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  1. The Competitiveness of Chinese Textile and Apparel Industry in Global Value Chain ZHAO Junli Glorious Sun School of Management, Donghua University Shanghai, P.R.China zjl@dhu.edu.cn Abstract—This paper analyzes the position of Chinese textile and apparel (T&A) in global value chain (GVC). Chinese textile and apparel industry has inserted the GVC since the open-door policy. With the output and export increase, the competiveness of Chinese textile and apparel decreases, focusing on low value added activities. The key reason is that domestic firms enter the low value added activities of Global Value Chain and the activities of design, R&D, marketing and brand operation are crowded out. The latter is important to enhance the control power over the industry. So it is countermeasure that government, industry and enterprises develop the high value added activities to break through the difficulties. II. LITERATUREREVIEW Porter’s seminal work (1985, 1990) regards the firm is a complete, fully-fledged organization with all necessary business functions. At the same time, Kogut (1985) believes the firm is an incomplete firm. “a single firm may consist of only one link in this process, or it may be extensively vertically integrated…” His research transfers the focus from enterprises to organization network or chain, and triggers interesting research on power, governance and dynamic chain. In the 1990s Gereffi and others developed a framework, called ‘‘global commodity chains (GCC)’’, which tied the concept of the value-added chain directly to the global organization of industries (Gereffi, 1994). Gereffi distinguished between two ideal typical governance structures: producer-driven and buyer-driven. For coordination between different value chain activities, Humphrey and Schmitz (2002) distinguished relationships between suppliers and buyers four types: arm’s-length market relations, network, quasi-hierarchy and hierarchy. Gereffi, G., Humphrey J. and Sturgeon, T., (2005）deepen the above research into five governances: hierarchy, captive, relational, modular, and market according to three determines: the complexity of transactions; the ability to codify transactions; and the capabilities in the supply-base. Gereffi and Mayer (2006) distinguish between ‘market’, ‘corporate’ and ‘industrial’ governance. Coe and Hess (2007) provide another three analytically distinct: intra-firm governance; inter-firm or corporate network governance; and institutional and political governance The latest development in GVC governance is governance is understood in terms of “normalization” or “governmentality” by use of convention theory and criticizes the discursive dimension of the framing of buyer-supplier relations in Gereffi’s governance division (Peter Gibbon, Jennifer Bair and Stefano Ponte, 2008; Peter Gibbon and Stefano Ponte, 2008). For competitiveness research, there are the research of focusing on core competitiveness （Pralahad and Hamel,1990, Hamel and Pralahad, 1994）and of “dynamic capabilities” （ Teece and Pisano, 1994, Teece et al,1997）.. Keywords-competitiveness; Global Value Chain; textile and apparel industry; upgrading I. INTRODUCTION Researchers have increasingly paid attention to industry development in global value chain (e.g., Gereffi，1999，2005 ，Schmitz & Knorringa，2000， Kaplinshy, Morris，2003 ，Humphrey and Schmitz，2000，2002, Coe and Hess, 2007, Peter Gibbon, Jennifer Bair and Stefano Ponte, 2008). Their work has shown that with the Integration of trade and disintegration of production (Feenstra, 1998), the multinational enterprises (MNE) have changed their global strategy and increase the core competitiveness. In addition, the enterprises in Newly industrialized regions and countries (South Korea, China Taiwan, China Hong Kong, Singapore) grasp the chance of international transfer and upgrading the value added activities. While, how about developing countries inserted in global value chain? The paper studies the development of Chinese textile and apparel (T&A) industry in global value chain. The result is different. The paper is structured as follows. First, making a brief review of literature on competitiveness and global value chain. Then, the paper use value added per labor and RCA to analyze the position in global value chain and competitiveness. Last, concluding by discuss the implications for policy. Thanks for the support from the China National Social Science Fund “the Study on the upgrading of Chinese Textile Industry in the Global Finical Crisis” (Approval No.: 09CGJ011) and “the Fundamental Research Funds for the Central Universities” 978-1-4244-5143-2/10/$26.00 ©2010 IEEE

