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Global clothing brands such as Levi's, H&M, Marks & Spencer or JC Penney are well known players in the apparel industry. They have been shown to coordinate complex global value chains with supplier firms located in various countries. Less known are the strategic and pivotal roles that Asian transnational garment firms take on as first-tier suppliers to these brands. These new players, though largely unknown to most people, are crucial because they are increasingly able to reshape geographies and organizational processes within global value chains.
Who are these 'strategic and pivotal' Asian firms and how do they function?
Many of these first-tier suppliers come from Greater China, e.g. Hong Kong or Taiwan, and South Asia. While their headquarters are based in these home countries, they have evolved from simple producers supplying to Western brands into truly transnational companies, with subsidiaries and suppliers around the globe, including in Asia, Africa and Central America. Asian transnational garment firms now take on more and more functions in the apparel industry, such as logistics or research and design for the brands that buy from them. For example, some Asian firms use forecasting software that is directly fed with data on current sales in the stores of global brands, which allows them to predict demand and respond quickly with changes in production and delivery. While some of them are developing their own brands, many do not see this as a priority for their business.
Can they actually change the structure of global value chains in the apparel industry?
These Asian transnational garment firms have highly developed organisational capacities, which allow them to coordinate flows of products, but also flows of labour and capital, across various locations. In doing so, they not only need to engage with different cultural, political and regulatory contexts, but also monitor changes in trade rules or regulations that may affect garment production in a particular location. In fact, they are extremely flexible in reacting to such changes. They tend to avoid being too closely embedded in any particular country context, ready to leave when preferential trade rules are discontinued or when labour costs rise. This contributes to a very flexible model of globalisation, and the Asian 'strategic and pivotal' firms are the key players driving the decisions to change production locations.
The example of Jordan
Jordan illustrates these dynamics and the crucial roles of Asian firms. Without much history of a textile and apparel industry, and with high labour costs, Jordan did not appear to be a likely location for FDI in the sector in the early 1990s. However, in 1997 Jordan and the United States signed a preferential trade agreement, giving firms producing in a 'Qualifying Industrial Zone'(QIZ) in Jordan duty and quota free access to the US market. A condition was the use a minimum share of inputs from Israel, in an effort to promote the Middle East peace process. In addition to the preferential trade rules, a special labour regime was implemented in these zones allowing firms to bring migrant workers to their factories and also excluding these zones from the legal minimum wage in Jordan in recent years.
These two policies acted as a catalyst, attracting Asian multinational garment firms. Investment from these firms was the key driver for Jordan to become a garment exporting country. Within a few years, these Asian firms set up an almost entirely new industry in Jordan and integrated the country into the global value chain for apparel. As a result, exports to the US rose from USD 3 million in 1997 to USD 1.25 billion in 2006.
However, as described above, Asian firms did not embed deeply into the Jordanian economy. Flexible rules of origin attached to the preferential trade rules made the arrangement attractive for these firms, because they could use their existing supplier networks in third countries to source inputs such as yarn. In addition, the flexible labour regime allowed firms to bring in migrant workers from Asia, which make up 75-80% of workers in the garment factories in Jordan. Fitting with the trend of global locational flexibility, interviews with firms indicate that they are ready to go elsewhere, if either the trade preferences or the labour regulations should change.
For more details, please refer to:
Azmeh, S. & Nadvi, K.(2014.) Asian firms and the restructuring of global value chains. International Business Review, 23(4), 708-717.