The outsourcing in the textile and clothing industry is in a continuous movement and evolution, which was speed up by the rapid technological development, globalization or economic liberalization of various geographic areas.
The various shifts in the global sourcing in the textile and apparel industry have been hand in hand with the global social and economic shifts. Gereff (2002) notes that the history of sourcing was shaped in the fifties, when US and Western Europe countries where importing from Japan, which later imported from the Asian Tigers Hong King, Taiwan and South Korea in the 1970s-1980s. Later on, these three countries started importing textile and clothing from mainland China and several Southeast Asian countries plus Sri Lanka, and in the 1990s the sourcing included South Asian and Latin American suppliers (Gereffi, 2002).
A report produced by European Foundation for the Improvement of Living and Working Conditions (2008) punctuates the fact that once with the emergency of the globalization the European textile and clothing industry was affected as the manufacture became more focused on the developing countries. Asian regions became the main manufacturing providers, living the local EU suppliers with little or no business, which eventually led to increased rates of unemployment in the developed EU countries, in exchange of cheap workforce in offshore sourcing.
The low labor rates and salaries paid for workers in developing countries such as India or China attracted many apparel companies to outsource their manufacturing in those regions. Other aspects contributed to this shift towards offshore supply, such as the technological development, the modernized transportation facilities and infrastructure, the market and supply accessibility, the free trade zone policies or the non-tariff barriers (Walsh, 2008).
Currently, in countries such as India or China, supplying low paid workers for textile manufacturing has become very affordable and the materials are considered casual commodities (Gereffi, 2002). These conditions create a climate of internal competition between different local suppliers in the Asian countries for providing their services to the Western textile and clothing companies, which comprises pricing strategies, facilitating the access of cheap labor for such companies.
In 2005, the World Trade Organization (WTO) initiated the Agreement on Textiles and Clothing Act, through which it removed quota barriers for the clothing and textile imports from 145 countries, members of WTO (Mihm, 2010). This act made the fashion industry attractively cheap in the developed economies such as United States or the Western European countries, making the clothing consumption higher. As the consumption grew, so did the offer, and this social reality facilitated the emergency of the trend called the fast fashion (Mihm, 2010).
Once with the liberalization of the imports from other countries, the local manufacturers started to compete with the retailers, formerly part of the same supply chain. As the retailers started to purchase materials and the end products (the clothes) from Asian countries with developing or underdeveloped economies, the local suppliers were severely hit and many former employees in manufacturing lost their jobs and businesses were closing down (Gereffi, 2002).
Not all companies approach this internationalization of fashion model. As such, Zara still focuses the biggest part of its production on its in-house manufacture, designing and creating its clothes internally, using its own factory, which is the fully vertical integrated model (Mihm, 2010). The textile and clothing industry acknowledges various organizational strategies in terms of manufacturing supply, which vary depending on the geographical and organizational dimensions. There are fashion companies who use internal supply at national, nearshoring and offshoring levels (such as Zara) and there are similar firms that mostly externalize their supply through onshore, nearshore or offshore outsourcing (European Foundation, 2008).
However, other brands are born globally, such as H&M, Nike or Reebok and they developed or adjusted to specific global sourcing strategies, such as externalizing the pattern grading, marker or sample making or requiring strict vendor certificates for performance improvement (Gereffi, 2002). This model, wherein the entire operation system is outsourced is called the fully outsourced model, as the retailer only maintains contact with the contracted outsourcer, not with the manufactories (Mihm, 2010). There is also another model that mixes up the outsourcing with the integrated services: the house branding model designs the products, contracts directly the manufacturers and manages the logistics and the transportation (Mihm, 2010).
There is, however, no fix receipt for organizing the sourcing. The clothing and textile companies, as any other firms activating in other industries, have as their main purpose to be effective in business and to generate increased sales and business performance. In this sense, a recent trend in the fashion industry is to organize the supply chain as an integrated production network, focused on specialized activities, as a EU report notes (European Foundation, 2008). However, many other aspects are to be considered when deciding upon an integrated production network: the countries’ social and political conditions, the taxation policies, tariffs and quotas, easy, cheap and fast transportation means, labor costs or legislation (European Foundation, 2008).
The technological developments also played a tremendous role in the outsourcing shifts in textile and clothing industry. They allowed for fast dyeing of the clothes, smooth and effective laser cuts minimizing the material waste, the use of computer aided design technology for cutting and sewing and improved communication across continents, developed, developing and under-developed countries (Mihm, 2010).
The shift towards the fast consumption of the fashion, (which fulminated with clothing becoming statement of the lifestyle not a commodity) and the shortened lifecycle of the products have also speeded up the dependency on global sourcing, for serving the increased request for fashion (Hansson, 2011).
