Supply chain: pro and cons offshoring clothing manufacturing

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3. Reasons for offshoring in general and in clothing manufacturing

3.1 Purposes of offshoring in general

There are many purposes off shoring in general according to (Szuster 2013, p. 109)

The reduction of operating costs with cheaper workforce, lower real estate prices, lower taxes, lower costs of leases, lower communication tariffs. But offshoring is also the possibility to get access to resources that the company doesn’t have in its country. It is the opportunity to have access to higher professional qualifications, to employ personnel (better educated). Also to be close to raw material sources (quantity, quality and price can be more advantageous in the foreign country). Moreover, it can be the opportunity to benefit from a more favorable environment such as less strict environment protection regulations, less (or more) strict labour law. In addition to that a company can chose to offshore to be closer to its target market.

The main reason to offshore is to use poorly paid workforce to accomplish simple tasks which require manual labor. In fact, it’s the opportunity to get a cost advantage by locating production operation in low-cost countries and selling products in developed countries (Maciei Szymczak, 2013).

There are many arguments in favor of offshore-outsourcing, such as the company will have a product which is made by a company more specified, qualified to produce, with access to specialized personnel (professional staff), resources and know-how. The result of that process is also to reduce cost for the company who uses outsourcing. Outsourcing allows a company to be more reactive with changing demand or market. In fact “Thanks to outsourcing, a company may be capable of faster implementation of new technology, offering a new product to customers more rapidly or better coping with sudden changes in demand” (Maciei Szymczak, 2013)

However, outsourcing can also have negative effects on the company. First for employees, there is an uncertain future because they can lose their jobs. So this has an impact on their morale. Moreover, outsourcing influences the management of a company, in fact the company can lose control and can have difficulties to communicate with the subcontractor. Outsourcing requires a high standard of management to avoid problems that they may have when they transfer functionality. Moreover it can become too dependent on retailers and this can have a bad impact on its performances, if it has trouble with the retailer. In addition to that, the stability or the environment can change in the foreign country (politic instability, regulation, conflicts), this can cancel the advantage won by offshoring in a foreign country (McCarthy and Anagnostou, 2004).

3.2 Offshoring in clothing manufacture

These reasons can explain why companies resort to offshoring in clothing industry. According to Ettlie and Penner-Hahn 1994 and Kim and Lee 1993, there are four keys elements for manufacturing strategy: quality (conformance of products, performance to the demand), delivery, flexibility (the quantity of products available) and cost.

There are two different types of strategy. One is to count on domestic production for both internal and external market. The second is to offshore production to national market or international. 30%-50% of the cost of a textile product is labour (Lin et al, 2002). So companies, thanks to globalization, can use offshoring to benefit from less expansive labour and make substantial savings to get differentials from their competitors. Companies choose to do offshoring in manufacturing industry in less-developed countries or newly industrialized countries such as India, Latin America and Africa. This strategy is possible thanks to advances in transportation, communication and liberalization.

Therefore, in clothing industry reducing the cost of labor is the first purpose of offshoring. There is a significant difference in minimum income between countries. For example in 2003, a US worker in apparel industry earned $US 13.06 per hour while in China or in India the minimal wage is $US 1.00, or in Taiwan and Hong Kong it is $US 3.00 per hour (International Labour Office 2005). This example highlight the advantage of producing in these parts of the world. It demonstrates the opportunity for a company to reduce the cost of the labor in clothing manufacturing.

Moreover, another reasons to offshore in clothing manufacture is the access to raw materials. And also the cost of them. In fact China, India, Latin America are the biggest cotton producers in the world. These three parts of the world produce more than 55 % of world production (International Labour Office 2005).

However offshoring in clothing manufacturing requires good management and vision of demand if companies want to sell the production in its country. It needs to import production from the manufacture to the target market. It’s take a long time from the order to the customer. The estimate time is 91 days for products to come from China (Mamic, 2007). Thus companies have to estimate potential demand and fashion trend.

Another limit of offshoring in clothing manufacture is the quality of the product. It is difficult to control the quality of production. Moreover the country of origins has an impact on the consumer’s purchase decision (Agrawal and Kamakura 1999). A consumer’s perception can be affected by negative country-of-origin. Although there is no actual difference in the quality of clothes, people have preconceived perceptions of countries and this can have a negative impact on the purchase decisions (Chetty, 2000).

4. The example of Nike. The company without factories.

Nike is an American company of sports products (shoes, sportswear and sports materials) created in 1971. Nike products can be easily recognized by his logo: the Swoosh which is a horizontal coma. Nike is the bigger sport brand in the world with a turnover of more than 25 billion for the year 2013.

The most striking in Nike is that it is an American company but it doesn’t have any manufactures in America. All products are produce in others countries in different parts of the world. Nike made offshore outsourcing, because Nike calls external suppliers in foreign countries. For marketing and design, Nike internalized this part in USA. It’s the only activity which is performed in-house (Jacques, 2006).

When the company was founded, Adidas was the leader of the sport’s market. To beat the concurrence Nike started to produce in Japan to reduce cost, especially labor