Supply chain: pro and cons offshoring clothing manufacturing

Abstract

In the clothing business, manufacturing takes a prominent place in the strategy of clothing brands. In fact, due to competitors and globalization consumers can find many different products in the market with different prices and quality. There is strong competition between all clothing brands and one of the key to being competitive is optimization of the manufacturing process according to the brand image. Thanks to globalization, nowadays clothing companies have many options for a manufacturing ever more advantageous. The image that consumers keep in mind about clothing manufacturing, where a company produces clothes in house with its own tools, has definitely changed for an international production or/ with the intervention of a third party like subcontractors.

With literatures, articles and case studies, this report presents and explains options and their popularity in the clothing business. It offers an overview of manufacturing processes, more specifically issued from foreign countries, where the environment for manufacturing is more advantageous.

Table of content

Abstract        2

Table of illustrations        4

1. Introduction        5

2. Definition of Outsourcing, Offshoring and Foreign Direct Investment (FDI)        6

2.1 Definition of outsourcing        6

2.2 Definition of Offshoring        6

2.3 Definition of Foreign Direct Investment (FDI)        7

3. Reasons for offshoring in general and in clothing manufacturing        8

3.1 Purposes of offshoring in general        8

3.2 Offshoring in clothing manufacture        9

4. The example of Nike. The company without factories.        10

5. Conclusion:        12

Bibliography:        13

Table of illustrations

Illustration 1: Nike's World: Nearly one million workers labor in 744 factories world-wide. (The Wall Street Journal (2014)).        10

1. Introduction

Nowadays, the label “made in UK” on clothes is disappearing as in many developed countries. In fact about 90% of our clothes come from foreign countries in particular low-cost countries such as India and China for instance (Steve Boggan, 2012). International clothe brands flood the market with clothes which are always cheaper for these brands to produce.

 In the last years the technological progress, the development of transports and communications and the support from government in underdeveloped countries, allow companies to outsource their production to countries which are more profitable for reducing manufacturing costs (Szuster, 2012).

Outsourcing, offshoring, FID: these concepts are well-known by clothing companies, but there are not only concepts, but common practices for these companies. The example of Nike is very relevant. Customers identify Nike as a manufacturer, but it is not the true. Nike doesn’t have any factories. Nike uses third party manufacturing companies and outsources for its entire production (Tompkins et al. 2005).

This report aims at analyzing the consequences of offshoring in clothing manufacturing. First of all, the terms “outsourcing”, “offshoring” and “Foreign direct investment (FDI)” will be defined. Secondly, general reasons for offshoring will be identified and more specifically for clothing business. Thirdly, an example of a clothing company which practices offshoring will be studied. Thus, this report will present the place offshoring occupies in Nike strategy. Finally the benefits and disadvantages of offshoring will be assessed as conclusion.

2. Definition of Outsourcing, Offshoring and Foreign Direct Investment (FDI)

2.1 Definition of outsourcing

According to the Cambridge dictionary, outsourcing is “a situation in which a company employs another organization to do some of its work, rather than using its own employees to do it”. To be more specific, outsourcing is a part or the entire production (goods or services) of a company produced by external suppliers. The word outsourcing is an abbreviation from “outside resources using” which means that the company uses external suppliers to produce what was traditionally produced in the company. A company which decides to outsource can do it with all its production or a part of it. If the company produces all goods and services in-house, it’s called insourcing (the opposite of outsourcing).

Outsourcing has many goals. The experience of companies operating in developed countries shows that organizations that apply outsourcing-based solutions for the first time usually do so to reduce costs (McIvor 2006, p. 9, 21). Outsourcing can help a part of the activity of the company to be more competitive, to cut new investment for expansion or development or risks due to an investment, to have a higher flexibility according to the demand. These purposes of outsourcing can be considered as arguments in favor outsourcing.

To conclude, outsourcing allows companies to focus on their core-business. But outsourcing can be complex for a company because of the loss of control on subcontractors. Outsourcing means working with companies which are in the same country. But these companies as competitive as companies in a foreign country. That is why companies choose offshoring instead of outsourcing.

2.2 Definition of Offshoring

“Offshoring means the transfer of orders, manufacturing, services or general business processes, or part thereof, abroad” (Rybiński, 2008). This term covers many different practices such as the transfer of organizational function, production, to a foreign country. These activities can be performed in a foreign affiliate of the same company or in a structure belonging to an independent company (Puślecki, 2008).

Companies can undertake three different types of offshoring (Sznajder and Witek-Hajduk, 2009). First Transferring functions in affiliates in foreign countries (intrafirm offshoring). Second, performing functions in shared undertakings with other company located abroad (Joint-venture offshoring). The third one is performing functions though suppliers or third parties in foreign countries (offshore outsourcing or offsourcing).

2.3 Definition of Foreign Direct Investment (FDI)

According to the Cambridge dictionary, “foreign direct investment is money that is invested in companies, property, or other assets by people or organizations from other countries”. So FDI is a financial activity and the purposes of FDI can be the presence of an entity in a foreign market, the control of the growth of these foreign markets to have an advantage from their competitors. More precisely, “FDI is an international capital flow from the home country to the host country for the purpose of acquiring partial or full ownership of a tangible business entity, such as a factory, extractive facility, or wholesale distribution system” (Stephen D. Cohen,2007, p. 36). The number of FDIs has increased in the last 30 years due to the absence of trade barrier and the globalization. There are benefits for host countries like creating jobs, acquiring expertise, products and technologies.

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