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1 The Texti Complex The purposes of Chapter 1 are to (a) describe the major segments, processes, and internal linkages of what is called the textile complex and (b) point out a few of the major differences between the importance, structure, and activities of textile complexes in different countries. It is intended as a primer for those who know little about these subjects. Therefore, it is a simplified descrip- tion that by necessity omits many of the subleties, nuances, and complexities of the actual complex. Readers who are already familiar with the textile complex may choose to proceed directly to Chapters 2 through 4. The textile complex, as shown in Figure 1-1, is composed of several major segments and processes: fibers (man-made and natural), fabrics (woven, knit, and non-woven), and three major end-uses of fabric--apparel, home-furnishings, and industrial. i) esigning, dyeing, printing, and f inishing are related processes that can be done at various stages and occasionally are separate segments themselves (i.e., done by independent companies). In terms of total employment and output, the three largest segments are fibers, fabrics, and apparel therefore, these three segments receive the most attention in this report. However, the extensive linkages within the entire textile complex underscore the impor- tance of analyzing it as ~ whole and not just its individual segments. THE U.S. TEXTILE COMPLEX As of 1 981, there were approximately 2 7,000 companies in th e A merican textile complex, with at least one located in every s tate.2 Together, they employed more than two million workers--one out of every eight Americans employed in manufac- turing--making the textile complex the largest industrial employer in the United States. It is one of the largest employers 3

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5 of women and minority workers in manufacturing3and the largest manufacturing employer in nearly a dozen states. In addition, it has been estimated that over 925,000 American workers (including machinery manufacture, chemical auxiliary production, etc.) outside the textile complex are required to produce and deliver the output of the textile complex, and that the capital expenditures by the complex and its principal suppliers require tens of thousands of additional jobs--a total additional employ- ment generation of nearly one million workers. Finally, th e combined output of the complex in 1980 was $114 billion, roughly one half of which was delivered to final demand and intermediate d emend outside the complex.5 Thus, the direct and indirect impacts of the textile complex on the U.S. economy ar e substantial. The total output of the U.S. textile complex has continued to expand while direct employment and average number of hours worked per week have declined. Many segments of the complex have grown in productivity faster than the average rate of pro- ductivity increase for the U.S. economy. And while production growth rates for two of its largest employment segments (apparel and fabric/yarn thread) were slightly below the national average, those for man-made fibers, floor coverings, and hosiery/knit goods were nearly double the national average. Linkages Figures 1-2 and 1-3 depict the major output linkages among the principal segments of the American textile complex.6 Par- ticularly significant are the output dependencies in Figure 1-2 of the man-made fiber segment to the apparel and fabric segments (9 9 percent) and of cotton farms to fabric and apparel (53.6 percent) and in Figure 1-3 of the fabric/yarn and thread mills to apparel (55. 1 percent). Table 1-1 shows the interdependencies in terms of input/ output. For example, one dollar of apparel output requires 21.7 cents (21.7 percent) of input from fabric, yarn, and thread mills. Finally, Table, 1-2 and 1-3 show the employment linkages within the complex. Table 1-2 shows the direct employment in a segment per billion dollars of shipments to final demand and the resulting indirect employment in other sectors of the complex, and Table 1-3 shows the same impacts measured in terms of actual shipments in 1977. Both exhibits show the significantly greater labor intensity and indirect employment impact of apparel production and the significantly lower labor intensity and indirect employment impact of man-made fiber production. In 1977, for example, apparel directly employed over one million workers and

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6 o% To Final Demand To Other Intermediate Demand 11.9% To Other Intermediate Demand 1% _ Man-Made I 99% l Fibers { Cotton 53.6% 34.5% To Final Demand 1 U.S. Textile and Apparel I ndustries FIGURE 1-2 Uses of Products of the Man-made Fiber Industry and Cotton Farms, excluding intra-sector use. Percent of Total Use] N OTE: These output relationships are based on 1972 data. Exports of man-made fibers have increased rapidly in recent years, which would reduce the percent of total shipments going to the U.S. textile and apparel industries to less than the 99 percent shown here and increase the percent of product going to f inal demand. However, the dependence remains very high. Data for wool alone not available. Final demand includes net foreign trade. SOURCE. The Input-Output Structure of the U.S. Economy' 1972, Bureau of Economic Analysis, U.S. Department of Commerce, 1979, as compiled in The Dependency of the U.S. Economy on the Fiber/Textile/Apparel Industrial Complex, a report prepared for the ATMI by Economic Consulting Services, Inc., Washington, D.C., January 198 1.

