The Business of Fashion
3.04 Describe the fashion
industry from a global perspective.
U.S. and world trade policy
Imports: Goods that enter a
country from foreign sources.
• Imports account for approximately
60% of the total U.S. textile and
apparel market.
• Most U.S. imports come from
Mexico and China.
• Sweaters and jackets/coats
account for the largest number of
imports.
U.S. and world trade policy
Exports: Goods sent out of a
country to other countries.
Balance of trade: The
relationship between the
values of a country’s
imports and exports;
expressed as a deficit or a
surplus.
U.S. and world trade policy
Trade deficit: Occurs when
imports exceed exports.
• The U.S. trade deficit is large.
• More products are imported into
the U.S. market than are being
exported.
• Textile/apparel products are a
large part of the U.S. trade deficit.
U.S. and world trade policy
Trade surplus: Occurs when
exports exceed imports.
• Japan has a large trade surplus.
• A large trade surplus results in
large amounts of money for the
exporting country.
U.S. and world trade policy
Free trade: Government’s
policy for allowing goods to
flow freely in and out of its
economy without
interference.
U.S. and world trade policy
Protectionism: Opposite of free trade;
includes many government-imposed
trade restraints which form barriers to
free trade.
• Tariffs (duties): Charges (taxes) paid on
goods coming into a country; raise the
prices of imported goods.
• Quotas: Limitations established by the
government on quantities of certain goods
that can enter a country during a specified
time period.
• Standards: Certain levels of quality
specified for imported goods to prevent substandard products from entering a country.
Advantages of U.S. protectionism
• Job protection for U.S. workers
• Helps strengthen U.S. industries and
enables them to compete internationally
• Reduces the U.S. trade deficit
• Keeps inferior and unsafe products from
entering our market
• Maintains a strong manufacturing base for
national security, enabling manufacturers to
convert to war-effort production if
necessary
• Inhibits overseas competitors that pay low
wages, provide no benefits, and take
advantage of child labor
Disadvantages of U.S.
protectionism
• Encourages trade retaliation, which lowers
exports of all industries
• Loopholes and corruption enable merchandise to
enter the market anyway.
• Penalizes consumers with fewer choices and
higher prices
• Causes less competition
• Hard to retract after it is in force
• Does not encourage all industries to compete
equally
• Less damage to national interests
World Trade Organization (WTO)
An international trade agreement that
reduces tariffs, quotas, and other
trade barriers around the world.
•Agreement of more than 130 countries
•Negotiates and enforces global trade rules
•Exists to liberalize trade and serve as an
international trade court to settle
differences among member nations
•To be phased out by 2005, which will then
allow countries to compete with very few
trade barriers
Offshore production
The use of foreign workers in one or more
countries to complete the manufacturing
steps for goods that carry the producer’s
label.
•A garment may travel through four countries
before the manufacturing process is complete.
•Offshore production allows U.S. companies
and retailers to take advantage of lower labor
costs. These wages generally do not include
overtime pay or fringe benefits.
•Garments that bear the name of an American
designer are not necessarily manufactured in
the U.S.
Offshore production (cont.)
•Textile and apparel industries are usually
the first industries to appear in
developing nations.
•Much of the manufacturing of apparel is
done by hand, offering employment
opportunities to low-skilled workers.
•As countries develop, they begin to
utilize more technology, workers become
more skilled, and the quality and quantity
of textiles/apparel production begins to
increase.
Trading with developing nations
• Political stability
– Developed countries have laws that
favor international business.
– Countries with nonmarket economies
(communism) limit ownership of
private businesses.
– Some developing countries use
corrupt business practices.
– Before doing business in foreign
countries, terrorism and political
upheaval must be evaluated.
Trading with developing nations
(cont.)
• Economic climate
– Purchasing power and standard of living
– Costs of doing business with that nation
– Countries with low purchasing power and
standards of living may offer low-wage
manufacturing opportunities for U.S. firms if
no trade barriers exist in that country.
