TAL Q2

Q2. 

Discuss the dynamics of the apparel value chain and how the global apparel industry is classified as a buyer-driven industry

Dynamics of the apparel value chain

• China’s accession into the WTO  and the elimination of all textile quota
• High pressure of price falls and persistent over-capacity in the apparel industry.
• Raise of the new suppliers from different regions
• The concern of transportation cost press the buyers to select the suppliers which are located closed to them. This can reduce the transportation cost.
• Source low labour cost workers
• Due to the increasing labour cost in China, the company would try to move their production site to low labour cost region like East and South Asia. It will directly reduce the cost and take the competitive advantage in a short run. However, the benefit of site shifting is not sustainable due to the unstable economic environment and the rising raw materials cost. The company need to find other ways to balance the cost and profit in the long run.  

• Long production cycle of customized products
• Retailers would like to have their own designed products. The production of those customized products requires a long production cycle.
• Bargaining power of buyers is high
• Since the development of advanced technology, buyers are easily to gain product and market information. In addition, there are many competitors in the industry, buyers are easily to shift to another company because of low switching cost.

Producer-driven value chain

• Make-to-Stock (Push strategy)
• --> The manufacturers produced the products based on forecast, which is the past data of customer order, the historical sales data to distributor
• The traditional manufacturers in charge production and coordinate the participant.
• Core competency:  it put lots of effort on R&D and production in the value chain
• Barriers of entry : High, Since it requires huge capital or high-technology equipment to process an intensive production and take the advantages of economies of scale.
• It usually applies in Automobiles and computer industry

Buyer-driven value chain

• Barriers to entry: It is low due to the economies of scope
• Make-to-Order (Pull Strategy)
• End products are manufactured once the customers places the order
• Core Competenct: Producers are bound to the decisions of buyers through the functions of design and mrketing.
• It usually applies in Apparel and footwear industry

Apparel Value Chain

Reason to be buyer-driven:

• Relative ease of setting up clothing companies, coupled with the prevalence of developed-country protectionism in this sector
• Unparalleled diversity of garment exporters in the third world
• Backward and forward linkages are extensive  large number of jobs associated with the industry
• Profit come from combination of high-value research, design, sales, marketing and financial services that allow the retailers, designer, marketers to act as strategic brokers in linking oversea factories and traders with product niches in their main consumer market

References:

TAL PDF

http://www.slideshare.net/AylinSahin/supply-chain-43820078