practice:

● The Pandemic and the Suez Canal incident has exposed many
vulnerabilities of the global supply chain
● Depending on the geographic location, focus on essential goods if the
country is close to the importing country, and non-essential goods if
far
● Maintaining safety stock will be given more importance than the
current practice of just-in-time replenishment and lean inventories. Sourcing model based on this
Nearshoring will offset the added cost of having such buffers due to will more agile in responding to
uncertainties new consumption trend, be
● Ex: Central and South America for the US market; Turkey for E.U.; more resilient and better able
China for Asia to withstand supply chain
● China will shift from offshoring to nearshoring because world’s shocks and sudden market
consumption epicenter is shifting to the East according to McKinsey disruptions
Measures for Improvement in General

Sourcing Destinations Should in General:

● Create business friendly environments
and improve on production capabilities
Asia Dominance: ● Promote FTAs (Free Trade
● In general, Asia will Agreements) and PTAs (Preferential
remain a manufacturing Trade Arrangements) with countries
powerhouse for fashion and increase trade flows
products over the long ● Focus on domestic development
term. policies which will bring in more FDIs
● Asian countries should ● Make information accession easy and
capitalise on China Plus be willing to share information which
One or Many sourcing will help business forecast and make
strategy. better decision
● Adopt real-time communications
New strategies and Upcoming Sourcing Destinations
POTENTIAL OF BLOCKCHAIN
● it can enable much easier end to
end tracking of products along the
value chain.
PROXIMITY SOURCING
● Proximity sourcing is an intriguing
concept that looks to balance cost
and service, with going green or
sustainability also increasingly
playing a role in the
decision-making process.

Gradually apparel buyers are working towards developing industry

standards that ensure transparency and compliance For instance,
more than 150 companies from 20 different countries have signed
the Bangladesh Accord on Fire and Building Safety.
CONCLUSION
Corporate social
responsibility and
sustainability are the
“buzzwords” which
are also factoring in.
These buzzwords have caused the
two major changes in apparel
sourcing
● Exploration of new markets
● Degree of digitalisation
-
NEW MARKETS
Rising labour cost and energy cost of china and the ill working condition
of workers in bangladesh garment factories has caused the apparel
brands to explore new markets. This exploration brought new players in
the light - Vietnam and Cambodia from South east Asia. Sub saharan
countries like Ethiopia. They also offer free trade agreements.
DIGITIZATION 3D DESIGN AND
Digitization is helping sourcing PROTOTYPING
managers to get better supply
chain visibility, and thus reduce Many big players (Hugo boss and
their lead times, costs and manage PVH) who have implemented 3D
sustainability. design and virtual sampling have
observed a reduction of 2 weeks
or more in the process of
sampling along with cost-cutting.
References
● The Impact of World Recession on the Textile and Garment Industries of Asia
www.unido.org
● ResearchGate www.researchgate.net
● (PDF) Global Sourcing Strategy: An Evolution in Global Production and
Sourcing Rationalization
● Textiles Exports: Post MFA Scenario Opportunities and Challenges -
Fibre2Fashion
● Developments in the Global Apparel Industry after the MFA Phaseout | Sewing
Success?
● Developments in the Global Apparel Industry after the MFA Phaseout |
Request PDF
● Apparel Sourcing: Getting the mix right - Fibre2Fashion
● Wartime Allocation of Textile and Apparel Resources: Emergency Policy in the
Twentieth Century on JSTOR
● How Does the Global Economic Crisis Affect Textile, Apparel Sourcing? | Case
Studies | Apparel Magazine
THANK
YOU!