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g TABLE 1-1 Percent Direct Requirements of Specific Sectors of the Textile Complex Industry per Dollar of Industry Output in Producers Pnces, 1972 INPUT OUTPUT Broad and Miscellaneous Narrow Fabrics, Fabricated Yarn and Textile Thread Mills Miscellaneous Textile Goods and Floor Apparel Coverings Agricultural productsa 6.0 0.3 - - Broad and narrow fabrics, yarn and thread mills 30.0 25.6 21.7 31.6 Miscellaneous textile goods and floor coverings 1.0 9.7 0.3 11.0 Apparel 0.1 1.1 25.4 0.8 Miscellaneous fabricated textile products - 0.5 1.3 3.3 Chemicals and selected chemical products 2.7 2.5 0.4 0.1 Plastics and synthetic materiels 13.5 11.9 1.7 0.5 Rubber and miscellaneous plastics products 0.5 2.8 0.3 2.4 VALUE ADDED: Employee compensation 25.2 19.3 29.9 27.6 Balance of value added 5.5 6.5 3.9 4.9 Wholesale and retail trade 4.1 4.5 3.7 4.2 Remaining industries 11.9 15.2 1 1.4 13.6 Total Output b 100.0 100.0 100.0 100.0 aAgricultural products other than livestock and livestock products. bMay not equal 100 due to rounding. SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis, The Input Structure of the U.S. Economy, 1972 (reprinted from the Survey of Current Business, February 1979, p. 58). indirectly over 530,0 00, compared to less than 77,0 00 workers directly and less than 3000 workers indirectly in the man-made fiber sector. The segment with the greatest indirect employment impact is floor coverings: nearly one indirect job created for each direct job. DESCRIPTION A N O COMPARISON S OF MAJOR SEG ME NTS I N A TEXTILE COMPLE X Fibers Fibers are generally classified into two principal groups: natural and man-made. Alan-made fibers are further subdivided into cellulosic and non-cellulosic fibers. N atural f ibers, such as cotton, linen, jute, and wool are products of agriculture. Cellulosic fibers, such as rayon, acetate,

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9 TABLE 1-2 United States Textile Complex: Employment Requirement per Billion Dollars of Shipment to Final Demand Direct Employment Requirements per Resulting Indirect Billion Dollars of Employment Requirements Industry Sector Shipment to in Other FibertTextile/ or Subsector Final Demand Apparel Sectors Apparel (made from purchased material) 41,943 20,959 Hosiery and knit goods 38,785 13,520 Floor coverings 21,488 18,688 Miscellaneous fabricated textile goods 29,115 19,302 Miscellaneous textile goods 21,304 8,433 Fabrics, yarn, and thread mills 33,834 4,586 Synthetic fibers 16,519 626 SOURCE: The Dependency of the U.5. Economy on the Fiber/Textile/Apparel Indus- trial Complex, a report prepared for the ATMI by Economic Consulting Services, Inc., Washington, DC, January 1981. and triacetate are products of naturally occurring cellulose (usually cotton and wood), while synthetic fibers, such as nylon, polyester, and acrylic are usually petrochemical derivatives. While there are tens of thousands of natural fiber producers throughout the world, there are relatively few major producers of man-made fibers (less than 30~. The main reason is that man- made fiber production is very capital- and knowledg~intensive and has significant manufacturing economies of scale. The major producers of man-made fibers are based in developed countries and are typically part of large diversified multinational chemical companies operating in an oligopolistic market. In the United States, DuPont, Celanese, Eastman, and Monsanto are the largest firms, while outside the United States the largest firms are Italy's ENI and Montedison; West Germany's Hoechst, Bayer, and BASF; Britain's ICI; France's Rhon - Poulenc; the Netherlands' Akzo; and Japan's Mitsubishi Rayon, Toray Industries, and Teijin. Compared to the other major segments of the textile complex, developed countries still dominate production of man-made f ibers. However, production technologies of certain man-made fibers are considered "mature," i.e., well-established, well-known, and available in many developing countries. As a result, fibers made from these mature process technologies are more price competitive and less restricted in terms of production location. On the other hand, the technologies for specialty, higher value, and more complex fibers are newer, more complicated, less price competitive, and more restricted to developed country firms.

