Potential Supply Chains in the Textiles and Clothing Sector in South Asia

Potential Supply Chains in the Textiles and Clothing Sector in South Asia

An Exploratory Study You do not have access to this content

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Commonwealth Secretariat
10 Nov 2011
9781848591301 (PDF)

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Even though individual nations in South Asia are among the world’s fastest growing economies it is, as a region, the least integrated. This pioneering study from UNCTAD, the Commonwealth Secretariat and the Centre for WTO Studies at the Indian Institute of Foreign Trade examines one of the leading manufacturing sectors in South Asia – textiles and clothing – to assess the prospects for developing production linkages through regional co-operation.

The findings show that there is significant unexploited scope for intra-regional trade which would enhance the competitiveness of the region overall. The insights gleaned from the study will also benefit other sectors and regions of the developing world, where regional integration and South–South co-operation might be important routes to trade-led development.
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  • Foreword and Acknowledgements

    We are delighted that the United Nations Conference on Trade and Development (UNCTAD) and the Commonwealth Secretariat, with the Centre for WTO Studies (CWS) in the Indian Institute of Foreign Trade, have collaborated to such good effect on this report, Potential Supply Chains in the Textiles and Clothing Sector in South Asia: An Exploratory Study.

  • Abbreviations
  • Summary

    The south Asian countries initiated a process of preferential trade liberalisation with the establishment of the South Asian Association for Regional Cooperation (SAARC) in 1985. It then took a decade for the region to put in place practical measures to promote trade through a regional agreement. The South Asian Preferential Trade Agreement (SAPTA) came into operation in 1996 with the expectation ofmoving towards a South Asian Free Trade Agreement (SAFTA), the implementation of which eventually began in 2006.1 Despite all this, south Asia remains a least integrated region, with trade among member countries accounting for approximately 5 per cent of their total trade. Many experts, however, suggest that expanded regional integration beyond trade in goods, together with co-operation in developing supply chains, has considerable potential for growth and development in the region.

  • Introduction

    The supply chain, or value-adding chain, is an old-established concept in industrial economics and in the business studies literature, used most prominently by Porter (1985, 1990) and Gereffi and Korzeniewicz (1994). Like all uses of the chain metaphor, its value lies in its emphasis on the sequential and interconnected structures of economic activities, with each link or element in the chain adding value to the process.More recently, supply chains have been embedded in development theory and a stream of literature has emerged that highlights and provides evidence of the developmental role played by global and regional supply chains. Neil et al. (2004) argue that economies of scale and scope within specific regions are only advantageous to those regions – and bring about regional development – insofar as such region-specific economies can complement the strategic needs of translocal actors situated within global production networks. Studies such as that of Smith (2003) on the clothing sector in Slovakia andNadvi and Thoburn (2004) on Vietnam’s textiles and garment industry provide evidence of the developmental role played by supply chains for these countries.

  • Broad Trends in Trade in the Textiles and Clothing Sector in South Asia

    In this section some of the broad trends in South Asia’s textile and clothing sector are highlighted, while comparing them with those of one of the leading supplying regions, namely east and southeast Asia. As all data for recent years are not always available from comparable sources, in most cases 2004–2008 has been used as the reference period for comparison. South Asia’s global exports of textiles and clothing increased substantially from US$33 billion in 2004 to around US$46 billion in 2007. The growth of exports from south Asia in this period improved the region’s global export share from 7.1 per cent in 2004 to 7.7 per cent in 2007, almost double the share of the Association of Southeast Asian Nations (ASEAN) (Table 2.1). There was also a rise in global imports of T and C in the region, fromUS$7.5 billion in 2004 to US$9.2 billion in 2007. Both exports and imports experienced a drastic fall in 2008, as a result of the global economic slowdown. The share of south Asia in global exports declined from7.7 per cent to 6.1 per cent in 2008, while that of ASEAN marginally improved.

  • Profile of the Textiles and Clothing Sector

    The trends described above highlight the increasing importance of the textiles and clothing sector in south Asian countries’ total exports and their growing competitiveness as each country witnesses rising exports over time. The trends also highlight the differences in competitiveness in the sector within the region, with countries specialising in either textiles or clothing. To get a better picture of this specialisation we present a brief profile of the T and C sector in each of the four south Asian countries.

  • Brief Review of the Literature

    There exists a vast literature on regional integration in south Asia through trade. However, very few studies identify the potential supply chains in the region. The benefits of regional co-operation in textiles and clothing have been discussed by ADB and UNCTAD (2008), Robbani (2004), USITC (2004) and Tewari (2008).

  • Methodology for Identifying Potential Supply Chains

    The broad trends in trade in the textiles and clothing sector are indicative of the existing demand and supply of inputs used in the sector within the region. The main aim of this study is to identify potential production supply chains that could be formed within the region for improving the cost competitiveness of the region as a whole. Thismay enable the region to increase its share in global T and C exports and benefit each of the countries in the region in terms of enhanced exports, which may generate more output and employment, and enhance overall development that benefits in particular the poor, women and youth.

  • Three-stage Supply Chains by Country

    There are at least three different ways of analysing potential supply chains. First, supply chains can be analysed from the perspective of the number of times a country participates in different stages of the supply chain, either as an exporter of the final product or exporter/importer of stage I input or exporter/ importer of primary inputs in the supply chains formed. The number of stages in all supply chains in which each of the four major countries in south Asia participates is reported in row 1 of Table 6.1.

  • Conclusions and Policy Implications

    The textiles and clothing sector is a leading sector in terms of trade and employment in all major south Asian countries. It constitutes more than 40 per cent of total regional exports and provides employment to more than 10 million people in most of the countries. The steady rise in T and C exports from south Asia was arrested by the global economic crisis of 2008 and the sector’s exports declined by 18 per cent, reducing its share of global exports from 7.7 per cent in 2007 to 6 per cent in 2009. There are growing competitive pressures on the sector in the region as a result not only of reduced global demand, but also the erosion of preferences caused by free trade agreements, the withdrawal of GSP+ schemes and other policyrelated developments. This makes it important to improve the cost competitiveness of the sector so that all countries in the region are able to respond positively to the existing and forthcoming global challenges. One way to increase regional competitiveness is through the formation of regional production supply chains, whereby each country exports the products in which it is competitive and imports inputs from the countries within the region which have a cost advantage.

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  • References
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