  2. III. THE POSITION IN GVC AND PROBLEMS FACED BY CHINESE APPAREL INDUSTRY Textile and apparel industry is one of the traditional industries in China. As one of earliest open industries, Chinese T&A industry has inserted the global value chain (GVC) since the open-door policy in 1978.The entry of WTO in 2001 and the elimination of MFA in 2005 accelerated the process. The position of Chinese textile and apparel industry in GVC is measured by value added per labour. Most Chinese textile and apparel enterprises take part in the activities of cloth processing and clothes manufacture（Gereffi, G.., 1991 ）. Compared with other countries, the value added per labor of Chinese textile and apparel in 2002 are lower than that of U.S.A., Japan, France, South Korea, Malaysia, Indonesia and Philippines in 1990s (see table 1). The currency rate may have some influence on the result. However, from the result, the Chinese textile and apparel enterprises undertake the low value added activities compared to other counties。 A basic idea of Global Value Chain (GVC) theory is that not every activity is equally powerful and some activities become strategic activities due to the scarcity of resources. Who control the strategic activities, who will control the value chain and become the governor of the value chain. With the disintegration of production and integration of trade, the strategic activities of T&A industry have changed from manufacturing to research and development (R&D), creative design and brand operation. Presently, production of textiles and apparel occurs in the “vertically disintegrated subcontracting networks” of so-called “global value chain” (Christenson and Appelbaum 1995, Gereffi, 2005). The proportions of different activities in the whole value added in Chinese T&A industry are respectively raw materials 15.7%, manufacturing 7.4%, wholesale 22.3% and retail 54.5 %( Tan Liwen et al, 2008). The proportion of OEM, ODM and OBM in Chinese apparel industry is 7:2:1(Zhao Junli, 2009). So the OEM and ODM output account for 90% in the whole output, and the profit of OEM is 10% of the whole industry profit. There are 175 Chinese famous T&A brands. But there is no world famous brand in Chinese T&A industry. So from the angle of global value chain theory, most Chinese textile and apparel enterprises still undertake the low value added manufacturing since embedded in GVC from1978. 1997 South Korea 40795 1997 Malaysia 15257 1998 Indonesia 4498 Philippines 1997 13053 Source: the Chinese data come form CEInet statistics database, calculated by intermediate exchange rate, the data of other countries come from ZHAO Hongxing, 2005. the study on Chinese textile and apparel industry international competitiveness. Statistics Study, (01), pp.30-40 IV.THECOMPETITIVENESSOFCHINESETEXTILE ANDAPPARELINDUSTRY The output and export of Chinese textiles and apparel have been the largest in the world since the year 1994. The international market share of textiles and apparel has up to 29.3 %( see table 2). The imports and exports increase rapidly. With the rapid export growth, the Chinese textile and apparel industry develops quickly. So it can be seen that china has made remarkable achievements in quantity in nearly two decades. Has China made corresponding achievements in quality? The indicator of Revealed Comparative Advantage (RCA) may be able to help us find some problems behind the high quantity growth. The RCA of Chinese textiles declined from 5.17 in 1980 to 2.71 in 2007. The RCA of Chinese apparel declined from 4.18 in 2001 to 3.80 in 2007(see table 2). In addition, “made in China” does not mean “made by China”, in the export of textiles and apparel, foreign-funded enterprises account for more than 30 %( see table 3). Once foreign-funded enterprises leave China, the export will decrease much. Therefore, excluding the contribution of foreign-funded enterprises, the competitiveness of Chinese will much decrease. Those imply that the competitiveness of Chinese textile and apparel industry has declined. TABLE 2 INTERNATIONAL MARKET SHARE AND RCA OF CHINESE T&A, 1980~2007 Year International market Chinese textiles Chinese share (%) RCA apparel RCA 1980 None 5.17 None 1990 12.9 3.69 None TABLE 1 THE PRODUCTIVITY COMPARISON BETWEEN CHINA AND OTHER COUNTRIES(US dollars/labor） 2000 14.6 2.50 None ） Value added per labor 2001 15.6 2.52 4.18 year country 2002 17.5 2.63 3.97 2002 China textile industry 3923.885 2003 20 2.65 3.84 2002 China apparel industry 3391.926 2005 China textile industry 6693.36 2004 21 2.55 3.59 2005 China apparel industry 5008.728 2005 24.1 2.70 3.59 U.S.A 1995 98252 2006 27.2 2.63 3.77 1998 Japan 124800 2007 29.3 2.71 3.80 1998 France 64055