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10 TABLE 1-3 U.S. Textile Complex: Estimated Direct and Indirect Employment Requirements (Based on 1977 Shipment Levels)* 1977 Direct 1977 Indirect Industry Sector or Employment Employment Subsector Requirements Requirements Man-made fibers 76,746 2,907 Fabric, yarn, and thread mills 574,207 77,832 Floor coverings, carpets, and rugs 70,276 61,119 Miscellaneous textile goods 68,539 27,170 Hosiery and knit goods 265,817 92,661 Apparel (made from purchased materials) 1,061,632 530,500 Miscellaneous fabricated textile goods 188,298 124,826 *Numbers are based on 1977 Census of Manufactures and have been deflated by ECS through several mechanisms explained more fully in their report. SOURCE: The Dependency of the U.S. Economy on the Fiber/Tex~de/Apparel Industrial Complex, a report prepared for the ATMI by Economic Consulting Services, Inc., Washington, DC, January 1981. Yarn Yarn is typically classified as being of two types continuous filament or spun staple. Staple fiber spun yarn is made by spinning together discontinuous fibers one to several inches in length; continuous filament yarn is produced by passing fluid chemicals through a spinneret after which the filaments are solidified and stretched. Continuous filament yarns can be modified to provide bulk, stretch, or texture. Depending on ultimate use, yarn may be further twisted, plied, dyed, or surface treated. As an industry segment, processors of staple f iber yarn are referred to as spinners, while those of filament yarn are termed throwsters or texturizers. In a vertically integrated textile company, the yarn production element generally takes the form of a department or division. Making yarns requires a highly capital- intensive process, and the blending of several kinds of fibers into a single yarn requires additional equipment and sophistication. Fabric Another intermediate stage in the textile complex is fabric manufacturing in which yarn is transformed into fabric by using a weaving, knitting, tufting, or non-woven process (although some non-wovens can be produced directly from fiber).

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11 In weaving, the most extensively utilized technology for making flat goods, sets of yarns are interlaced at right angles on a loom. In knitting, yarn is interlooped by latched or spring needles arranged in either a circular or linear array. Non-woven technology involves compressing or interlocking fibers or yarns by mechanical, thermal, chemical and/or fluid methods. Historically, the key factors of production have been the manufacturing equipment. the skill of the technical staff' and the capital necessary to buy the machinery and to employ the skilled operators and maintenance staff. Increasingly important today are marketing skills, as global competition has increased. The major output of the fabric segment in most countries is b roadwoven fabric, although narrow and knit fabrics are also produced in sizeable quantities. In the United States the fabric for apparel tends to be pro- duced by larger firms that typically require large minimum orders of one color or design. There is also considerable firm special- ization by type of fabric: heavy, medium, or light-weight fabri c; woven fabric or knit fabric; man-made fiber fabric or natural fiber fabric; blends of natural fibers or man-made fibers; and intricately patterned fabric or simple fabric. The basic reason for the specialization is the different equipment and the number and complexity of steps required to make each type of fabric. The traditional fabric segment (woven and knit) is in th e middle of the complex in terms not only of the manufacturing flow but also in terms of capital and knowledge intensity, industry life cycle, and degree of competition. Even though there are many more producing firms and considerably more small- and medium- size firms than in made-made fiber production, they produce a relatively small percentage of total output. Thus, the fabric sector has a dualistic nature: thousands of small- and medium- size firms, each producing a limited range of products and accounting for a comparatively small percentage of total output and a small number of huge firms, each producing a wider range of products and, as a group, accounting for a disproportionate share of total output.8 The largest firms in the United States are Burlington, J. P. Stevens, Millikin, West Point Pepperell, Springs Industries, and about a half dozen others. Outside the United States, the largest producers are Britain's Courtaulds, Coats Patons, Tootal, and Carringto~ Japan's Kanebo, Toyobo, Mitsubishi Rayon, and Unitika; South Korea's Daewoo and Sunkyoung; and France's Dollfus-Mieg. However, both inside and outside the United States there are major differences among the largest firms in terms of their production by end-use categories (apparel, home furnishings, and industrial). In terms of product life cycle, complex and specialty fabrics are considered to be in earlier stages, while basic woven fabrics are in the mature stage.

