Summary of Ch. 8:Politics & Political Positioning, from “Going Global”

FCS 555, Dr. Cho11/24/2015By: Sonia Bakhshian, Cayla Fitch, Minyi Liang, and Africa Martinez

Introduction 1.Different segments of the textile complex take different political position

(ex: retailer Vs. traditional manufacturer )

( free trade Vs. protected trade)

2. U.S. Non -agricultural industrial : a. 75% total global trade

b. 90% of total U.S. good exports

3.WTO NAMA ( Nonagricultural Market Access) : negotiation b/w U.S and the EU to cut the

tariff rates and reduction of non tariff barriers from potential recipients of export.

Economic Systems of Government Asian and European silk traders represented: TOTALITARIAN

Totalitarian: government systems in which one family or some other entity maintained complete political and economic control under a dictatorship. most of developed countries are still under totalitarian system.

Capitalism: is an economic system in which:

1.private ownership of property exist

2.income from business operation accrue to the individual or firms that own it

3.individual and firms are free to compete for economic gain

4.profit motivate is basic to economic life

Political Manipulation of Trade RelationshipsPoletic: methods or tactics involved in managing an organization,business , state or government.

primary motivators: power,influence and manipulate people and other resources

Political strategy:make it possible for government,firms,other organizations and individuals to deal with and manipulate important and powerful components in their environments.

governmental subsidy: Reverse TAX

a payment from government to a company rather than a company to government. help firms to sell it’s products in domestic and also in international markets at lower price and still make benefit.

in international market can cause Unfair competition

Political Manipulation of Trade Relationshipsproduction subsidies: (regarded by GATT 1994)

unfair form of competition in which make a gift money to firms to defray costs of production and commodities.

Question:Why governments give subsidies to firms?

A prolonged use of government subsidies tend to make an industry subsidy department. ex:sheep growers in U.S.

1.Shifts in textile trade policy have altered the market for U.S. cotton since the 1990 till now.

2.expiration of T&A trade quota the sales of U.S. cotton depend on global market

last 60 years: >60%, 2004: 35%,Now:< 5%

3.less domestic consumption of textile less domestic production large quantity s subsidies were sold on less price than market price to world market.

Global Competition Inspires use of creative and sometimes unfair political manipulation of trade.

Unfair competition tends to mislead or confuse customers and provide unfair business advantages.

● Trade Name Infringement● Deceptive Advertising● Stimulation of Packaging● False Country of Origin

Global CompetitionExporting goods is a good source of revenue.

Export subsidies are available when a firm receives the price of goods exported, plus a payment from the government at whatever rate is specified for the product.

China tends to lead in international trade in apparel through the use of export subsidies .

Indirect subsidies- preferential credit and reduced utility rates.

This is legal just as long as exports didn’t exceed “reasonable” market share.

Global CompetitionPrice Support Programs are commonly applied to agriculture products in developed countries to raise the commodity price paid to farmers.

Payments to agriculture to produce less is apart of the subsidy program.

When negotiations to reduce textile and apparel trade barriers take place, reduction of agricultural subsidies is a counterpart.

Dumping- selling a product in another product at less than the domestic sales price or less than the product costs to produce. This is depicted as unfair competition by the WTO.

Global CompetitionDumping causes an import surge which results in a decrease in sales.

However advantages to dumping is:

● Inventory Control● Maintaining Market Share● Provides domestic employment● A result of export subsidies that decrease the price in the world market

This leads to price competition where promotional offers and advertisements grab the customer's attention.

Global CompetitionAs a result of dumping Countervailing duties comes into play. Countervailing duties: a type of tariff that eliminates unfair competition of subsidized low price products’ competing with non-subsidized domestic products.

The country submits a complaint to the WTO against the exporting country and after the WTO evaluates the situation, a ruling is given in regards to the situation.

Embargoes are another anti-dumping method in which trade will be brought to a halt until terms are negotiated. Negotiations can take months.

