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Organisations in all industries are interested in maintaining their levels of competitiveness for continued delivery of value to their owners (shareholders). Bertscherk and Kaiser (2004) maintain that any organisation that does not embrace new trends that minimise costs is prone to disappointment due to the associated reduced global competitiveness.
One of the major changes that organisations consider in the effort to gain competitive advantage is the adoption of cost-cutting strategies such as outsourcing. Labour costs amount to a significant portion of the total cost of a product (Christopher 2005).
In a bid to reduce the cost of products that are offered for sale in the global markets, organisations seek strategies of ensuring that the prices of their products are low enough. In this quest, the British clothing industry significantly depends on global sourcing of its manufacturing services in nations that have low labour costs.
Globalisation has incredibly altered the manner in which organisations in all industries manufacture and/or source their products and services. The consumer industry has particularly experienced the largest change in the effort to reduce costs in a bid to increase competitiveness whilst increasing organisational operation efficiency (Leclerc 2012). Ketchen and Hult (2006) note that global sourcing is generally on the rise.
While the main concerns of small companies entail cost reduction, large and well-established organisations also engage in sourcing to enhance the supply of better products, enhance collaboration with suppliers, and/or reduce environmental impacts. The purpose of this paper is to discuss global sourcing in the British clothing industry.
Background to Global Sourcing in British Clothing Industry
For a long time, the clothing industry has constituted a major mechanism of enhancing industrialisation, as it was witnessed four decades ago in the case of Europe and some regions of Asia. The industry played this role effectively due to the advantages of low-entry barriers particularly due to low start-up capital requirements (Fashion Education Network 2010).
In the British clothing industry, the question of whether the industry remains a major driver of the of process of industrialisation, whether it still has low entry barriers, or whether it is a source of capital accumulation remains relevant even in the 21st century.
Literature on global sourcing highlights two important paradigms for understanding the trend in global outsourcing in the British clothing industry. One of the paradigms is the GCC (Global Commodity Chain) as discussed by Gereffi (1999).
This approach views the clothing industry as ‘a sector that is characterised by a concentration of profits and control in the functions of marketing/distribution and retailing, and by production, which is globally out-sourced based on ‘buyer-driven’ networks of independent manufacturers, located mainly in developing countries” (Gibbon 2009). Importing agents in the US initiated the plan of outsourcing.
They outsourced cutting and sewing works from Hong Kong, Korea, and Taiwan. Other manufacturers rapidly adopted the concept by extending sourcing networks to include nations such as Indonesia, Mauritius, and Philippines (Gereffi 1999). As sourcing manufacturing from Asian nations became advantageous, countries such as China, Cambodia, and Vietnam became prestigious global sourcing destinations.
While British clothing organisations also source from the above nations, Mortimer, Lall, and Romijn (2000) confirm the evident increasing imports of clothing products from North Africa to the EU. However, Mortimer, Lall, and Romijn (2000) assert that similar to the US, the EU only sources basic clothing commodities, especially the CMT type.
Khanna (2000) reckons that such sourcing is justified by concessional levels of tariffs and lower labour costs. Abernathy et al. (1999) introduce the concept of lean manufacturing in analysing sourcing decisions in the clothing industry. They reveal that labour costs and concessional tariffs are important in making sourcing decisions. However, they are not of principal importance.
Rather, lead-time considerations reveal changes in sourcing strategies that are deployed by clothing industries in different nations (Abernathy et al. 1999).
As such, apart from sourcing manufacturing of clothing products, clothing retail organisations in the UK also source inventory controls, which are often facilitated through EDI (Electronic Data Interchange). This plan reduces delivery times through conversion of warehouses into DCs (Distribution Centres) so that clothing products move without undergoing any storage processes.
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The British clothing industry remains an important source of economic growth. Textile, clothing, and fabric subsectors accounted for about 8.5 billion pounds, employing about 150,000 people as at 2007 (Fashion Education Network 2010).
In the United Kingdom, the ‘street mania business’ is valued about 45 billion pounds. 2009 was marked by deals that almost hit 300 billion pounds. This figure was about half the total contribution of designer fashion subsectors to the UK economy. EUROSTAT (2001) informs that the clothing retail sector earns the UK 8% of its GDP.