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12 Finally, a rapidly emerging sector within the fabric segment is the category of products called non-wovens. These products are rn ade from wood fibers, plastics, and synthetic polymers in addition to natural and man-made fibers. Disposable diapers, coated fabrics for furniture, wall coverings, luggage, car roofs (e.g., the landau roof), disposable medical and surgical products (drapes, gowns, masks), carpet underlayments, apparel inter- linings, household and industrial wipes, sanitary napkins, and many packaging materials are examples of products made from non- wovens. A significant characteristic of non-wovens is the speed at which the fabrics can be made. Many non-woven production units in place today can produce fabric at speeds of 400 feet per minute, and more advanced machines operate at speeds of over 1000 feet per minute. Non-wovens are produced at these high speeds in widths of 15 feet or more. These rates are particularly impressive when compared to knitting machine speeds of about 5 feet per minute and even slower rates of weaving machines. SIC group 2297, Non-woven Fabrics, represents the majority of manufacturers of non-woven goods with the exception of SIC 2291, Felt Goods, and 2231, Woven Felts and Hats. It is a mixed group of companies and industries, large and small. The importance of non-wovens is not only their substitutability for wovens (disposable diapers have overtaken woven, cloth diapers), but in new applica- tions for existing fibers. While the total production of non-wovens remains well below that of wovens and knits, non-wovens have experienced faster growth rates.9 Fiber, Yarn, and Fabric Finishing The finishing process provides comfort, ease of care, durability, and aesthetic properties that can significantly affect final fabrics' receptivity in the market and their competitiveness. The dominant methods of finishing utilize knowledge- and capital- intensive wet processes. Wet processing involves the treatment of fiber, yarn, or fabric with chemicals carried in a fluid (usually water) and is typically done in a dye house, bleachery, or finishing plant. Wet processing includes degreasing and/or scouring, bleaching, dyeing or printing, and enhancing functional properties by applying chemical finishes in fabric form. Most wet processing organizations are classified as either commission houses or finishing divisions of vertically integrated mills. Commission houses process greige (unbleached and undyed cloth or yarn) fabric, often purchased on the greige market by convertors, under contract, who then sell the finished fabric to

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13 o utlets, converters, or fabricators. In vertically integrated organizations, this fabric is usually processed further for specific end-use applications. Apparel The largest of the three final production stages in the textile complex is apparel. The manufacturing process begins with the design of the garment to be made, based on forecasts of fashion, style, and needs of consumers. The design is made into patterns that are used to cut the fabric purchased from fabric manufac- turers. The cut fabric is normally then sewn into garments,] 0 tagged, and shipped through the distribution channels. Many apparel companies do not perform all these functions; much contracting exists. Contractors and subcontractors rely on designs and fabrics supplied to them by retailers, jobbers, 1 or large r manufacturers and only do the cutting and/or sewing of the fabric. Apparel has typically been a creative, family, and price advantage industry in the United States, comprising approxi- mately 15,000 small companies averaging less than one hundred employees and producing narrow product lines. It has also been an industry where production changes have come very slowly. 12 Ho wever, the apparel industry has recently experienced some restructuring that is expected to continue in the future. The larger firms' share of output has increased, the capital and knowledge intensity of the industry have increased, and th e product lines produced by many apparel firms have widened. The apparel segment of the textile complex is by far the most labor-intensive and fragmented. Of all major segments, it has the lowest entry barriers in terms of capital and technical knowledge requirements. Only the larger firms typically produce garments in more than one category (e.g., men's outer wear, women's dresses, children's sleep wear). Most firms produce garments only in a specific price and fashion range (e.g., high-fashion women's dresses, inexpensive ch~ldrents pants, etc.~. The largest firms in the United States are Levi Strauss and Blue Bell (with sales of about $3 billion and $1.5 billion, respectively), followed by Interco, Cluett Peabody, Hart Schaffner and Marx, Kayser-Roth, V. F. Corp., Kellwood, Warnaco, and Jonathan Logan (each with sales over $400 million). Outside the United States, the largest firms are Kasiyama, Renown, Courtaulds, Triumph, and Bidermann. . . . . .. . .

