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Textile and Apparel Economics

by: Tyree Rutherford

Textile and Apparel Economics AM 330

Marketplace > Colorado State University > Business > AM 330 > Textile and Apparel Economics
Tyree Rutherford
GPA 3.71

Molly Eckman

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Molly Eckman
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This 13 page Class Notes was uploaded by Tyree Rutherford on Monday September 21, 2015. The Class Notes belongs to AM 330 at Colorado State University taught by Molly Eckman in Fall. Since its upload, it has received 46 views. For similar materials see /class/210132/am-330-colorado-state-university in Business at Colorado State University.

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Date Created: 09/21/15
AM 330 Textile and Apparel Economics Test 1 Fall 2012 82412 Chapter 1 Textile Complex rms around the world to accomplish textile and ber production Domestic Trade Distributing goods within your own boundaries International Trade Exchange of goods and services between two or more countries Global Tr ade Collaboration among cultures and nations in production and distribution Trade agreements Established by the government to enhance or control trade Barriers to Trade include tariff quota limits on foreign investment non tariff barriers embargo Globalization Financial globally integrated Business most everything is global Demand and supply of consumer goods global Trade and Investment regional Labor national Why we trade Don t want to be self suf cient Ef ciency Five Economic Concepts that Underline Trade 1 Scarcity and Choice possibility curve 2 Opportunity Cost what you are giving up 3 Rationing price 82712 4 Law of Supply and Demand Law of Supply The quantity depends on Athe price of goods determines the slope Bprice of inputs needed to produce and market the good Ccurrent technology available to produce and market the good D prices of other goods that can be produced with inputs used or owned by the seller E expectations about future prices F number of sellers in the market BF cause the curve to shift in and out Law of Demand Aprice of item determines slope Bincome available to spend C accumulated savings wealth D expectations of future price changes E prices of alternative items F tastes and preferences for current fashions G population served by the market Equilibrium Price supply crosses demand most ef cient price Market Economy determines supply and demand of goods Hong Kong China Best example of a free market economy Gains from Voluntary Trade 82912 Trade Theories Based on 5 Economic Theories AM 330 Textile and Apparel Economics 1 Mercantilism 15001750 historic theory that countries wealth is dependent on their amount of gold Positive trade balance exporting more than importing Bring in raw materials convert them to value added products basis of colonialism 2 Absolute Advantage 3 Comparative Advantage should produce at a lower opportunity cost per item 4 Factory Production Theory based on capitol man made ber and textile production labor apparel Surplus exports gtimports De citexportsltimports Development Theories of Trade 1 Structural theories of development Rich or poor nations emphasis on structural conditions natural resources 1400 merchant capitalism banking system began in Venice 1450 luxury goods 1500 spread of capitalism rise of west 3 zones divergence of economies 1600 First World Core high income 24 countries based on level of development North America Western Europe Japan Intemational upper class smallest population 16 of world Largest GNP 54 output of goods Second World semiperiphery middle income Relied on resources of other countries Soviet Union Eastern block of Europe NICS Newly industrialized countries BEM Big emerging markets BRIC Brazil Russia India China OPEC Middle Eastern Organization of petroleum exporting countries 8 3 1 12 Third world Periphery 0 Low income economy 60 of world population 0 12 of GNP Produce low wage low tech products Measuring Levels of Development 1 Countries level of well being Newly developing Developing Developed Economic well being western idea Bhutan measures gross national happiness spend 18 on education AM 330 Textile and Apparel Economics Test 1 Fall 2012 2 Terms to measure development GNP Gross National Product value of output produced by domestic presidents per capita Residents per capita Production per citizen GDP Gross Domestic Product market value of all goods and services produced by all workers adjusts prices across standard country PPP Purchasing Power Parity currencies using US as stande cost of living in a particular country 3 Relationship between levels of development and textile and apparel industry Newly developing countries India Bangladesh Thailand Apparel