  3. Source: data of textiles RCA 1980-2000from WU Zongjie. the comparative study between China, Japan and South Korea. China Economy Press, 2006, PP103; other data from WTO International Trade Statistics， www.wto.org and marketing channels to obtain the ability of participating in global competition. • Organization innovation and industry upgrading. As the small scale of enterprise, Chinese textile and garment enterprises are facing a major problem such as the small-scale enterprises, insufficient funds, lack of creative human resources, low industrial market concentration, identical value chain position, low-cost competition and almost perfect competition market structure. It is hard "Schumpeterian" innovation monopoly profits to further support product design, technology updates, and brand-building and ultimately form “Logic trap of Collective Action” trap in enterprise innovation dynamics.To build and cultivate the “lead firm oligopoly” industrial organization is suggested a good countermeasure to resolve the problem of “Logic trap of Collective Action”. The lead firm can outsource the non core activities to multi suppliers and concentrate on critical R&D, standard control and interface connection rule-making and other high value added activities. Non-critical innovation activities can be outsourced and to suppliers by "black-box design". At the same time, the lead firms cooperate and interact with suppliers, customers, public sectors, universities and competitors. Such lead and cooperation mode in value chain decreases the innovation cost and innovation time. The innovation in lead-firm value chains is more flexible and efficient, more adaptive to external competitive environment. TALBE 3 THE PROPORTION OF EXPORT OF CHINESE T&A FIRMS IN WHOLE T &A INDUSTRY, 2006 Structure of firm Structure of firm property rights property rights apparel apparel State-owned enterprises Collective enterprise Foreign-funded enterprises Textiles and Textiles and textiles textiles apparel apparel 24.27% 24.42% 24.18% 7.05% 9.69% 5.60% to accumulate enough 32.73% 34.20% 31.92% Private enterprises 35.95% 31.69% 38.30% Source: data complied from《2006/2007 Chinese textile industry development report》，pp.379-380 V. CONCLUSIONS A. Summary Textile and apparel industry is one of the earliest Chinese industries embedded in global value chain. The output and export are the largest in the world and the extent of inserting GVC deepens. However, with the increase of output and export, Chinese textile and apparel industry competitiveness decreases. If excluding the contribution of foreign-funded enterprises, the competitiveness of Chinese will much decrease. Those imply that the high competitiveness of Chinese textile and apparel industry was not real concerning the firm’s nationality. In addition, Chinese textile and apparel industry still undertake the low value added activities. Without the competence to organize higher value-added activities in local industry, inserting global value chain may not be effective enough to enhance the competitiveness of the nation. What’s more, the pressure of global competition and the accelerating speed of expansion of global value chains may not allow local private enterprises time for dawdling new technology innovation and institutional development. How to break through the low-end “lock-in effect” and upgrade, the paper put forwards the following suggestions: • Technology innovation, creative design and brand marketing.Technology innovation, creative design and brand marketing are the high value added activities. For the relationship among the three activities, successful technology innovation and creative design must be based on market demand. As buyer-driver value chain, the rapid grasp of market information will contribute to R & D and design in textile and apparel industry. To eliminate the "compartment" effect of international market, the enterprises could build international strategic alliance (that is, to exchange the domestic “local channels” channels” ), build own overseas marketing channels (which can take full advantage of overseas Chinese business network of resources) as well as overseas mergers and acquisitions (to merge and acquire foreign enterprises with good sales network is an important way to rapidly achieve the control of overseas channels), etc. Once the local enterprises have the international market power and control market channel, the followed is the transmission and feedback of market information to help local enterprises to achieve large profitability; Strong financial support with profitability will increase the probability of success in design and R & D; the success in design and R&D can further enhance the international market channels control and market power. Those bring local industry into a virtuous cycle process. with “international B. Policy Implications Intra-product division, industry transfer and upgrading of industry. For enterprises, it is important to have a monopoly power in the high value added activities. The upgrading of Chinese textile industry is not that all the enterprises undertake the high value added activities, but make intra-product labour division. The undergoing industry transfer in Chinese textile and apparel industry can learn from South Korea "manufacturing triangle" model. The Pearl River Delta and Yangtze River Delta region of the textile industry transfer the sewing and manufacturing to the central and the western of China and Southeast Asia, the enterprises in eastern region undertake the activities such as design, research and development, supply chain coordination, brand operations, etc. Therefore, the enterprises gradually develop own designs, brands •

