The apparel industry in the post‐Multifiber Arrangement environment: A review

• Date: 01 February 2019
• DOI: http://doi.org/10.1111/rode.12556
• Author: S. Selvanathan,E. A. Selvanathan,M. Hossain,M. S. Alam
• Published date: 01 February 2019

REGULAR ARTICLE

The apparel industry in the post‐Multifiber

Arrangement environment: A review

M. S. Alam

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E. A. Selvanathan

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S. Selvanathan

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M. Hossain

2

1

De Montfort University, Leicester,

United Kingdom

2

Griffith University, Nathan, Queensland,

Australia

Correspondence

S. Selvanathan, Griffith Business School,

Griffith University, Nathan Campus, 170

Kessels Road, Nathan, Queensland,

Australia 4111.

Email: s.selvanathan@griffith.edu.au

Abstract

The apparel industry contributes significantly to the eco-

nomic development of many developing countries.

Between 1974 and 2004, the Multifiber Arrangement

(MFA) heavily regulated this industry. Since the total

abolition of the MFA in 2005, competition in apparel

trade has increased many folds and some developing

countries, such as Bangladesh and Vietnam, have been

successful while some others, such as Mexico and the

Philippines, are struggling to meet this challenge. This

study presents a historical evolution of the apparel indus-

try before and after the introduction of MFA and analyzes

the factors that enhance apparel export performance dur-

ing the post‐MFA period. The analysis reveals that cheap

labor, firm size, product quality, foreign ownership, avail-

ability of local input materials, new product development,

preferential market access and working conditions are the

major factors that help gaining competitiveness in apparel

exports during the post‐MFA period. These observations

provide new insights to the policy makers and business

managers to formulate and implement appropriate policies

in order to become competitive in apparel exports.

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INTRODUCTION

The apparel

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(clothing or garment) industry is one of the most significant export sectors in a num-

ber of developing countries. The world exports of apparel in 2014 were valued at U.S.$483 billion,

which represents 7% of the total world's manufacturing trade. Moreover, the apparel industry is the

oldest and the most globalized industry that has shifted rapidly to different regions of the world

since the early 1970s. In many developed countries such as the United Kingdom and other

DOI: 10.1111/rode.12556

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:454–474.

European countries, the United States, Japan, and newly industrialized economies (NIEs) such as

Hong Kong, Taiwan, and South Korea, the apparel industry was developed as the first stage of

their industrialization process and was also their initial export industry during 1960s and 1970s

(Yang & Zhong, 1998; Dickerson, 1999). Since the 1980s, many developing countries in Asia and

Africa such as Bangladesh, Cambodia, and Kenya, have also become important apparel exporters

in the world market.

The transition of the apparel industry has helped many developing countries to become domi-

nant exporters in the world apparel market. For instance, developing countries contributed only

25% of worldwide apparel exports in the mid‐1960s, which increased to more than 70% by 2014

(WTO, 2015). Moreover, the apparel industry has created millions of employment opportunities

especially for women (Gereffi & Frederick, 2010). Further, the apparel industry has conventionally

been one of the initial phases of these nations’transformation from agriculture to manufacturing.

Therefore, the sector's evolution has made an important contribution to poverty alleviation and

socioeconomic development in many developing economies.

Most of the developing countries had enjoyed the advantage of nontariff barriers (quotas) until

2005 under the Multifiber Arrangement (MFA) that was active from 1974 to 2004. The agreement

imposed quotas on the amount of apparel that developing countries could export to developed

countries. The implementation of quotas favored less competitive developing nations such as Ban-

gladesh, Vietnam, and Cambodia, as opposed to major established exporters such as China and

India. This is because foreign buyers used to prefer new entrants to the apparel industry in order

to exploit the quota allocated to these countries. In addition, the new entrants were also awarded a

degree of import tariff exemption under the Generalized System of Preferences (GSP) in the Uni-

ted States and the European Union markets. Hence, by using the quota and duty‐free access facili-

ties such as the GSP, vulnerable developing countries like Bangladesh, Vietnam, and Cambodia

became major exporters in the world apparel markets during the MFA implementation period from

1974 to 2004. However, after the abolition of MFA, many scholars predicted that these vulnerable

countries would not survive because they would lose their “competitiveness”and accordingly their

share in the global apparel market would drop. For example, Nordås (2004) and Abernathy, Volpe,

and Weil (2006) predicted that China and India would significantly raise their market share, which

will cause vulnerable exporters, including Bangladesh, Cambodia, and Vietnam, to lose their mar-

ket share in the major exporting markets to a great extent. However, an analysis of the post‐MFA

growth performance of major suppliers shows mixed results. Some developing countries such as

Bangladesh and Vietnam, have managed to continue and sustain their growth while some other

countries, like Mexico and the Philippines,

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have experienced negative growth of the industry in

terms of exports. Hence, it is important for the investors, apparel exporters, and policy makers to

identify the factors that have positively influenced apparel export performance during the post‐

MFA period in countries such as Bangladesh and Vietnam.

This paper makes three major contributions to the relevant literature. First, this is one of the

pioneering studies that reviews the evolution and development of the apparel industry from a his-

torical perspective. Second, using data during the post‐MFA period, this study highlights the eco-

nomic aspects of the apparel industry in major apparel exporting countries in terms of international

trade and employment generation. Third, our study analyzes the factors that help improve apparel

export performance during the post‐MFA period using existing literature and descriptive measures

derived from the World Bank Enterprise Surveys data (various years) for the major apparel

exporting countries.

The remainder of this paper is organized as follows. The next section discusses the historical

evolution of the apparel industry while Section 3 presents the economic aspects of the industry in

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