An important shift in sourcing occurred as a result of retailers’ need of immediately responding to the customers’ needs. This necessity of generating fast responses to the fashion request generated the fast fashion, which symbolizes the generations who dress because they want to, not because they need to (Gereffi, 2002). The fast response in terms of fashion implies rapid adjustments and adaptation to the consumer generated trends, which defines the agile operations in textile and clothing (Tomachot, 2009). The agile supply chain management defines the top suppliers, which are able to consolidate their business, with all their operations, for answering faster than the rest to the consumer needs. Because of this adaptability, companies as Zara and H&M are trendsetters in the fast fashion segment, influencing the entire fashion industry (Tomachot, 2009).
On the other fact, the lean supply chain management characterizes the organizations focused on producing mass identical products and whose operations are heavily automated, driven by tall hierarchies with large number of managers, each exercising specific roles (Chi, 2006).
Zara, owned by Inditex, is the fashion leader in terms of generating quick responses to consumers’ desires of changing their wardrobe in a seasonal manner (Zara official website; Sull and Turconi 2008). Behind its success relies its vertical integrated supply chain and its agile supply strategy. As such, the company produces faster than its competitors, being able to generate new in-store models at each three-four weeks because its manufacturing is local, reducing the transportation time from the offshore locations, as it is the case with H&M, for instance. Moreover, the company produces limited numbers of similar models, which produces two responses: (1) reduces the waste and unsold products; (2) makes the products unofficially labeled as limited production. Moreover, the fact that collections change so rapidly, with no return in-store of the previous clothes encourage clients to visit Zara stores often, considering that its collections change at every two weeks (Hapuarachchi, 2010).
The quick response is the merit of the agile supply chain management and it implies that the companies rapidly adjust to consumers’ requests, based on IT tools and flexible manufacturing, used for providing the right products in the right places at the right time (Sheridan et al., 2006 in Hansson, 2011).
As Tomachot (2009) notes, the merit of the agile supply chain management stays in the fact that the companies that approach this style “give to the consumer the good product in the good moment” (p. 12). Zara and H&M both achieve this objective; hence both adopt an agile supply chain management.
The agility of these companies stays in the way they organized their whole operations, taken as connected activities, which depend on one another. Information systems, organizational structures or logistic processes are areas that require flexibility and easy maneuverability (Tomachot, 2009). Compared, the focus of lean management is to eliminate the waste (Chi, 2006). At a closer look, it can be stated that H&M also adopts the lean supply chain management style, because it has the capacity if influencing its suppliers to reduce waste and the use of natural resources as much as possible. The company deployed sustainability and waste reduction policies such as reducing the water consumption and the chemicals for producing the fabrics required for the materials and it also recycles many of its materials such as hangers or packaging (H&M official website, n.d.).
H&M is focused on the waste reduction mainly as part of its managers’ strategy to promote an environmental friendly retailer, encouraged to align to the environmental sustainability discourse that marks the development of business style in the 21st century. Nevertheless, at the core of the waste management plan, the concept of reduction always intervenes, creating for the environmentalist players the advantages of cutting production costs. A key measure of the lean management is the focus on productivity and cost (Thomachot, 2009), which H&M follows through its environmental sustainability practices.
Lean management also implies the elimination of all the unnecessary steps for reaching to the end product, a philosophy inspired from the Japanese business model, such as transportation, which also ads costs (Lashen, 2012). At this point, Zara is closer to the lean supply chain management, as it opts for in-house production instead of wasting time and financial resources on transportation. However, due to its international operations, the company also basis a part of its production on external supply (Hansson, 2011). The concentration of its offshore production is nevertheless focused on intense commercial areas, aiming to increase the delivery time from factory to the retailer’s stores. This strategy is specific to agile management, as one of its features is to assure “fluid clusters” (Thomachot, 2009, p. 12).
Neither Zara nor H&M adopts a pure agile or lean supply chain management, as they both adjust their supply chain needs to the market request and to the suppliers’ requirements and potential, in order to be cost effective and in the same time market sensitive. As Thomachot (2009) indicates, agility supports the downstream and leanness the upstream chain and together form the leagile supply chain.
Probably the main quality of the agile supply chain management that both Zara and H&M managed to integrate in their operations is the market responsiveness. In the agile management information-sharing from consumer to the supply chain avoids the snowball effect, caused by an in-chain communication from a supply member to another, which leads to distorting the information and to accumulating large inventories (Lashen, 2012). Instead, the agile management allows direct communication from consumer to all the supply chain partners, reducing lead times, the uncertainty and the complex chains structures (Lashen, 2012).
The standardization is an important process focus in standardization. H&M is renowned for its standardization process in the material ordering phase, which makes its supply chain lean in the upstream sphere. However, at a later phase intervenes the dying and the models are customized, delivering a large range of diversity.