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16 Machinery The machinery and equipment industries play an important role in each of the major segments of the textile complex. Many of the manufacturing breakthroughs in the textile complex have occurred from the utilization of new equipment developed by equipment firms. Most of the new equipment has been more labor-saving and efficient than its predecessors and, as a result, has increased the international competitiveness of higher-labor-cost countries as they substituted equipment for labor. Technology also permits the manufacture of more technically sophisticated products, another competitive advantage for firms in the textile complex. Finally, it permits textiles to enter new product markets, such as non-wovens in geotechnical applications. Due to the substantial and increasing purchase costs, new technology equipment utilization has been greater in the fine n- cially stronger fiber and fabric sectors and in the financially strongest firms in all sectors. In addition, the fact that most new equipment is developed by equipment firms rather than firms in the textile complex has resulted in new equipment being made available worldwide fairly quickly--i.e., the equipment firms have an incentive to sell their equipment to as many textile complex firms as possible, no matter in what country they are located. Distribution In any highly competitive industry, timely and appropriate distribution of the product is a critical determinant of success. This applies for the apparel segment, given its more competitive nature with frequent changes in style and fashion. In the distri- bution of apparel, a larger role is being assumed by large retailers at the expense of the family-owned specialty stores. In addition, fashion forecasting and market research for apparel and fabrics are being done increasingly at the retail level, with the largest retailers being more involved in direct contracting, domestically and internationally. The large retailers often assume the designer role, contract for production of garments, fabric, and even the fiber to be used, provide financing, and specify all related logistics. Whether these large retailers buy domestically or abroad can clearly affect the domestic textile complex: the more they buy abroad, the greater is the competitive pressure placed on domes- tic producers, and the greater is the assistance given to foreign producers. The latter point is important because selling in a foreign market can be more difficult than selling in one's own domestic market. Consumer preferences are different, marketing

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17 distribution and pricing practices are different, and there are a number of other barriers to overcome, such as tariff and non- tariff barriers, warehousing, transportation, etc. A domestic retailer can help a foreign producer overcome many of these problems. Therefore, the relationship between retailers and manufacturers (foreign and domestic) is a very important and sometimes neglected area of consideration in analyzing what changes are taking place in the global textile complex. INTERNATIONAL DIFFERENCES IN TEXTILE COMPLEXES The basic function and general characteristics of each segment of the textile complex are similar in most countries. For example, a typical sewing plant in Sri Lanka performs essentially the same operations as its counterpart in Germany or in the United States. The man-made fiber industry in all countries is more capita 1- intensive than the fabric or apparel industries in those countries. However, the fabric and apparel segments have a fairly wide range of substitutability of capital and labor. Thus, textile firms in one country may be more capital-intensive than their counterparts in other countries. In addition, there are differences in the complexity of products produced in each country--the skill, sophistication, and wages of labor employed the degrees of vertical integration, the industry concentration levels, the number of segments in existence in each country; the importance of the textile complex to the country; and the degree of their inter- national activities and competitiveness, just to name a few. Thus all textile complexes are not identical. Levels of Development In worldwide textile complex development, there is a continuum of levels ranging from embryonic to declining. Although not all levels apply in all textile development, the following is a general description of the continuum. The embryonic variety is typically found in the least developed countries and is primarily oriented toward the production for domestic consumption of simple fabrics and garments made from natural fibers. These countries typically are net importers of fiber, fabric, and apparel, and their textile complexes resemble an amalgamation of cottage industries. Another level of development involves the export of apparel, largely restricted to low-end, mature varieties, native apparel, or apparel requiring elaborate handwork or handicraft, such as embroidery. Many of the ASEAN (Association of South East Asian Nations) countries fit into this category.

