|
||||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
| ||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 56
Corporate Responses
and Strategies
Th e essence of successful marketing and management is the
strategic acquisition and utilization of resources (materials, labor,
equipment, technology, and knowledge) in anticipation of, or in
response to, changes in the environment. As pointed out in the
previous section, during the 1960s and 1970s firms in the textile
complex in all countries faced numerous changes in the environ-
m ents in which they operated. Yet, there were considerable
differences in the ways that firms responded to these changes. In
general, most U.S. textile and apparel firms sought to isolate or
insulate themselves from the adverse changes, most notable o f
which were the shift of comparative advantage to developing
countries and the resulting increase in import competition in the
United States. On the other hand, Japanese firms made a
strategic decision to invest and contract production in countries
that were gaining the comparative advantage in order to develop
and gain increased control of the textile complex in developing
countries, particularly in East Asia and the PRC. 1 As for
companies in the other countries involved, their responses were
highly. mixed, depending on their existing international competi-
tiveness and the policies of their respective governments. How-
ever, virtually all firms in developed nations had to cope with the
surging development and exports of East Asia and the PRC.
U.S. FIRMS
The basic problem facing U.S. textile complex firms was a signifi-
cant increase in competition from both domestic and foreign (from
both imports and direct foreign investments) sources. However,
the nature of the increased competition varied in type an d
intensity for each segment.
56
OCR for page 57
57
Fiber Firms
Investments in the United States by large European-based
companies and vice versa resulted in new competition on the home
front and additional production capacity. Until the latter part of
the 1970s, competition and the imbalance between supply and
demand in the United States helped put downward pressure on
domestic prices and earnings. At the same time, however, surplus
domestic capacity, increased foreign demand for U.S. man-made
fibers, and a weakened dollar led to significant increases in
exports by U.S. firms. With investments made earlier, to a large
extent in Europe, and an increased ability to service other foreign
markets by exporting, U.S. firms on the whole perceived little
need to invest elsewhere abroad. The more appropriate strategy
was to concentrate efforts on the U.S. industry's basic compara-
tive advantage, greater production efficiency and new products
and processes through increased RED.
Virtually all of the major U.S. fiber producers increased their
spending on RED during the 1970s, concentrating on cost reduc-
tion and developing new, higher value specialty fibers. Major
capital outlays were also devoted to modernizing existing
facilities in the United States and to complying with OSHA and
the Environmental Protection Agency (EPA) regulations. In
general, the net result of these activities was a strengthening of
U.S. international competitiveness, as reflected in trade statistics
and corporate earnings.
Fabric Firms
During the 1970s sluggish domestic demand and increased com-
petition, particularly from Asia, kept prices and earnings low.
Increased protectionism abroad and particularly in regions where
local demand for fabrics was rising, kept U.S. exports from
achieving their maximum potential, even though the dollar was
weak. However, some of this unrealized export potential was
attributable to the management of U.S. firms. Most U.S. fabric
producers lacked the international business expertise necessary to
export successfully or were either unaware or unconvinced that
the export opportunities existed.
Domestically, most U.S. fabric producers were faced with a
massive need to modernize their facilities and to meet the new
and stricter EPA and OSHA requirements. Numerous marginally
productive plants were closed, and employment was trimmed.
Marketing strategies were also altered. As the domestic apparel
industry weakened, many fabric companies put increased emphasis
on non-appareFuse fabrics. The larger firms also put increased
OCR for page 58
58
emphasis on bran~name lines and stepped up their advertising
efforts to create strengthened demand. In so doing, they sought to
insulate themselves from the increasing import competition in
low-end fabrics. Finally, some firms concentrated production on
long runs of staple products and sought cost leadership.
Overall, the strong foreign demand for certain U.S.-made
fabrics (particularly synthetic fabrics and cotton denim) and the
weakened dollar during the 1970s resulted in increasing exports by
U.S. fabric producers2 end lessened the perceived need for making
foreign investments. The basic strategies pursued by the large
domestic producers-were generally in line with what they should
have been doing, given the U.S. comparative advantage and the
changes in the environment. However, smaller producers gener-
ally lacked the management expertise and the capital required to
follow the strategies of the larger firms, particularly given the
mandated management attention and capital outlays to comply
with increased government regulation.
