Price Isn’t the Whole Story

With 2005 and the phase-out of quotas on trade in textile and apparel products less than 18 months away, many mills and manufacturers are nervously eyeing the clock and fighting to trim production costs to remain competitive and still eke out a viable margin. As retail apparel prices have declined each of the last several years, price reductions have been pushed upstream throughout the textile pipeline, from retailers to distributors to mills and manufacturers. Recent issues of the Textile Consumer have noted this pervasive price pressure, addressing various causes and effects throughout the industry. However, examples abound of suppliers who consistently increase their business at prices above the market average. At each stage of production, certain suppliers of cotton textile and apparel products to the U.S. market have thrived without competing solely on cost.

U.S. yarn manufacturing, a former bastion of the domestic textile industry, has seen its domestic market share eroded by a flood of low-priced imports. For example, Pakistan's shipments of carded and combed yarns were scant a decade ago, but have grown to lead the world, accounting for 22% of total U.S. cotton yarn imports. The volume of Pakistani shipments has surged in part because Pakistani yarn consistently costs less than the world average price of yarns destined for the United States. However, price is not the only basis on which yarn manufacturers have competed successfully. Italy has supplied combed yarns to the United States at costs well above the world average each year since 1989. One would expect Italy to have lost import share to lower-cost suppliers; instead, Italy has seen its market share rise over this period, from 15th among foreign suppliers in 1989 to 3rd in 2002. Italian yarn spinners have accomplished this by specializing in specific types of fine-count single and plied yarns used in the production of high-end apparel.

Home textiles provide another example where suppliers have bucked the trend of increased price competition. U.S. terry towel imports have grown 275% since 1989. The price of towels from India, the largest foreign supplier, generally has been below the world average price of towels destined for the United States. In 2000, when prices of Indian towels imported into the United States surpassed the world average price, India lost market share the following year. In contrast, Turkey has gradually expanded its share of towel shipments despite prices exceeding the world average price by an average of 179% over the past 13 years. From 1989 to 2002, Turkey climbed from 22nd to 5th among foreign suppliers of terry towels. Turkish bath towels are sold by catalog retailers such as L.L. Bean and Garnet Hill at prices well above the U.S. average.

This phenomenon is evident not only in relatively capital-intensive segments of the pipeline, like yarn spinning and greige and home fabric production, but also in more labor-intensive apparel operations. Imports of men's and boys' knit shirts, the second-largest category of cotton apparel imports, have grown 483% since 1989, largely on the strength of preferential trade agreements such as NAFTA and the CBI, which have provided increased access to the U.S. market, with reduced or no tariffs. These benefits have enabled Latin American and Caribbean suppliers to compete more effectively on price, garnering them increased shares of U.S. imports. Yet Peru has steadily increased U.S. shipments and market share with prices above the world average in each of the last 13 years. Imports of Peruvian cotton knit shirts for men and boys have traded for an average 48% premium over the world average price since 1989, and Peru's rank as a foreign supplier of males' knit shirts has climbed from 21st in 1989 to 8th in 2002. The Peruvian products are primarily aimed at the high-end golf shirt market. 

After 2004, the relative benefits to suppliers covered by regional trade agreements will be diluted, as all WTO members will be able to trade with one another in a quota-free regime. Suppliers able to compete on more than price may remain viable regardless of such trade policy changes. In the examples cited above, none of the nations benefits from a free trade arrangement, an artificially manipulated exchange rate against the dollar, or a regional trade agreement specific to textiles and apparel, except for Peru under the recent Andean trade preference legislation. Yet each of these suppliers has increased its import share in the U.S. market in its product category. These examples show that suppliers can target specific consumer markets with unique high-value-added products knit shirts and processes 48and not21 be required 8 to compete on a price-only basis in an increasingly global and increasingly crowded marketplace.

Top