Anti-dumping investigations have tripled since the 80’s.

Political Decision Making Process Fig. 8.1

Enforces the T&A trade rules, policies, and regulations for the United States.

Changes in any regulations start in the USTR, United states Trade Representative and finalized proposals are approved by the U.S government.

Political Positioning By Textile & Apparel Complex● Lobbying is the process of influencing the formation of legislation and the

administration of rules, regulations, and policies.● It commonly carried out by lobbyists.

● The primary vehicles for political positioning and lobbying by business and industry are labor unions and trade associations

● A labor activist is similar to a social activist.● A labor activist is a person or organization that

endorses a doctrine or policy of taking positive, direct action to achieve an end, especially one that is political and employment related.

Social responsibility at Nike: a personal experience ● Nike had such a negative reputation relative to labor abuse before; therefore, they

were doing little to protect their professional image.

● They keep up awareness of the importance of social responsibility and reminds company executives that they need to continue to work on maintaining positive public image and improving communication with the public regarding their social responsibility and sustainability behaviors.

-Healthy Chemistry-Climate Stability-Water Stewardship-Closing the Loop-Thriving Communities-Game Changers

● Trade associations are to management what labor unions are to workers, and it is a nonprofit organization formed to serve the common needs of its members.

● In the 1990s, American Apparel and Footwear Association (AAFA) initiated the organization of WRAP ( Worldwide Responsible Apparel Production) to give AAFA members a means of preventing labor exploitation by their production contractors.

● They providing opportunities for their members to reflect their activism.

● WRAP has now been spun off as an organization independent of the trade flict of interest for their members.

● AAFA created its annual Excellence in Social Responsibility awards to recognize best practices in a variety of areas of social and environmental responsibility that positively impact employees, business, and the community.

● In 2009, AAFA held a conference titled “Sustainability: Turning Responsibility into Opportunity.”

● The United States alone has more than 100 of the hundreds of textile, apparel, and retail trade associations around the world.

● In 2004, during the phaseout of the MFA quota system, the U.S. textile manufacturing industry joined together to form a new trade association called the National Council of Textile Organizations (NCTO) in order to lobby specifically for continued trade protection.

● Some trade associations try to represent the entire textile and apparel complex; others are specialized and represent a single industry segment or geographic area.

● The Computer Integrated Textile Design Association (CITDA) represents a particular type of technology for applying color and texture to fabrics.

● The U.S. Hosiery Association → firms that knit socks and stockings nationwide.

● The Apparel British Columbia Association → apparel manufacturers from only that one

province in Canada.

● The Brazilian Textile and Apparel Industry Association → the entire textile complex for

this large South American country

More Examples:

- domestic managers think companies’ activities are focused on domestic suppliers and customers.

- international managers think companies’ overseas activities are primarily to support activities for the

domestic parent company in increasing sales or supply materials for the domestic market.

- global managers view the world as their unit of analysis, and global companies produce and market

standardized products for the world market.

- multinational managers recognize the differences among national suppliers, markets, and operating

environments.

- transnational companies are responsive to local needs in multiple countries and simultaneously

retain global efficiency.

Political Orientation of Firms and Their Trade Associations

● Five classifications of political perspectives that may apply to firms and trade associations associated with the textile complex:

● This table describes the political evolution of textile, apparel, and retail firms in the U.S. textile complex from 1950 to the present and beyond.

● during the 1950s and 1960s, the textile and apparel manufacturing industries were close allies, and both were focused on increasing business in the domestic economy.

● the textile industry becoming more capital intensive, and the apparel industry remained labor intensive.● both industries were concentrated in northeastern United States.● the Long Term Arrangement Regarding International Trade in Cotton protected cotton farmers and

suppliers of cotton for textile mills.● department stores dominated the retail scene, and they were focused on their domestic markets.● the retailers want to shop the world market to provide unique apparel for their customers.● they supported the free trade perspective.