Apparel Firms
Of all three major segments of the textile complex, the apparel
segment in the 1970s faced the greatest increase in competition.
Again, sluggish domestic demand and increased imports (and in the
case of apparel, truly significant import surges) kept prices and
earnings low and may have caused many firms to fail.3 While
explosive growth in foreign apparel production to some extent
helped increase U.S. exports of fibers, yarns, and fabrics, it did
not help expand U.S. apparel exports. On the import side,
Japanese and East Asian producers utilized new equipment and
enhanced marketing know-how to increase exports to the United
States in middl~price range goods, while ASEA N and other
developing countries filled in the lower-end portion vacated by the
Japanese and East Asians.
Thus, most U.S. apparel firms faced a dilemma, neither side of
which was very promising: continue trying to compete on a price
basis in low- and medium-range goods or alter their existing
product mix to higher fashion, less price and import-sensitive
goods. Given their comparative disadvantage in labor costs, the
former strategy was not always successful. Some firms could only
remain marginally profitable if they utilized offshore processing.
In their movement offshore, few of the smaller firms had the
international business skills necessary to make offshore processing
successful. In fact even larger firms were not always successful in
offshore processing. For the most part, the small, family-owned
firms typical of the apparel industry were not overly successful in
pursuing either of these strategies.
OCR for page 59
59
As for the larger firms, many were able to pursue successfully
one or the other of these strategies and, in some cases, both. To
compete head-on with imports and to lower their costs (and some-
times avoid unionization), many firms established offshore pro-
cessing facilities (particularly in the Caribbean basin) utilizing the
duty provisions of Item 807. Apart from offshore processing, the
larger firms reduced their product concentration by adding new
lines and tried to move up In price range within most lines by
developing and strengthening private brands.
Exemplifying these strategies was Levi Strauss, the largest and
one of the most aggressive U.S. apparel companies. From its
historic concentration in denim jeans, Levi's built a strong, private
brand that commanded premium prices by concentrating on
superior product quality and huge image and product adver-
tising. It then opened foreign plants (directly or via licensing) to
supplement its domestic production and its exports by directly
supplying foreign markets. It also began a product line diversifi-
cation strategy into other menswear, womenswear, and apparel
accessories, using the established Levi name and image as the
springboard.
While most larger firms achieved some success, smaller firms
continued to lose ground, resulting in the apparel industry's con-
tinuing to shrink in renumber of firms and employment. The apparel
firms' problems were also negatively impacted by the activities of
1 arge A merican retailers, who increasingly purchased directly
from foreign suppliers. This phenomenon is discussed in more
detail later.
JAPANESE FIRMS
In some respects the problems facing the Japanese textile com-
plex have been identical to those facing the U.S. complex
growing comparative disadvantage in labor cost, reduced employ-
m ent and number of firms, increasing government regulations,
increasing imports, and a host of new competitors in foreign
markets. Unlike the U.S. firms, however, Japanese firms were
faced with a currency whose value was rising sharply (affecting
exports adversely) and by major reductions in Japanese tariff
protection. Despite this situation, the Japanese textile complex
actually gained strength and increased control over global textile
v . _ cat _
complex activities. ~I~here was nothing magical or mystical about
how they did it. The JaDanese firms simDlv made a deliberate
. . ,
decision to streamline and upgrade their domestic complex and to
pursue the shifting comparative advantage to developing countries
through direct foreign investment.
OCR for page 60
60
In the 1950s the large Japanese spinning companies invested in
Latin America to gain access to cheap cotton yarn. In the 1960s
these same companies, along with some of the larger apparel
companies, established operations in East Asia--the spinning and
weaving companies establishing foreign apparel operations that
would buy their fabric from the Japanese-based plants. During the
1 970s the large fiber firms established or bought into foreign
fabric companies, primarily in East Asia, supplying them with
f iber made in Japan. As ASEA N countries gained comparative
advantage in apparel, the same Japanese firms established or
bought into apparel companies in ASEA N countries, supplying
them with fabric from Japan or their subsidiaries in East Asia.