British clothing industry accounts for about 11% of the total employment. The retail industry hired about 2.9 million people in 2009 (Fashion Education Network 2010). In the same year, consumer expenditure of British clothing and adornment products amounted to about 46.2 billion (Fashion Education Network 2010).
More than 30 percent of this spending was executed through shops. However, online purchases started picking up in 2007 to reach to the highs of 4.1billion pounds in 2009 (Fashion Education Network 2010).
This figure was a 26 percent increase of the total online sales in the clothing industry above the 2008 levels (Gibbon 2009). Consumers deploy the internet to conduct clothing product sourcing after making bargains and price comparison.
Amid the possibility for the British clothing industry to continue developing into a major source of domestic capital, the industry has been experiencing unsteadiness in the recent years. For instance, Fashion Education Network (2010) reckons that by 2010, the average weekly spending on clothing had dropped to 21.60 pounds.
However, Chesters (2014) confirms that the British clothing industry is now recovering its economical viability due to the increasing manufacturing costs in China. This finding suggests that the global sourcing trend in the British clothing industry still largely depends on the need to reduce production costs.
Chesters (2014) further notes that the UK retail clothing industry is now worth 17 billion pounds in terms of imports and 7 billion pounds in terms of exports.
This finding indicates a net balance of 10 billion pounds of imports over exports so that the UK clothing industry operations mainly rely on global sourcing. The aim is to utilise global efficiencies in delivering clothing products at low costs to enhance competitive advantage of the clothing organisations that operate within the UK.
Gibbon (2009) informs that the retail-clothing sector of the UK was valued at 30-33 billion pounds in 2000. This outcome followed a steady rise by 3% from 1991 to 1997 (Mersch 1997), which then slowed down to about 2% until 2000 (EUROSTAT 2001).
Chesters’ (2014) current valuation of the clothing industry implies that the industry has been on a downhill trend since 2000, which corresponds to the time when manufacturing global sourcing to produce cheaper products from nations with low labour costs became a norm in many developed nations.
The British clothing industry possesses some unique characteristics. However, in the context of international platforms, the concentration is still high. In 2000, 32 percent of all clothing retailers accounted for 32 percent of the total sales while top-10 retailers were responsible for 42 percent of the total sales (Gibbon 2009).
Compared to other EU nations, the British retail clothing industry is highly specialised. The industry has clear distinctions between clothing manufacturers and retailers. Additionally, specialised retail chains assume more than 66 percent of the total sales (Gibbon 2009).
The clothing business has polarisation between male and female clothing. The female clothing subsector is somewhat advanced relative to that of the males. However, the children’s wear business remains a rapidly growing subsector. While Simpson acquired foreign ownership, Burberry re-invented as a women’s wear brand with success.
Gibbon (2009) reveals that it is now the UK’s largest global clothing industry brand. The success of Burberry shows that the future success of the UK clothing industry brands depends on their ability to renovate and/or create new product lines that have a global appeal.
The British clothing industry needs to evaluate the sustainability of its sourcing strategies. Will the low-cost advantage, which is associated with sourcing manufacturing and related work such as inventory control, serve as a long-term source of competitive advantage for the clothing retail sector?
For how long should the industry source its operations in the global platforms? Is it necessary? Should it consider shifting its operations at home or near home?
Whether outsourcing is done to an organisation that operates within or outside a nation, both situations attract immense controversies. Mucha (2003) observes that many critics of global sourcing contend that various jobs that were initially held by citizens go forever, whether organisations that employed them venture into manufacturing outsourcing deals offshore or inshore.
Although loss of jobs might imply more government expenditure in welfare and reduced tax revenue, global sourcing of clothing industry operations outside the UK has its advantages and disadvantages to the UK economy.
With the emerging differences in technological advancements and living standards, the UK clothing industry needs to source in a bid to lower its cost of production. The concept of outsourcing can be evaluated from different perspectives in terms of its implication on the UK economy.
Kathawala, Zhan, and Shao (2005) confirm that there is nothing wrong with over depending on outsourcing production for a given nation. The authors maintain that organisations should consider cost-cutting strategies such as global sourcing non-core activities in the effort to gain a competitive advantage.
While developing the capacity to compete with other organisations, operational efficiency is important in the British clothing retail industry. Thus, it is only natural for British clothing industry organisations ‘to obtain useful sources of materials and services from different channels and to build their sustainable comparative advantages using different approaches’ (McCormack 2011, p.213).