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18 Another level evolves when domestic production of fabric and garments increases significantly in terms of quantity, quality, and technical sophistication. In addition to rapidly expanding and upgrading apparel exports, these countries also begin exporting fabric and may subsequently develop their own fiber sector. Their textile complexes become larger, more diversified, more concen- trated, and more internationally active. South Korea recently passed through this level, and some of the more advanced ASEAN countries and East European countries are well into this level of development. Large manufacturers and retailers in more developed countries often play an important role in this process through foreign investment, contracting, or other forms of assistance (managerial, marketing, etc.~. Movement to this level is also typically spurred by local government policies of import substitution and export development. Another level of development can be called the golden age: apparel and fabric production become even more sophisticated, and huge trade surpluses result. Man-made fiber production is also more extensive and sophisticated, even though imports of certain complex fibers may be increasing. The textile complex continues to consolidate, to diversify in product mix, and to spread internationally via foreign direct investments and contractual arrangements of its own firms. Taiwan is clearly at this level of development, followed recently by Korea. Hong Kong's geographical limitations made it difficult for it to develop is own man-made fiber sector, but its apparel and fabric sectors are at the most advanced stage of this fourth development level. Another level of development is full maturity. Overal 1 e mployment in the complex declines due to increasing produc- tivity (particularly in the apparel sector), even though total output m ay be increasing. Industrial concentration continues, product and process sophistication reaches high levels, and capital intensity increases significantly (primarily due to the necessity of substituting capital for labor and for producing more complex products). Japan, the United States, and Italy are in this mature level, although significant differences remain among them. The m ost notable differences are Japan's more vertically integrated structure and much greater use of offshore production and contracting and the massive Italian government assistance to its domestic complex. The sixth and final level of development is significant decline. Employment and the number of firms are reduced substantially, and significant trade deficits appear in many sectors, especially in apparel and fabric. Many segments appear to be dying or beyond revitalization, even though some specialized segments may still be healthy, and offshore production increases significantly. The United Kingdom, France, Belgium, and the Netherlands are all

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19 basically in this stage of textile complex decline, although to varying degrees. Throughout this entire process of development, the inter- national flow of technology, capital, and know-how is very important. The faster and wider it spreads, the more rapid the development process becomes. As will be discussed later, th e largest producers and retailers in the developed countries, along with equipment manufacturers, have been largely responsible for such flows and are expected to continue to do so. These increased flows, combined with the constantly shifting comparative advan- tage in production and changes in government policies, make for a dynamic and competitive global textile environment. For example, a firm can design a sophisticated garment for export to another country made from fibers it produces in several countries being spun and woven into fabric in another country, perhaps being dyed and finished in its own or still another country, then sewn in still another country for export to the ultimate consuming country. The controlling company can profit from each process (if its own subsidiaries are involved) or from the entire process (either the final profit or the final profit plus service income from the other companies involved for having orchestrated the whole scheme). And if one of the intermediate-stage countries or the final-stage country encounters some problem (e.g., their quota is used up), the firm can shift the process to another country. Such flexibility can be critical to the success of a company competing in the global textile market. other Differences Other ma jor dif ferences among countries' textile complexes Involve vertical integration, offshore investment/production, and government involvement. Although there is no irrefutable evidence that vertical integration in the textile complex provides a significant competitive edge, firms in Asia typically are more vertically integrated than those of the United States and have more foreign production facilities. (Vertical integration meaning f iber firms owning fabric and/or apparel firms, or fabric firms owning apparel firms, etc.) For example, one of Japan's largest f iber companies, Toray Industries, wholly or partially owns numerous fabric and aDDareI cornDanies in JaDan. It also owns ~ 1 1 - ~ r ~ r' ~ ~ ~ ~ ~ /_\ r r _ 1' _ / - \ fabric companies In Korea t1 J. ~l~atwan tz', Hong Kong to), Indonesia (7), Thailand (6), Malaysia (4), Singapore ( 1), an d numerous apparel companies throughout Southeast Asia either directly or jointly with Textile Alliance Ltd., a Hong Kong firm now 67 percent owned by Toray. In fact, by the mid-1970s, Toray