The Japanese also upgraded their fabric and apparel operations in
East Asia into medium-price-range products and their operations
in Japan to upper ranges and specialized products such as apparel
accessories.
As mentioned in Chapter 1, the two most active and largest
fiber firms, Toray and Teijin, went on to establish vertically
integrated textile complexes in Korea, Taiwan, and several
ASEAN countries. Via a mixture of foreign investment, licensing,
loans, and extensive intricate supplying and buying contractual
arrangements, the large Japanese firms played an active role in
the emerging textile complex in East Asia and the PRC
In many activities and pro jects, the Japanese manufacturer s
worked closely with the Japanese trading companies. The latter's
extensive marketing and distribution capabilities and expertise,
comprehensive knowledge of changes in foreign government
policies and supply and demand conditions, and financial strength
were often critical to the success of the Japanese manufacturers'
strategy.5 With their combined global activities and viewpoint, it
made little difference where a process was done. They profited
from all involvements, their Japanese operations, trade with
Japan, their operations in foreign countries, trade among their
foreign affiliates, and from foreign affiliate trade with the United
States, the EEC, and other countries outside the Pacific Basin.
In comparing the Japanese and American responses to the
changing environment, the obvious question is why didn't the
American companies pursue the Japanese strategy? There were
several main reasons. First. the larger JaDanese firms were
~ , v
already more vertically integrated, permitting them to export
their fabric operation as they lost competitiveness while being
able to supply their exported fabric operations with domestically
produced fibers, thereby increasing overall profitability, growth,
and competitiveness. The non-integrated firms in the U.S.
complex could not do this and, hence, could not benefit similarly.
Second, the Japanese had a significant cultural advantage in the
region where the world's textile complex was growing the
OCR for page 61
61
f astest. Their better knowledge of Asian governments, firms,
language, and customs gave them competitive advantage over U.S.
companies.6 Third, the rising yen, declining domestic protection,
and smaller domestic market forced a more outwardly focused and
aggressive strategy. Fourth, the Japanese manufacturers had the
invaluable assistance of the trading companies, a group with no
U.S. counterpart. Finally, many of the producers belonged to
larger groups of firms whose diversified activities and growth
provided employment opportunities for displaced textile employ-
ees, relieving their textile firms from worry about the negative
impact foreign investments or increased automation might have
on their employees.
EUROPEAN FIRMS
It is difficult to generalize about the responses of European firms
because there were major differences in their degree of inter-
national competitiveness, the structures of their complexes, and
the nature of their governments' involvements. However, as
mentioned in Chapter 2, it is not difficult to generalize about the
r esults of the changing environment on the European textile
complex: Europe suffered the largest percentage reduction in
f irms and employment of any developed region, despite ma jor
efforts in Britain, France, and Italy to protect their complexes.
As might be expected, European corporate responses were
significantly influenced by the policies of their respective govern-
ments. Companies in countries with strong currencies, strong
economies, and relatively non-interventionist governments either
moved more aggressively internationally or went out of business.
The experiences of firms in the West German textile complex
provided illustrative examples. Their larger chemical and fiber
companies (Bayer, BASE, and Hoescht) made investments in the
U.S. market and established several other types of operations in
Eastern Europe, Latin America, and the Far East. As noted in
Chapter 2, some West German apparel firms moved aggressively
into offshore processing while concentrating domestically on
product upgrading and making good use of the West German
textile and equipment industries' technologically advanced
m achines. Yet, because of the West German government's
essentially laissez-faire policy of non-intervention, many of the
smaller textile and apparel companies could not successfully
pursue these strategies. The result was a 27 percent drop in West
German textile and apparel employment between 1973 and 1979,
with an obvious ripple effect on employment in other areas of the
textile complex.
my, .
OCR for page 62
62
Th e employment experience in the N etherlands was even
worse. Without as strong a textile complex to begin with as in
West Germany, and an even more non-interventionist government
policy, the Dutch textile and apparel industry recorded a 4 5
percent reduction in employment between 1973 and 1979.
