Making the Cut?
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organized by firms in a middle-income country with products sold to final buyers in a developed country14 (Morris 2006a). Clothing factories that are part of triangular manufacturing networks can be entirely owned subsidiaries of these East Asian manufacturers, joint ventures, or independent overseas suppliers. The la er can be either locally or foreign-owned firms and have sourcing relationships (in contrast to equity relationships) with transnational producers. In this division of labor, skill-intensive activities, which provide higher margins, such as product development and design, sample making, quality control, warehousing, transport, and financing, stayed in East Asia and labor-intensive activities have been relocated. Thus, Taiwan, China, Hong Kong SAR, China, and Korea have maintained their dominant role in the clothing sector for decades. Although they are not important clothing exporting countries anymore (see trade data analysis above), their companies are still the industry leaders, in particular large trading houses and transnational producers that manage far-flung supplier networks located in diverse countries.15 Later on large manufacturers in other Asian countries such as Singapore, Malaysia, China, India, and Sri Lanka followed the ‘Big Three’ and have also developed transnational manufacturing and sourcing networks. Global Sourcing Policies: Supply Chain Rationalization
The activities and strategies of lead firms have a profound effect on relationships in global clothing value chains, on capabilities expected from suppliers, and on entry and upgrading possibilities. Despite variations among different types of lead firms, lead firms from different countries and targeting different end markets and market segments, there are important common trends in sourcing strategies of global buyers with respect to sourcing channels, sourcing geography, supply base, and firm- and country-specific sourcing criteria. These trends in sourcing policies have been mostly accentuated by the MFA phaseout and the global economic crisis. The discussion below is largely based on interviews with large global buyers in the United States and the EU.16 Sourcing Channels
While global buyers still use a mix of direct and indirect sourcing channels, the relationship between buyers and suppliers has generally become more direct. Sourcing channels can be classified as direct sourcing where buyers source directly from (overseas) manufacturers and indirect sourcing. In the la er case there can be a variety of intermediaries between buyers and manufacturers such as importers, exporters, agents, trading houses, and transnational producers located in foreign countries or in retailers’ home countries (Palpacuer et al. 2005). Intermediaries may own manufacturing operations but most— with the exception of transnational producers—do not. At the very least, intermediaries are responsible for coordinating production, including input sourcing and logistics, but they also have increasingly provided services in areas such as design, product development, and marketing (Gereffi and Frederick 2010). Global buyers see sourcing as their core competency and key competitive advantage, which is reflected in their increasing involvement in sourcing over the last decade. Main motivations were reducing costs by cu ing out the middlemen, reducing lead times, increasing control over product quality and compliance, and mitigating risk.17 The strategic buying and sourcing decisions are generally made at the headquarters but relationships with suppliers, identifying and negotiating with suppliers, monitoring suppliers’ production, and quality control are largely handled by buying offices lo-