  4. • [7]Gereffi, G., Humphrey J. and Sturgeon, T., 2005. The Governance of Global Value Chains. [J], Review of International Political Economy, 12(1) [8]Gereffi, G. and Mayer, F. 2006. Globalisation and the demand for governance. In G. Gereffi (ed.) The New Offshoring of Jobs and Global Development. ILO Social Policy Lectures, Geneva: International Institute of Labour Studies [9]Kaplinsky R. and Morris M., 2003. A Handbook for Value Chain Research. [R]. Prepared for the IDRC. [10]Kogut, B.1985. Designing Global Strategies: Comparative and Competitive Value-added Chains [J]. Sloan Management Reviews, 26(4):15-28 [11]Hamel, G. and C. K. Pralahad, 1994. Competing for the Future.Cambridge: Harvard Business School Press. [12]Humphrey, J. and Schmitz, H., 2000. Governance and Upgrading: Linking research on Industrial Districts and Global Value Chains. [R]. IDS Working Paper 120, Brighton: Institute of Development Studies. [13]Humphrey J. and Schmitz H., 2002. How Does Insertion in Global Value Chains Affect Upgrading in Industrial Cluster? Regional Studies,36(9) [14]Peter Gibbon, Jennifer Bair and Stefano Ponte, 2008. Governing global value chains: an introduction. Economy and Society, Volume 37 Number 3 August 2008: 315_338 [15]Peter Gibbon and Stefano Ponte, 2008. Global value chains: from governance to governmentality? Economy and Society, Volume 37 Number 3 August 2008: 365_392 [16]Porter ME. 1985. Competitive advantage: creating and sustaining superior performance. Free Press: New York. [17]Porter Michael E. 1990. The Competitive Advantage of Nations. Free Press :New York [18]Prahalad CK, Hamel G.,1990. The core competence of the corporation. Harvard Business Review, 68(3):79-91 [19]Schmitz, H. and Knorringa, P., 2000. Learning From Global Buyers. Journal of Development Studies, (37) [20]Tan Liwen, Ma Haiyan, Liu Qinglin, 2008. the international competitiveness of Chinese apparel industry: based on global value chain. China Industrial Economy,(10) [21]Teece, D., and G. Pisano,1994. The dynamic capabilities of firms: an introduction. Industrial and Corporate Change, 3, pp 537-556. [22]Teece DJ, Pisano G, Shuen A.1997. Dynamic capabilities and strategic management. Strategic Management Journal, 18(07):509-533 [23]Zhao Junli, 2009. The study on upgrading of Chinese textile and apparel industry in Global Value Chain. Donghua University Press, in Chinese System innovation and industrial upgrading.The shock of global financial crises on China in 2008 highlights the risk of export-oriented economy. The industry policy has a balance between domestic demand- oriented strategy and export-oriented strategy. China is a “big” country for its “big” population and geography, need to transform to consumption “big” country which will provide a critical endogenous space for textile and other industries to develop high value activities without the dependence on the international high-end market. Therefore, the government needs to deepen the reform on the system of property rights, income distribution system and the social security system, which increase the domestic demands. The upgrading of demands will stimulate industrial upgrading. ACKNOWLEDGMENT Thanks for the support from the China National Social Science Fund “the Study on the upgrading of Chinese Textile Industry in the Global Finical Crisis” (Approval No.: 09CGJ011) and “the Fundamental Research Funds for the Central Universities”. REFERENCES [1]Christerson, B.and Appelbaum, R.P.1995. Global and Local subcontracting: space, ethnicity and the organization of apparel production. World Development 23(8 1995):1363-1374 [2]Coe Neil M. and Hess Martin,2007. Global Production Networks: Debates and Challenges. A position paper for the GPERG workshop, 25- 26th January 2007 [3]Feenstra, R., 1998. Integration of Trade and Disintegration of Production in the Global Economy. Journal of Economic Perspectives, 12(4) [4]Gereffi, G., 1991. Industrial Upgrading in the Apparel Commodity Chain: What Can Mexico Learn From East Asia? [R].Paper Presented at International Conference on Business Transformations and Social Change in East Asia. [5]Gereffi, G. 1994. The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks. in G. Gereffi and M. Korzeniewicz (eds) Commodity Chains and Global Capitalism , Westport, CT: Greenwood Press. [6]Gereffi, G., 1999. International Trade and Industrial Upgrading in the Apparel Commodity Chain. Journal of International Economics, 48

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