At the other extreme was the experience of the Italian textile
complex. As mentioned in Chapter 2, throughout the 1970s and to
the present, the Italian government's main objective vis a vis its
textile complex has been to maintain employment at virtually any
cost. Being the country within the European community with the
lowest labor cost and one of the most advanced textile complexes,
there was not as much competitive pressure for the Italian firms
to invest in other countries. Italy's exports to other EEC coun-
tries doubled from 1977 to 1981, its $5.3 billion trade surplus in
textiles (1980-1981) was the world's largest,7 and its textile
complex employment has fallen by only 2.5 percent between 1979
and 1981.
Some of these patterns resulted from Italian firms' strength-
ening their financial controls and improving their marketing by
switching emphasis from bulk production to name brands. How-
ever, these results were also significantly influenced by large
government subsidies, primarily to keep labor employed, and by
partial nationalization of the Italian complex, i.e., those firms
that were going bankrupt. The government subsidies and nation-
alization also helped keep the small Italian firms in business.
In between these two extremes were the experiences and
strategies of other European firms. One of the larger problems
they faced was the shifting policies of their respective govern-
ments. Unlike the rather clearly stated and consistently applied
policies of the Dutch, West German, and Italian governments, the
policies of the French, Belgian, and the British vacillated back and
f orth between those oriented toward increased protection and
those oriented toward industrial restructuring and competitive
enhancement.
Several of the larger French and British man-made fiber firms
established operations of various kinds in the United States,
Eastern Europe, and Latin America and experimented (not too
successfully) with vertical integration, e.g., ICI and Courtaulds. In
the United Kingdom, the stated policy of Marks and Spencer, one
of the largest British retailers, to buy 90 percent domestically
produced goods helped some of the British fabric and apparel
companies stay afloat and at least provided some time for
adjusting their competitive strategy. Even though France lost
some of its established leadership as the apparel fashion center of
the world to the United States, Italy, and Japan, the French
textile complex was still able to capitalize on its image both
domestically and abroad. In the latter case, it increased export
OCR for page 63
63
sales of its products or the licensing of its brand names for foreign
production, examples of which in the apparel segment were Yves
St. Laurent and Izod/LaCoste. In addition, more than the
governments in most of the other European countries, the French
government embarked on a sizeable R&D effort to improve
manufacturing productivity and product upgrading. While it was
too early to judge the results of this effort, the effort is expected
to result in improved competitiveness of French firms.
Thus, for European firms, in general, the impact of the chang-
ing environment was more severe than for firms in the United
States or Japan. If their strategic responses to these changes
were more mixed in orientation and success, it was because each
country's complex was at somewhat different levels of develop-
ment and strength, and their respective government's policies
toward the complex were different.
RETAILERS A N ~ DESIG N ER S
Before closing this section on corporate activities, some mention
should be directed to the activities of large retailers and fashion
designers. From the 1960s to the present, increased competition
among large department stores, mass merchandisers, and dis-
counters led to increasing foreign purchases of fabric and apparel
(particularly low-end merchandise and from the developing Asian
complex) and the opening of U.S. buying offices abroad. As they
learned that foreign production was not always as reliable as
domestically supplied goods, U.S. firms began to assist foreign
producers by providing them with technical and managerial
know-how, such as designs, specifications, and quality control
measures.
Rather than following the historical method of shopping around
for existing garments and fabrics in excess supply, the retailers
began to contract with foreign production under a method called
specification buying, a method they had already developed
domestically. The entire process means that the- retailers
themselves design a particular garment (or join with a leading
i ndependent designer to provide an exclusive design for the
retailer), or copy an established design, and then decide which
fiber to use, from whom the fibers will be obtained, who will make
the fabric. where it will be dyed or Printed and finished. and so
,
~ ~ r~
on. The retailers provide the maze of contractors with exact
specifications, production schedules, shipping instructions, and
usually letters of credit to finance the operations and transac-
tions. This method of operation is similar to that of Japanese
trading companies, except that the retailers do not take equity
participation in the producing firms.