Zara is known as the leader of the fast fashion, producing more models than its competitors. As such, Zara reaches an annual production of 12.000 different models, while its competitors (including H&M) only produce around 2000-4000 models per year (Hansson, 2011). Fast production (around 15 days) also means fast consumption and rapid change of the collections, which means that the company has short lead times, which keeps it permanently interesting, as the collections propose new reinventions of the fashion (Hansson, 2011).
Through its global operations, H&M requires a higher degree of control and the involvement of more suppliers in the design and production process, which can be time consuming (Lashen, 2012). Unlike Zara, which adapts its collections on the trends of the moment, H&M is planning one year in advance, allowing, however, the flexibility of adjusting to new trends. The Swedish retailer produces casual items such as tops or pants in mass, which defines a standardization policy, specific to lean supply chain management. However, it also dedicates specific design, created in limited editions, positioned as high-end products (Hansson, 2011).
The shifts in the social structures within developing countries such as China or India or the Eastern European countries, wherein the women become more financially independent represents a significant opportunity for the fast fashion to become even more popular. Moreover, the global communications, facilitated by the technological developments also allows consumers throughout the world to have access to the modern fashion trends. This social reality has reshaped the dress code in Asian countries, making it more adapted to the western fashion trends.
The technological revolution and the emergence of social media websites such as Facebook, Twitter, Pinterest and alike represent a major opportunity for retailers to capture the fashion trends of consumers in the developed and developing countries. Not only they can capture the consumers’ needs and respond to those registered needs, but also they can influence consumers through web word of mouth, social media influencers or blogs and other similar strategies for creating the need through virtual communication (Bradley, 2013).
On the other hand, a major threat for retailers and their supply chain stays in the above-mentioned business focus on environmental sustainability. The fast fashion that characterize both Zara and H&M’s operations is detrimental to the environment because they generate a superficial need of being in style. It is not a basic need like food or shelter, nor a security or a financial need, but it is a need that requires the mass utilization of natural resources, which may lead to scarce resources and to pollution, due to the manufacturing and processing activities. The cotton production is predicted to decrease, while the demand is predicted to increase, being the main material used in textile and clothing industry. This condition would lead to an increase in the buying price of the cotton, which would also imply an increase in the end products.
An increase in the end products, combined with the economic instability of the Eurozone, the main market of both Zara and H&M, would mean decreased consumption in the developed and developing countries from Eurozone. The emergence of the Asian developing countries might represent an opportunity for H&M to focus its commercial activities on China and India and other developed and developing Asian economies. This transition might actually be easy for H&M, since most of its manufactures are located in Asia, and it would also imply a cost reduction in the transportation that would contribute to lower prices for the end products. For Zara, on the other hand, focusing its operations on the developing countries in Asia might imply the reconfiguration of its business with either increased outsourcing, either the acquisition of local suppliers for continuing the in-house fabric model outside Europe.
A threat H&M mostly is the advances of human rights policies regarding the exploitation of workers in sweatshops. Because Zara mostly focuses its supply chain internally and in Europe paying decent salaries to the workers (Hansson, 2011), the Spanish company is not really affected by this situation (van Voss, Hiemstra-Kuperus and Merkerk, 2010) For H&M this is a real threat, because the company focuses most of its factories in the underdeveloped or developing countries and it has been criticized for exploiting workers, like other similar fashion brands that outsource work from poor countries.
The social, economic, political, legal environmental and technological conditions have influenced the evolution of the textile and clothing industry across time. Global sourcing trends have also been modeled based on these conditions, permitting various shifts in the volatile request and demand of fashion (Choi, 2014). The textile and clothing industry evolved from a basic commodity need, wherein people where buying clothes only when necessary, to buying clothes just as a caprice or to justify a social standard. Like this, fast fashion appeared for answering the increased request in consumers’ need to seasonally change collections. The intense demand for fashion facilitated the outsourcing for external suppliers. While H&M is the adept of this business philosophy with most of its manufactures based in underdeveloped Asian countries, Zara focuses its activity on internal suppliers mostly and the largest part of its factories is located in Europe. For adjusting to the intense and diverse demand for fashion products, both companies deploy specific supply chain management strategies, which denote a mix of agile and lean management style. The supply chain management of the two companies has similarities but also differences, entrenched in their business model and reflected by their approach to lean or agile management for their integrated work processes.
In the current times Zara and H&M both benefit of good market opportunities in the developed and developing countries, marked especially by the technological development and the social shifts and gender relations change in the developing countries. There are also threats that both companies should be aware of: the increased environmental movement criticizing mass consumption of the natural resources, the economic instabilities of the Eurozone or the scarcity of prime products such as the cotton.
Fashion is an evergreen industry and continues to develop and to reinvent new styles and needs for consumers. As long as Zara and H&M catch the consumers’ need or are able to anticipate and to create new needs, the supply chain will recognize new organizations and approaches. Similarly, the outsourcing will enter new eras of adaptability to the buyers’ requests for satisfying the end customer.
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