Global sourcing being one of the ways of enhancing the productivity of an organisation, it surfaces as an important source of competitive advantage for organisations that are established in geographical areas that have high living standards.
High standards of living prompt organisations to pay their workers high wages and salaries so that their products become more expensive in the global market place. By sourcing in Asia, it follows that retail organisations in the UK clothing industry can mitigate this challenge and/or gain access to unique materials that are produced elsewhere across the globe.
Although claims on the sustainability of clothing manufacturing sourcing in Asia are important, challenges such as reduction of employment opportunities for a nation’s citizens cannot be overlooked. For instance, McCormack (2011) says that the US lost about 42,400 factories in the name of global sourcing in 2011.
While the number of Americans working in the production organisations continues to reduce, the number of Asians working in such organisations continues to grow. The dominance of Asian nations in the manufacturing of printed circuit boards (84percent of the globally printed circuit boards) may perhaps exemplify this scenario, which should not be replicated in the British clothing industry (McCormack 2011).
Indeed, the ramification of low employment opportunities is higher spending in welfare activities and/or a reduction in government revenues that are generated through taxation.
Perhaps, when the UK-based clothing industry organisations evaluate the production cost that is associated with outsourcing, it may soon become evident that overlying on sourcing production in Asia subjects it to economic challenges. A possible counterargument is that production operations that are mainly sourced in Asia require low-skilled labour, which leaves Britons with more attractive and lucrative jobs.
However, it is important to note there are some Britons who live below poverty levels. Thus, the low paying jobs, which require low or medium-skilled workers, may be attractive to this group of people. Why should they be shifted elsewhere while still some Britons need them?
Apart from the British clothing industry, from the perspective of national economy, all nations do production outsourcing. Mucha (2003, p.29) supports this assertion by adding, ‘The UK economy is already 26.6% outsourced in terms of the ratio of imports to the gross domestic product.’
Although reduced labour costs are important in informing decisions to source British clothing industry operations, organisations in the industry also benefit from specialised expertise in production.
Organisations source when they are sure that the vendor has the required specialty, technical expertise, and the appropriate equipment for the production of a product to the required quality levels. As such, it becomes easy to achieve better productivity combined with a consistent supply of its products in the global market.
Middle-line managers in an organisation engage in various tasks, including maintaining a timely production and/or ensuring that production processes run efficiently. This claim suggests that non-core activities compete for the core activities that are performed by such managers. The core activities are important for consistent growth of an organisation (McCormack 2011).
Since global sourcing is mainly done for non-core activities, it implies that line managers are freed of some duties so that they can concentrate only in the processes that enhance organisational growth. In the process of outsourcing, British clothing industry transfers part of its risks to other parties.
As revealed before, vendors to whom production is outsourced are specialists in non-core productions tasks. Therefore, they are able to enhance mitigation of some risks better than an organisation that seeks production manufacturing sourcing services.
Recommendations and Conclusion
In conclusion, global sourcing in the British clothing industry has its strengths and weaknesses. While low labour costs and concessional tariffs serve to justify it, global sourcing involves trading managerial control with cheaply produced products.
Signing a contract for production of a complete product or some parts of product implies shifting the power to control the processes of production to other parties that do not reside within the British clothing industry. Consequently, misalignments of missions may occur.
Global sourcing vendors often focus on profit maximisation by delivering products in the condition that is specified in the contract. If the products that are produced through global sourcing meet the standards specified in the contract, an organisation cannot question or place demand for better quality levels in response to changes made by competitors to its products without making additional payment.
Nevertheless, even where an organisation is willing to follow this path, it is limited by the capability and flexibility of the vendors’ production systems.
Upon considering the hidden costs and negative publicity where a vendor produces goods with child labour or exploitation, global sourcing presents significant disadvantages. There is also a challenge of reduced employment for Britons when clothing industry organisations decide to source some or all their operations in the global market.
The challenge leads to a reduction of tax revenue accompanied by high expenditure in welfare programmes. Considering all these arguments against global sourcing in the British clothing industry, this paper recommends the shifting of global sourcing operation near or at home (the UK). This recommendation remains valid to the extent that labour costs in preferred global sourcing destinations such as China are steadily rising.
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