OCR for page 64
64
In order to compete with the huge buying power of the mass
merchandisers, such as Sears and J.C. Penney, department stores
banded together to form joint, cooperative buying offices abroad.
The combined sales of the U.S. department stores represented by
coop buying offices and U.S. mass merchandisers and discounters
exceeded $100 billion in 1980 (all products, not just apparel and
fabric)--an enormous buying power, to be sure. This buying power,
the access to the U.S. market that went with it, and the related
flows of needed expertise and funds provided U.S. retailers with
increased power over the textile complex both domestically and
abroad. While the European and Japanese retailers followed
similar strategies, their impact was not as large.
As the retailer's role became more important, so did that of
fashion designers. Above a certain level of demand for fabrics and
apparel based on need, there is a growing demand based on
preferences: preferences of fashion, style, comfort, and wearing/
cleaning properties. While price is virtually always important to
buyers, products purchased on preference demand tend to be less
subject to price competition. It is in this area of preference
demand that designers played their most important role--and a
role that increased in importance particularly in developed
countries.
While historically considered to be the domain of French and
Italian designers, fashion designing spread to more and mor e
countries (including the United States and Japan) and to products
other than apparel, such as sheets, draperies, and upholstery. Yet,
like the textile and apparel equipment sectors, the expertise of
leading fashion designers could be purchased on world markets by
m anufacturers via contract or licensing if the manufacturers
themselves did not have their own design staff. Thus, Yves St.
Laurent designs and labels appeared on products made by several
firms, both in France and in other countries, including the PRC.
The importance of all of this was that the skills and images of
designers were influencing textile complex production more so
than in the past--not only in terms of what was being produced,
but where and by whom. While still a lesser influence than other
economic or strategic factors, the role and importance of design
appears to be increasing, and the increased use by manufacturers
in developed countries is one major way to increase their com-
petitiveness against developing country producers.
~ . ,
N OTES
1. Domestically, Japanese firms made many of the Sam e
shifts in strategy and activity that U.S. firms were making.
OCR for page 65
65
2. Theimpactof fluctuating currencies has a major impact
on trade in textiles and textile products. In the late 1970s the
dollar weakened, and fabric exports rose from 400 million pounds
in 1978 to 600 million pounds in mid-1979, while fabric imports
declined. When the dollar strengthened toward the end of 1980,
U.S. fabric exports fell back to 400 million pounds in 1981, denim
and corduroy fabric exports declined by 55 percent and 73 per-
cent, respectively, and fabric imports rose 40 percent. (Source:
ATMI and Johnson Redbook Service).
3. During the period from 1970 to 1976, the bankruptcy rate
among U.S. apparel firms averaged over 200 per year. According
to Dun and Bradstreet, the bankruptcy rate from 1977 to 1980 was
roughly one firm every three days. See Focus: Economic Profile
of the Apparel Industry, American Apparel Manufacturers' Asso-
c iation, 1982. However, because of the large number of
companies (over 17,000) the actual percentage rate was about 1
percent.
4. Under Item 807 firms can ship U.S.-made components to
foreign operations that can then assemble the products and ship
them back to the United States, paying duty only on the value
added abroad (rather than on the total value of the goods, which
importers of products made entirely abroad must do). By aver-
aging foreign and domestic production costs of garments, these
firms gained a price advantage over strictly domestic producers
and better supply capability than offered by strictly foreign
producers. Alternatively, some U.S. firms produced low-end
garments offshore and devoted domestic production to middle- and
upper-range garments, allowing them to offer a more complete
line than many strictly domestic or foreign producers.
5. The benefits of the trading companies' expertise was more
often needed and sought by the small- and medium-size Japanese
manufacturers and for countries less familiar to Japanese firms.
6. However, Japanese dominance in some East Asian coun-
tries has now placed them in an unfavorable light.
7. Source: The Economist, December 12, 1981.
8. Unfortunately, no publicly available data could be found to
provide the exact percentages of purchases by U.S. retailers of
foreigm versus U.S.-made textile products.
Representative terms from entire chapter:
japanese firms