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20 had established vertically integrated textile operations in Taiwan, Thailand, Indonesia, and Malaysia. By establishing fiber plants in Korea and the Philippines with local firms that had already ver- tically integrated forward from fabric into apparel, ~l~oray essentially established vertically integrated operations in these countries as well. But Toray was not the only company to pursue such a vertical integration strategy domestically or internationally. Its main Japanese competitor, Teijin, followed a similar strategy in Southeast Asia. In Malaysia and the Philippines, for example, these two Japanese fiber firms control most of these nations' man-made fiber textile complex via equity participation, loans, and/or other contractual arrangements. Other firms that followed similar but less extensive international vertical integra- tion strategies were Textile Alliance Ltd. and Yangzekan of Hong Kong. Both established vertical integration from spinning through apparel in Hong Kong and several Southeast Asian countries. Most of Japan's large spinning companies (such as Toyobo and Kanebo) vertically integrated backward into natural fiber yarns in Latin America during the 1950s and forward into fabric and apparel in Japan, East Asia, and the Peoples' Republic of China (PRC). In the United States, vertical integration has seldom gone beyond the spinning and finishing stages. There has not been extensive use of offshore processingl5 by the world's textile complexes. It has been restricted largely to apparel. The differences in offshore productions useage among segments is due largely to sector differences in labor intensity and manufacturing process characteristics. There has also been more extensive use of offshore processing by some countries than others: West Germany, Japan,and the Netherlands have Utilized this technique more extensively than U.S. or Italian firms. 1 Greater amounts of government involvement and assistance are found in developing and newly developed countries. Import substitution policies, industrial development assistance, and export assistance are among the many policies and activities of developing country governments. In the developed countries, while levels of trade protection have increased substantially over the past two decades, many of their other government policies have not been as supportive of their domestic textile complex as those in developing countries have been, with the notable exception of Italy. Still another difference among national textile complexes is their relative importance in terms of employment, gross national product, and export earnings. For example, textile products are the largest export of Hong Kong (roughly 40 percent of its total exports), South Korea (about 30 percent), and Taiwan (20 percent), but a very small percentage of total U.S. and West German

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21 exports.1 8 The relative importance of textile and apparel employment in various countries and of their output (measured in terms of value added) varies significantly. Finally, there are significant differences in productivity an d wage rates. Some of these differences are shown in Table 1-4. For example, in 1 980 the hourly wage rate in Korea was 12 percent of the United States, and the rate in Taiwan was 18 percent. However, many of the less developed countries are not reflected in Table 1-4. Countries such as Sri Lanka, Thailand, the Philippines, India, and Indonesia all have hourly wage rates less than 10 percent of the U.S. level. While the competitive impact of major differences in wage rates between the United States and developing nations cannot be precisely calculated, it is particularly significant for the more labor-intensive segments of the textile complex, such as apparel. The huge trade deficit of the United States in apparel reflects the competitive advantage of developing countries in apparel, made possible by combining lower wages with technology similar to that used in many U.S. firms. One factor of U.S. competitiveness in yarn spinning is the energy cost. Some U.S. advantage can accrue from the fact that in the United States the energy costs to produce a pound of spun cotton yarn are between $0.08 and $0.10 per pound. In other countries, the energy costs can be as much as four times that figure. Therefore, competition gains in labor costs (which may be between $0.20 and $0.30) can be offset by high electrical power costs, especially in some Third World countries. There also appear to be significant international differences in productivity. The only figures readily available are for spinning and weaving, shown in Table 1-5. According to these data, the United States has the highest level of productivity of all major producers, while Japan is the only Asian nation with a produc- tivity level greater than one-half of the United States. However, the United States does not enjoy productivity leadership in all segments or subsegments of the textile complex, as is discussed in Chapters 2 and 3. When the United States does not have a signifi- cant productivity edge, the lower wage rates in developin countries become even advantage. 1 ~1 more important as a competitive In sum, the global textile complex is a composite of many highly different national textile complexes. It is these differ- ences that make global competition so intense and complicated and equally complicated to analyze. The remainder of this report, therefore, will only highlight the major developments in the major segments of the textile complex in the major countries involved. No attempt is made to describe or analyze all of the activities and developments that are occurring or may occur in the global textile complex.