production is attractive for economic growth employment opportunities low skill requirements low start up low investment earns valuables stable foreign currency Developing countries Taiwan South Korea China Israel Big Three Hong Kong Taiwan South Korea outsourcing production use production to grow national economy focus primarily on production for export and increasingly production for domestic market Turkey Costa Rica Mexico Developed countries United States Western Europe Japan Australia No longer major producers rather consumers Most competitive in the production of textiles and synthetic bers Least competitive in production of apparel US Textile Complex Textile Complex Fiber Industry natural or synthetic End market Manufacturing apparel industrial products home furnishings Retailers Consumers Vertical Integr ation companies at different levels of supply chain come together to be more efficient Backward or forward to next step of production Private label distinct in market place Horizontal Integr ation manufacture many different products Textile Complex 1 Level 1 Textiles and findings manufacturers vertically integrated horizontally integrated AM 330 Textile and Apparel Economics 2 Level 2 apparel manufacturers apparel contractors sourcing companies contractorjobber system CMT full package retail product developers Level 3 Retailing International Retailers Ikea Zara HampM Mango Intemational de ned by having greater than 50 of sales outside of the country 4 Merger of the three levels global export trading and sourcing company identifying the most efficient vendor of materials production finished goods price product quality lead time political state cultural issues 5Sourcing outsourcing outward processing outsourcing non origin conferring operations to a country with lower wages 9512 Chapter 2 Consumer Consumption and Well Being Haute couture middle east is a major consumer well developed nations Used Clothing seen more in developing countries U S Apparel Industry Basic Goods common commodities staple items socks underwear Impact on Industry most appropriate for quick response fast movement turn around linked electronically in supply chain easier to order always in demand long runs produced in mass quantities economies of scale the more you produce the cheaper it is Fashion Goods anything adopted by a substantial group of people at a given timepace motivation for the firm continuedrenewed demand motivation for the individual prestige status desire for change Impact on rmindustry Entry is facilitatedon trend AM 330 Textile and Apparel Economics Test 1 Fall 2012 Small scale production Pro ts 0 Impact on consumer Production costs higher Short run Mark downs Product obsolescence Product performance neglected Impact on society Unnecessary obsolescence Disposal of discarded products Apparel Choices Recurring cycles Fads short lived specialized fashion Classic styles universally accepted transcend fashion changes Measuring well being or im Standard of living Level of consumption urgently desired and strived for Working conditions Freedoms of movement and association Safety and security Political and environmental atmosphere Others Cultural traditions Basic human rights Protection of children Fair wages Fair assembly Prevention of discrimination of women Definitions of Income Minimum wage passed by congress lowest wage determined by law or contract that an employer may pay an employee for a specific job Living Wage a wage that is sufficiently high to provide minimally satisfactory living conditions different from country to country Basic Theories of IncomeConsumption Relationships Income elasticity of demand How responsive consumption is to change in demand Equation change in clothing expenditure divided by change in income 112 Income elasticity of demand re ects Greater than 1 demand increases at a rate proportionally higher than income increases Equals 1 unit elasticity income and demand changes are proportional Less than 1 inelastic as income increases the demand for a product increases at a rate proportionally lower than income increases Ngt 1 big response elastic Nl proportional unitary AM 330 Textile and Apparel Economics Nltl little response inelastic Price elasticity Equation change in clothing expenditure divided by change in price Consumer Expenditures Consumer well being If people are spending a third of their income or less on food it generally means people are well off Consumer Price Index CPI Equation Cost of market basket of products in current year divided by cost of same basket of products from base year Consumer prices for apparel have increased at a lower rate than prices for all other commodities Clothing expenditures have declined over time due to Lower in ation for apparel Increases in income More consumption options