– U.S. firms may open retail establishments in
countries with high purchasing power and
standards of living, if the operating
expenses are not excessive.
Trading with developing nations
(cont.)
• Infrastructure
– Adequate communications,
roads, transportation, and
public utilities are essential in
conducting business in foreign
countries.
• Culture
– A nation’s culture and values
affect the way in which many
foreign countries conduct
business.
World’s major trade regions
•Asia-Pacific plus India
•Europe plus North Africa
•The Americas
Asia-Pacific plus India
•Japan is an exporting leader
because of effective marketing
strategies.
•South Korea, Taiwan, Hong Kong,
and Singapore
•Industrialized nations with outstanding
technology
•Small land mass with limited natural
resources
•Import raw materials and export quality
goods
Asia-Pacific plus India (cont.)
•India
•Sewing and handcrafting of apparel done in homes
•Exports apparel but accepts no imports
•China
•Exports low-wage goods
•Beginning to accept imports in order to become a
member of WTO
•Largest exporter of manufactured textiles and
apparel in the world
•Many manufacturing firms participate in unfair
trade practices and violate human rights
Europe and North Africa
•European Economic Community
(EU): Fifteen developed countries
which represent 20 percent of the
world’s gross domestic product and
more consumers than the U.S.
market.
•Euro: A common monetary unit
among eleven of the EU countries.
Makes it easier to conduct business
among these nations.
Europe and North Africa (cont.)
•Total free trade among European nations
•European businesses are efficient and
innovative, with creative advertising and
effective marketing strategies.
•Some low-wage production in North
African countries
•The industrialized countries of Europe
provide business opportunities for
American manufacturers and retailers.
The Americas
•Unified trade region as a result of
NAFTA
•North American Free Trade
Agreement (NAFTA): A trade
agreement between the United
States, Canada, and Mexico that
formed the world’s largest free trade
area.
•NAFTA eliminated trade barriers on
textiles and apparel.
The Americas (cont.)
•Canada
•High wage rate
•Sends upscale garments into the U.S.
The Americas (cont.)
•Mexico
•Low manufacturing wages
•Large, young, eager workforce
•Caused the closure of some U.S. factories
•Developing market with increasing standard
of living
•Large potential for American retailers
•Sears, JCPenney, Wal-Mart, and Price/Costco
currently have stores in Mexico.
•Many U.S. apparel firms are entering into
production in Mexico.
Counterfeiting issues…
Counterfeit fashions: Exact copies of
garments that are registered with the U.S.
Patent and Trademark Office.
•Can cost brand-name companies up to 22
percent of sales
•WTO requires all member countries to pass
laws prohibiting the counterfeiting of
apparel.
•Current penalties for counterfeiting are low;
lack of enforcement of counterfeiting laws
causes the problem to continue to exist.
Counterfeiting issues… (cont.)
•Counterfeiters benefit from marketing paid for by
the legitimate sellers and producers.
•Oftentimes, profits from counterfeit products are
used to finance terrorism and drug smuggling.
•Almost every brand of apparel is being
counterfeited.
•Blue jeans and athletic shoes are the most
commonly counterfeited items.
•Twenty percent of the Gross Domestic Product of
China comes from counterfeiting.
•Poses a threat to the reputation and sale of items
that are legitimately trademarked
Labor industry abuse…
Sweatshop: The Department of Labor
defines a workplace as a sweatshop
“if it violates two or more of the most
basic labor laws including child labor,
minimum wage, overtime, and fire
safety laws.”
Labor industry abuse… (cont.)
• Over 2,000 illegally operating sweatshops exist in
the U.S.
• Most sweatshop workers are immigrant workers.
• Most immigrant workers in sweatshops do not
complain about working conditions for fear of
losing their jobs or fear of retaliation from
employers.
• Since the mid 1990s, many apparel companies and
designers have come under strong criticism for
supposedly unknowingly utilizing sweatshop
producers in the manufacture of their apparel.
• Examples: Nike, Kathie Lee Gifford, Disney,
Guess