● The 1950s and 1960s

● The 1970s

● by 1970, protectionism was again on the rise, and the United States was still the largest cotton-producing country.

● cotton imports were limited by the Long Term Arrangement.● textile and apparel manufacturing and the labor unions held firmly to their protectionist leanings and

supported the development of the Multifiber Arrangement (MFA).● the textile and apparel industries were shifting away from large urban areas into rural areas in the

United States.● by 1976, the United States was the largest employer of apparel workers in the world.● U.S. textile manufacturing continued to be regarded as internationally competitive, but the apparel

industry was not, because textile were less labor intensive than apparel.● apparel imports were on the rise, and the U.S. became the largest importer of apparel in the world.

● The 1980s: Verticalization & Internationalization (pg238-247)

● The MFA was in place and the U.S had 34 bilateral agreements.● 80% of its textile and apparel imports came from developing countries● The MFA wanted diversification with quotas, but this restricted imports and exports, the U.S.

started sourcing from other countries with no bilateral agreements (Hong Kong, Taiwan, and S. Korea)

● Quota Avoidance Strategy: include fiber content in products that were not covered in agreements/blends

● 1986: The MFA was revised by the U.S. and 54 other countries to extend product coverage like silk & linen

● The Caribbean Basin Initiative: Guaranteed U.S. apparel production outside the U.S. ● Fabric-forward rule: Guaranteed Domestic textile manufacturers to supply fabric w/out

assembly restrictions● U.S. & Canada FREE Trade agreement was formed

● The 1990s Horizontalization/Globalization/Exploitation (pg238-247)

● Textile Manufacturing: Trade Protection with Yarn-forward rules○ GATT became the World Trade Organization (WTO)○ Yarns had to be produced in Canada, U.S. or Mexico (from NAFTA)

● Apparel Manufacturing: Free Trade International Sourcing U.S. & Canada○ Branding & Licensing : Retailers merged, to become global○ China became the go-to source location b/c of low prices

● Textile & Apparel Retailing: Global Sourcing, International Marketing, NAFTA, MFA phaseout

● The 2000s Regionalization/ Multinationalization/ Customization

● Textile Manufacturing: Actively seeking continued trade protection & moved towards international production

○ Trade organizations merged to form AAFA American Apparel & Footwear Association○ Manufacturers became known as “brand managers”

● Apparel Manufacturing: MFA expired, International Marketing & Social Responsibility○ Phase out of MFA created chaos in the textile complex (no more quotas in 2008)○ Less than 5% of apparel sold in the U.S. was made in the U.S. (35% Made in China)

● Textile & Apparel Retailing: Global Sourcing & Multinational Marketing○ Decline of domestic apparel production○ INVISTA largest U.S. textile firm extended operations to China( to be close to apparel)

● The 2010s Sustainability/Transnationalism

● Textile Manufacturing: ?

● Apparel Manufacturing: ?

● Textile & Apparel Retailing:?

1. *Textbook was printed during phase out, not enough information to determine specific TRENDS

2. Noticeable effects: Change in lead times, drastic markdowns, inconsistent quality, bad merchandise assortment, & excess inventory in retail.

3. Big companies bought out smaller companies.4. 28 countries exported over $500 million apparel to U.S.

Regionalization of Global Markets ● Preferential Trade Agreements: Special trading agreements

○ Reduce trade barriers ○ Political unification○ increase overall economic power (the Americas & Caribbean)○ Exclude: Commonwealth (aka Soviet Union)

Summary● Transnational Companies are responsible for local needs● Factors: Power, influence and manipulation of people and resources ● Politics exist in all organizations● Unfair competition (example Dumping: selling product for lower price of

production in the market)● Growth of Regionalization in the Global apparel market● U.S. wants to be unified with Americas vs. EU has formed a powerful political

& economic unit● Middle East & Africa face unique challenges of industrial development

Thank You!The End