Recreation Travel Decreased in clothing as status symbol Democratization hard to patent 91212 Textile and Apparel Supply Matrix History Two categories of bers Natural cotton wool silk ramine Manufactured rayon nylon acetate US produces cotton and wool Paris de Cha1monet developed lament ber 1951 introduction of viscose rayon more durable than acetate Decrease in demand for rayon Price Pollution Production Synthetic non cellulosic Nylon polyester Big Three Nylon Acrylic Polyester Versatile Success product development Extensive promo Designed for speci c end use WWII introduced a push system Pushing things through the system Pull system Advertising directly to the consumer AM 330 Textile and Apparel Economics Test 1 Fall 2012 Problems in production Technological Development Industrial revolution Before 1733 Hand loomed With the use oftechnology goods increase and price decreased 1793 Eli Whitney and the cotton Gin 1795 Cartwright Power loom 1895 Battery loom Economic development Before 1776 we were and english colony No textile industry 1793 first textile Mill in Rhode Island 1812 infant industry Embargo specific restriction Tariff taxes 9 14 12 Apparel Industry Demand Changes 1 Sailors Minors plantation workers 2 Civil War 3 Economic Expansion Corduroy created in England sailors accepted it Denim created in Nimes France US Developed after independence Levi Strauss invented rivets and button for jeans Women s ready to wear launched Discovery of clothing going into factories because tailors couldn t keep up with demand Production Changes 1846 Lock stitch sewing machine invented by Howes 1870 Cutting machines that could cut 200300 layers of fabric 18801910 Jewish immigrants talented seamstresses Jobber takes the Risk Contractor provides efficiency Expansion Flexibility Gave up control by going off shore 39 D in the US In the 20 centu Capitalism private ownership of natural resources and means of production of goods and services Use of international economic independence Rise of the United States as a leader in the world trade market After WWII US 1St world trade because our own factories were in tact unlike Japan and China Volatility of the US Trade Stated things to try and to prevent trade from sparking another world war 0 GATT Rise of imports AM 330 Textile and Apparel Economics Trading up US Restricted number that Japan could ship to the US So they increased quality and made more 9 17 12 Global Perspective ofthe textile and Apparel Industrv Economic growth China Mexico BRIC Production Larger labor pool Low skill and education Low capital investment Global communication Accuracy Timing Transportation Institutional Arrangements MFA Multi ber arrangement WTO World Trade Organization NATFA North American Free Trade Association IMF international monetary fund helped with exchanges of goods and services among countries helped with payments established guidelines for trade North American Industry Classi cation System NAICS Developed due to NAFTA Replaced CIS Provides standard classi cation across countries Identi es section sub sector industry group industry nation Helps with record and keeping data T 39 39 39 llquot 39 Modern Industrv Industry Wide Technology Fiber industry Most capital intensive Apparel Labor intensive 1 Transportation and logistics 2 Communicating Speci cation and design Style analysis revision 3 Tracking deliveries 4 Quick Response UPC codes EDI Electronic data interchange JIT Just in time Transparency RFID radio frequency identi cation Country of origin transshipping Transshipping illegally changing the country of origin AM 330 Textile and Apparel Economics Test 1 Fall 2012 Textile production 3 major revolutions Industrial revolution 1700 s Innovation of Fibers 1930 s Innovation in manufacturing Result of Technology Flexibility of output Produce to order Apparel Production 1 Mass customization 2 Floor Ready Merchandise 0 3 CAD 4 Difficulty substituting capital for labor Hand control Inspection Issues in textiles and Apparel Trying to find lowest cost Labor issues cost reduction 1 Female workers 8090 of the workforce Lack of mobilitytransferrable skills Vulnerable Shifting production Low wages Long hours Income power and inclusion 2 Child Labor Working age world wide is 15 250 Million children working illegally 414 50 million in India Cheap labor special technique Few alternatives No social welfare Prevent starvation and prostitution Put responsibility on parents Charles Kemaghan Ethnocentrism 9 19 12 3 Sweat shops Below minimum wage Unregulated working hours Unhealthy unsafe conditions Few to no benefits Mandatory homework Immigrants paying passage into the country Fair labor standard AM 330 Textile and Apparel Economics Contracting Production versus cost Productivity outputsinputs invested Less developed less