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24 TABLE 1-5 Spinning and Weaving: International Comparison of Productivity Levels United States West Germany Italy Japan France United Kingdom Hong Kong Taiwan South Korea Pakistan 100 as to 9s 75 75 70 55 50 45 45 10 SOURCE: Werner Associates, Inc., New York, Brussels, June 1981. NOTES 1. The text of this report, its discussions and analyses, is based in part on available data reproduced here as figures and tables. A sometimes significant problem faced by the panel throughout its work was related to the availability, quality, replicability, and sometimes reliability of the data. Although some data in this report may be somewhat dated or in som e instances be deemed soft, they are used solely to support broad discussions and conclusions of the panel and should not be evaluated independently. 2. This number includes only manufacturers and does not include agricultural suppliers. The standard industrial classifica- tions covered by this definition are 22, 23 (exclusive of 237 and 2386), 2823, and 2824. 3. Particularly in the southern and mid-Atlantic regions. 4. See The Dependence of the U.S. Economy on the Fiber/ Textile/Apparel Industrial Complex, a report prepared for the ATMI (American Textile Manufacturers' Institute) by Economic Consulting Services, Inc., Washington, D.C., January 1981. 5. Ibid. The figure shown contains some duplications the t w ould not have occurred if reliance were on value added. For example, yarn sold to a weaving mill is counted twice, first as its value as yarn, then as its value as yarn measured as the value of the fabric. The double count occurs again as the value of fabric is included in the value of apparel calculation. Double counting in aggregating value of shipments for individual branches of th e industry is common. 6. The information in this figure is based on 1972 data contained in The Census of Manufactures, U.S. Department of Co mmerce, Washington, D.C., 1979. Although the data are therefore somewhat dated, they are offered only as illustrations

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25 of macro linkages. The figure was not used by the panel for the development of any options, but rather is offered to provide a clearer understanding to readers less familiar with the industry. 7. The figures shown cover indirect employment requir e- ments in supplying sectors that fall within the fiber, textile, and apparel complex. There is of course substantial employment generated in supplying industries other than those in this com- plex. Some sources calculate this additional employment effect at a threw to four-time increase. The relationships reflected in this table are presented as being illustrative of the relationships between and among employment in the various sector components and the dollar volumes represented. No specific conclusions are offered from this information. Rather the data are offered to inform the less knowledgeable reader. 8. In the United States, there are approximately 5000 textile firms (SIC 22) of which the largest 50 firms account for 50 per- cent of the industry's total output and the largest 15 firms for roughly 35 percent of the industry's total output. (Source: ATMI) 9. Statistics in the Guide to Non-Woven Fabrics, INDA (The Association of the Non-Woven Fabrics Industry), New York, 1978, suggest a growth rate in non-wovens of 188 percent from 1971 to 1977. Other sources including the Census of Manufactures, U.S. Department of Commerce, Washington, D.C., 1972 and 1977, suggest a 101 percent increase between 1972 and 1977. 10. Apparel can also be made from leather, plastics, and non-wovens and instead of being sewn can be cemented or fused. Apparel can also be produced directly from yarn (such as hosiery and sweaters). In the case of sweaters, the parts may be assembled by the use of the looping process. However, most apparel is sewn from woven fabrics. 11. Within the industry, contractors may be used by manufac- turers or jobbers to supplement the output of their shops. Jobbers perform all the functions of an entrepreneur (frequently including the cutting of the material), but leave the assembly and pressing of the garments to contractors. Generally contractors produce garments out of materials owned by their principals, either from uncut or cut materials to the specifications of their principals. 12. There are many types of apparel firms, from smal 1 c ontract shops to large multinational corporations. For the purposes of this study, the macro approach taken has necessitated that these various types of companies be aggregated under the category of apparel. 13. For more detail on Toray's operation, see R. Moxon, T. Roehl, and J. F. Truill (eds.), nternational Business Strategies in the Asia Pacific Region, ~~ Press, ~reenw~cn, ~ I, ~~. 14. Ibid.

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26 15. Offshore processing by a domestic firm occurs when some production processes are carried out in the third country and are returned thereafter to the original domestic firm in a completed or a semi-completed form. Offshore processing may be done either by the affiliates of the domestic firm or by independent companies. 16. On March 16, 1982, after all major drafting work on this report was completed, the EEC issued Council Regulation N o. 636/82 establishing economic outward processing arrangements applicable to certain textile and clothing products reimported into the EEC after working or processing in certain third countries. These arrangements now limit the use of offshore processing. 17. For more details on government policies affecting the apparel and fabric industries, see J. Arpan, J. de la Torre, et al., The U.S. Apparel Industry: International Challenge/Domestic R esponse, Business Publishing Division, College of Business Administration, Georgia State University, Atlanta, GA, 198 2, chapters 4, 5, and 6; and the U.S. Department of Commerce publication on overseas restraints to textile and apparel import, Foreign Regulations Affecting U.S. Textile/Apparel Export, August 198 1. 1 8. Source The Economist, December 12, 198 1. In Japan's case, textile exports during the 1940s and 1950s accounted for nearly 50 percent of its total exports, but now account for less than 10 percent.