Tuesday, 12 April 2011
In the April 2011 FlanaRant, we celebrated the 200th anniversary of the original Luddites. By suggesting their successors are still with us.
We've got the hysterical over-reaction of factory owners to higher wages. And the absurd obsession Western activists have about insisting there's a "race to the bottom" going on while those wages are being put up by politicians – and accepted, however grudgingly, by those complaining owners.
The market, we concluded, won't forgive those head-in-the-sand New Luddites, whether they're showing a knee-jerk opposition to higher wages, or still believing outdated propaganda slogans.They'll just be dismissed as people unable to adapt to the modern world. While their customers take their business to factories who understand how the world works in the 21st century.
Saturday, 2 April 2011
Every few months journalists invent a new fad. That's fine: that's what journalists do.
Very often they try to apply that fad to the garment industry. And usually demonstrate their complete misunderstanding of how it works.
The current fad is about "supply chain vulnerability". Because of the Japanese earthquake, many journalists are convinced that the world's network of supply is liable to be broken at any moment. Bizarrely, this includes even professional observers of the garment trade. In fact the Japanese earthquake has had almost no impact on any element in the global garment and textile trade. Japan still has a significant technical textile industry – but almost none of it is anywhere near the area affected by the earthquake or by the tsunami. China's garment exports to Japan may be affected by it – but only a handful of Chinese factories are so far reporting any loss of orders. The great expectations Bangladeshi factories had of a boom in exports to Japan might well be postponed for a year or two: but their exports to the West are growing so fast almost no one will notice.
The Japanese earthquake and tsunami probably will affect parts of the global automobile and electronics industry. And that really is the point. The world supply network is extraordinarily complicated - with each category of merchandise being affected by completely different things. And over the past two years, the garment industry has been hit by a number of complications that have affected almost no other industry. We've had:
- In Honduras, disruption of imported raw materials and exported garments as a result of an attempt to force the president out of office.
- In Bangladesh, a series of violent riots that have disrupted production for weeks at a time
- In much of the West, but especially north-west Europe, the Icelandic volcanic eruption of spring 2010 prevented almost any air freighted movement of garments for almost a month.
Yet the myth continues that somehow or other the modern world is vulnerable to chaos in a way it wasn't at some undefined point in the past. But let's look at how the past has developed in the garment trade.
- 200 years ago, in 1811, UK garments were almost entirely made in the UK. But between March 1811 and about 1815, Britain's garment industry was drastically disrupted by programme of industrial terrorism organised by a group of disaffected hosiery knitters now known as the Luddites. Because all Britain's garments were made in Britain, that campaign was for a while quite successful in cutting off the supply of garments to the market.
- 50 years later, in 1861, Britain still got most of its garments from factories in Britain. But most of those garments depended on cotton imported from the United States. And as war threatened between the northern and southern states, the southern states seriously believed that cotton was so important to the British economy that the very threat of a blockade on US exports would force Britain to side with the Confederate states. This didn't happen: Britain accepted it would not be able for some years to obtain American cotton, simply decided to live with the widespread destitution this caused in north-western England, developed a cotton trade in Bombay and eventually rebuilt its garment business on the back of that Indian cotton. The disruption to the British supply chain between 1861 and 1865 didn't just cause a temporary lack of garment sales: it reduced hundreds of thousands of people to abject poverty – and in many cases death by starvation. But the disruption to the garment industry was actually greater in the United States. Northern garment factories had access to no cotton at all but British textile mills eventually brought on Indian cotton. Having access to a global supply chain made businesses in Britain less vulnerable than their US peers who had access only (or in this case didn't) to US cotton.
- 50 years later still, in 1911, the US garment industry was disrupted by a tragic fire at the Shirtwaist factory in New York. This did not impact the textile garment industry anywhere else than in the US, but it forced on America's garment industry a complete rethink of how it managed industrial safety. Again, the disruption caused to the industry by an entirely domestic problem outweighed hundreds of times any of the difficulties the garment trade has suffered over the past two years as a result of events in Honduras, Bangladesh or Iceland.
- And in the century since then we've had the supply chain of garments and raw materials disrupted by world wars and frequent closures of the Suez Canal. We've seen non-events like the widely touted bird flu that was supposed to be making international sales impossible – but actually had no effect on anything.
- But perhaps most important of all, we've seen dozens of events that no one could have predicted.
Worse, it's almost impossible to decide what "political risk" actually means. As it happens, the unrest during February and March in Egypt caused very little disruption to Egypt's overseas garment customers. At the end of February, it was quite possible to conclude that the unrest had passed with almost trivial impact on our industry. But the results of that unrest, as we report in The Source, almost certainly haven't even begun to be felt yet. Restrictions on foreign workers, calls for complete bans on imports, even stronger calls for crippling import duty on garments and textiles – all seriously threaten foreign garment chains who had begun to invest in Egypt, and may well completely undermine the ability of Western garment buyers to use Egypt's excellent manufacturing capacity. It may take at least a year before we even begin to understand the real implications of the Arab spring on Egypt's manufacturing economy is
The ideas that many naive observers cling to so touchingly that somehow supply chain risk can be predicted, or that supply chains can be moved safely to one's own country, both fly in the face of common sense and the last 200 years of history.
So how does a business protect itself from the risks of severe disruption to its supply chain? Well, it can't. At least not under most circumstances. Western clothing brands and retailers have lived through the past two years with almost no commercial damage simply by having a wide range of countries from which they sourced. That's the principle on which insurance companies for the past thousand years have operated: spread your risk.
Any attempt by unsophisticated political observers to predict global events is 99% certain to be wrong. Any attempt to avoid supply chain risk by moving production home is 100% certain to be wrong. What apparel businesses need to do is to source from a variety of countries and to have good fallback plans for when things go wrong. And under no circumstances to believe a word any hokey consultancy says about how it can predict risk.