productive Literacy technology infrastructure Import Penetration Increasing higher for apparel than textiles Consumption productionimportsexports Value of importstotal consumption penetration New World Order Decrease in production in developed Increase in the number of countries producing and trading Increase in number of developing countries involved in production Increased consumption of imports in developed countries 92 1 12 Chapter 6 Trade Barriers and Regulation Background Thomas Friedman Three areas of Globalization 14001914 globalization of countries Civil war US l9l4 Free movement globalization 19152000 globalization of companies Establishment of structures for trade technology 2001 to present globalization of individuals Educations helps develop Regional trade groups Trade Policies have developed Imports Exports Immigration Protected Trade Trade Protection Reduces competition Makes competition fair Impact of protection on domestic rms Less competition Raise prices More jobs Argument protectionists will make Free trade can compete dont need protection 0 Impact on consumers Higher prices Less choice in the market place Types ofTrade Barriers Tariffs and duties AM 330 Textile and Apparel Economics Test 1 Fall 2012 Speci c form of revenue for importing government Trading up Ad valorem tax levied as percent of price of product protective Non Tariff Barriers Quota Exchange rates Import Licensing Labeling Care Fiber content Country of origin Safetyhealth concerns Standards and regulations Subsidies for domestic rms 0 Price support programs Social responsibility Domestic content laws When the US Dollar weakens Buy less abroad Consumer encouraged to buy more US Products Other countries buy more US Products Implications US Exports grow and imports decrease When the US Dollar strengthens The US Buys more abroad The consumers buy more foreign goods Foreign buy less Implications Exports decrease and imports increase 924 12 Video Notes 250 million children working extremely long hours for 100 a day Disease of the lungs Ramped in developing countries Class Notes Trade Agreements Agreements to control ow of imports Unilateral restraints Bilateral restraints 2 countries make an agreement of an amount they ll trade Multilateral restraints 3 or more countries make an agreement Managing Trade General Agreement on tariffs and trade GATT 1947 1994 Contradictions within GATT Trade without discrimination Had most favorite nation clause members would have to be treated equally AM 330 Textile and Apparel Economics Exceptionenabling clauses special concessions give trading concessions to developing countries China Protection of domestic market Favors tariffs over quotas Encourage multilateral agreements Atmosphere for discussion negotiation and solution Established binding agreements Became WTO in 1995 Uruguay Round Trade restrictions under GATT Short Term Agreements STA 1960 1960 2 year agreement on cotton imports via President Kennedylasted 12 years Long Term Agreements LTA 1962 Importing countries to restrict cotton Imports low wage countries Increase synthetic imports and growth of production in the Apparel Textile industry LDC and LICs Multifiber Arrangement MFA 1974 1994 Quota restrictions Expanded ber restrictions Proved Market distribution Facilitates the establishment of quota systems through bilateral agreements unilateral restraints Purpose of MFA Directions for negotiation for info on quota systems 926 12 Multifiber Arrangement MFA Why imports have increased under the MFA Politics Trade agreements democracy countries Bilateral were not comprehensive Base level of imports were expanded MFA was not well managed Liberalize trade help developing countries Hong Kong Taiwan South Korea Bene ciaries they should have given up quotas to other developing countries once their economy was good Quotas frozen Japan Europe refused imports from developing countries 0 US 50 Europe 20 Japan 6 Trading Guaranteed market access Bilateral guided by politics ATC Agreement on Textiles and Clothing 1995 AM 330 Textile and Apparel Economics Test 1 Fall 2012 Purpose Extended MFA for 10 years Phase out the MFA Different from MFA Nonrenewable 10 years phase out quotas Tariffs reduced Quotas on nonWTO member countries China 2001 Safe guard to protect market from chinese goods Market Disruption World Trade Organization Established January 1st 2005 Same assumptions as GATT Trade protection weakens the global economy Free trade strengthens the global economy Provisions Permanent institution and forum for multilateral trade agreements Head quarters in Geneva Covers goods services intellectual property 147 members 31 observers want tojoin Turkey most prominent observer has tried to join many times Impact on Industry


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