continued from part 1
A challenge for low-cost suppliers
The case of Bangladesh is paradigmatic of the evolution of textiles. It is a very poor and populated country (the eighth in the world) and with a very high population density. The textile sector has grown strongly in Bangladesh since the 80s thanks to its competitive salaries, representing 80% of the country’s exports.
And six years ago, McKinsey pointed to it as a future great source of supply for production that abandoned nations like China for raising workers’ wages. For years, the sector has been a locomotive in terms of employment generation (particularly female), allowing many families to escape from situations of extreme poverty, but in recent times it’s losing strength due to the increasing mechanization of tasks.
Bangladesh exports Data: Bangladesh Garment Manufacturers and Exporters Association.
Bangladesh must therefore consider introducing new value-added activities into its productive model that generate employment and increase the level of income of the population. But there are several problems: the weight of the textile sector keeps wages low and reduces investment in alternative sectors. In addition, automation is ahead, conquering the sectors in which the country could be competitive for its lower salary costs.
To make matters worse, the substitution of work by man threatens the social stability of a poor country, with hardly any natural resources, very young and populated and with a very high population density (almost three times that of Holland).
The future of fashion and the return of production
Perhaps the most important sectoral phenomenon of recent decades has been the birth of fast fashion. The price of clothes keeps falling and the time since a trend is detected and a design is created until the customers find the product in stores has been drastically reduced.
As a result, the life cycle of the product has accelerated considerably. The concept of “in season” vanishes and the garments are renewed at an increasingly higher rate. The client, before the low prices and the enormous offer of designs, changes its way of consuming. Thus, the purchase frequency increases, stimulated by facilities such as online sales or favorable return policies.
The automation cuts the cost differential with manual production little by little, which would make it possible to return production to developed countries, as we have seen in the case of Adidas.
Going a step further, advances in automation can make possible individual manufacturing on demand, which would have important repercussions on the business model of the industry such as:
- Simplification of the supply chain, shortening delivery times even further, due to the proximity of production to the customer. Think of a kind of 3D printer of clothes or footwear, either in a factory or in the store itself, which receives the measurements of the buyer, obtained from an app that analyzes a photo or through a virtual store tester , and manufactures the tailor-made garment.
- Reduction in the inventories needed to be maintained by companies, with the consequent decrease in the associated operational and financial costs.
- Ability to apply price discrimination policies with the individualization of designs. In any sector, the ability to personalize the offer is seen as something positive, since it opens the door to discriminate prices and thus maximize the return obtained by the client. Fashion, however, is basically gregarious, which could limit the scope of such customization.
- Goodbye to scarcity. The customer would no longer have to worry about the lack of size and the brand will ensure the sale.
- Reduction of the number of returns and associated logistics costs.
Custom manufacturing has, however, the drawback of putting limits to the generous return policies applied by leading companies. In a bespoke fast fashion scenario, it would be difficult to allocate the product to another person if the client gives up his purchase. Likewise, the second hand value of the garments is reduced with the disappearance of the standard size.
As we see, even working with a physical product, the world of fashion is not far from the disruptive effect caused by new technologies. In fact, we can expect a growing digitization of design activities in parallel to the advancement in new materials and automation. This will allow the development of better simulation tools for the benefit of the creators, in addition to adjusting the deadlines in the supply chain of the companies even more.s
Digitization, together with personalized production, will bring new business models, and it would behoove companies like Inditex, at the forefront of the sector, to keep their eyes open.
And speaking of creators, advances in simulation would reduce barriers to entry into the world of design, allowing non-professionals, collaborative design platforms, exchange communities, etc. could join. Not to mention influencers, and celebrities, who would see a new opportunity to monetize their ability to drag audiences.
Digitization, together with personalized production, will bring new business models, and companies like Inditex, at the forefront of the sector, will do well to keep their eyes open. For example, copying and adapting other designs would also be facilitated, so that the window of exclusivity of a particular product or design would be reduced considerably.
Over time, the digitalization of the design and the automation of production will allow any competitor to manufacture their own products tailored to each individual customer. In this sense, countries such as Bangladesh are mere suppliers of production capacity and have little to say in the activities that generate more value in the industry, such as design.
Automation will not improve its situation, rather on the contrary, with the transfer of part of the production to the sales markets and greater competition in costs. Some companies are already reacting to the threat, such as China’s Tianyuan Garments, which is installing a production plant in Arkansas (USA).
Dilemma in sight
According to the theory of comparative advantage, humans seek to employ ourselves in that occupation that maximizes our return. This has led developed countries to abandon activities such as textile production to concentrate on others with higher added value. Nations like Bangladesh, relying on their low wage costs, have seized this opportunity to create jobs and lift millions of people out of poverty.
Recent advances in the automation of the sector reduce the relevance of the wage cost in production, undermining the position of countries specialized in the manufacture of clothing and footwear and threatening to make the reversal of the relocation process profitable once again.
To the big brands of the sector, producing locally earns them goodwill points in the eyes of their customers, many of whom are suspicious of the offshoring processes, for which they are responsible for the loss of jobs in their countries.
In addition, the absence of a strong domestic market leads them to continue to invest in textile exports while retaining a cost advantage, which may reduce resources for possible alternatives. And all this with the threat of social upheaval that may arise from the weakening of the labor market.
The dilemma for Western clients is evident. Their CSR policies, focused on improving working and salary conditions put into practice by their suppliers, can be counterproductive for workers by stimulating automation. But, in the absence of other outlets for employees, is there an alternative to automation that does not go through the application of interventionist policies? It seems clear that the automation process is unstoppable and there is no easy way out of the challenges it poses.