GLOBAL INVESTOR 1.16 — 48 So what exactly happens at the very nexus of global geopolitics, global MATERIAL CHANGES THE EFFECT OF E-COMMERCE ON THE FASHION SUPPLY CHAIN economic integration and the maturation of the digital age, including e-commerce, Big Data and social media? The world’s fashion industry is proving a fertile ground for discovering the answer, as the entire fashion supply chain is being completely transformed.
GLOBAL INVESTOR 1.16 — 49 T he fashion industry is truly a global industry with a rather long and complex supply chain – from fibers (natural and man-made) and yarn production via fabric formation and finishing to garmenting, designing and retailing. Not too long ago, the fashion industry was a rather “local” industry in the sense that most textiles and garments were designed and produced in relative proximity to the end-consumer market – fashion products bought by European consumers were mainly produced within Europe and/or in the immediate periphery, such as in Turkey or North Africa. The same was true for North and South America, Asia and Australia. Since the late 1990s and early 2000s, the fashion industry around the globe has been faced with structural and rather disruptive changes. These changes stem from different directions – global economic integration (globalization), technology (e-commerce, digitization) and sustainability (social and environmental concerns) – and are in many ways interconnected. Globalization in North America with the North American Free Trade Agreement (NAFTA). In this context, an additional acceleration and hence a disruptive change to the fashion industry was certainly the phasing out of the Multi-Fibre Arrangement (MFA) at the end of 2004, together with the accession of China into the WTO in 2001. The MFA regulated the world trade in textiles and clothing from 1974 through 2004 by imposing quotas on the amount developing countries could export to developed countries. After 2004, trade in textiles and garments was not restricted by quotas anymore, but integrated into the regular WTO framework of tariffs. China’s entry into the WTO marked another disruptive change simply due to the fact that a country with around 1.3 billion people suddenly became part of the global economy. The impact of these two major developments for the fashion supply chain was farreaching. Suddenly, an enormous pool of highly motivated workers became available at relatively much lower costs. As a consequence, more and more retailers and fashion brands around the world started sourcing in Asia in general, and China in particular. In 1990, China’s textiles and clothing exports amounted to USD 16.89 billion (8% of global textile and clothing exports). In 2000, textile and clothing exports had already reached USD 52.21 billion (15% of global textile and clothing exports). Data from the World Trade Organization show that by 2014, Chinese textile and clothing exports had soared to USD 298.27 billion, or a global share of 38%. According to the International Textile Manufacturers Federation publication “International Textile Machinery Shipment Statistics” (2015), investments in new textile machinery in China skyrocketed in the last decade. In the year 2000, investments in new spinning, texturing, weaving and knitting machines in China’s textile industry represented around 20% of global investments. In the following years, this number jumped to 50%–60% in spinning machines, 65%–75% in texturing machines, 60%–80% in weaving machines, 60%–75% in circular knitting machines and 40%–80% in flat knitting machines. In other words, every year since 2004 on average more than half of all new textile machines were installed in China. Technology With the spread of the Internet in the 1990s and the acceleration of the number of Internet users together with a higher speed in the following years, new opportunities opened up for everyone. Suddenly, the Internet not only offered possibilities to display products and services, but products could also be increasingly ordered online. While e-commerce seemed initially to be limited to a few categories of products like books, DVDs and CDs, this changed tremendously. As a consequence of continuous and significant technological progress in the past 15 years with regard to applying new technology (e.g. mobile phones, touch screens, apps, 3D animations, e-payment systems, etc.) people can now buy all sorts of products and services via the Internet, including textiles and apparel. According to a 2013 report by Euromonitor International on global apparel distribution and market performance, Internet retailing of apparel in 2007 was only 3% of total retail sales. In 2012, this share had already doubled A new wave of global economic integration started after World War II with the establishment of international institutions like the International Monetary Fund (IMF) and the predecessor of today’s World Trade Organization (WTO), the GATT (General Agreement on Tariffs and Trade). The main objective of these new institutions was to facilitate cross-border investments and trade of goods and services among countries around the world. Alongside these international institutions, regional economic integration also intensified, whether in Europe with the European Economic Community (EEC) which eventually became the European Union (EU), or the European Free Trade Area (EFTA), or Shipped short-staple spindles 2000–14 Following China’s joining the World Trade Organization in 2001, domestic textile production – and as a consequence the requisite investment in new textile machinery – took an immediate and sustained leap. Source: ITMF in m 14 12 10 8 6 4 2 0 2000 2002 2004 2006 2008 2010 2012 2014 World China
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