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Views of Sourcing Personnel, Which Will FINISHED GOOD SOURCING DECISIONS IN THE US APPAREL INDUSTRY AFTER IMPLEMENTATION OF THE AGREEMENT ON TEXTILES AND CLOTHING DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of the Ohio State University By Ann Richards Glenn, M.S. ***** The Ohio State University 2006 Dissertation Committee: Professor Leslie Stoel, Advisor Professor Loren Geistfeld Approved by Professor Neal Hooker Professor Catherine Montalto Advisor College of Education and Human Ecology ABSTRACT January 1, 2005 brought the elimination of quantitative restrictions to trade in the apparel industry. Because apparel products are produced in almost every country around the world, the elimination of trade barriers has important implications for apparel sourcing decisions. The research in this dissertation assesses the impact of quota release using two methodologies: interviews of sourcing personnel, which will give a micro-economic view of imports at the company level, and econometrics, which will be used to give a macro-economic view of impacts on the industry. The combination of these two methodologies will give a holistic look at the reduction of trade barriers and their impact on the apparel sourcing decision. The qualitative data consisted of transcripts from interviews of six sourcing personnel. New themes that emerged from the data included vendor relationships, security of country and natural barriers, such as weather phenomena. External environmental barriers, such as economic, political/legal, and socio-cultural barriers, found in previous research were confirmed by the qualitative data. The quantitative data used for this research was collected from various US and international agencies. OLS regression revealed all variables (difference in GDP, geographical distance, duty, real exchange rate, and quota) to be significant. The regression model does not include the emergent variables, due to the difficulty in quantifying them. ii Quota and tariffs were significant factors in the sourcing decision, both in the qualitative and quantitative studies. Quota has an interesting phenomenon occur, in that as quota decreases, US demand for apparel imports increases. This can be seen in the data (import quantity) and can be attributed to confounding variables not included in the model. iii DEDICATION To my husband iv ACKNOWLEDGMENTS This research is a culmination of years of collaboration and support of many researchers, industry leaders, fellow graduate students, family, and friends. I would like to thank my committee, Drs. Loren Geistfeld, Catherine Montalto, and Neal Hooker. Their enthusiasm and interest in this research as well as their invaluable time and input is most appreciated. I would like to acknowledge all of the “technical” assistance I received from Dr. Kathryn Stafford. Her patience answering “rooky” questions, her willingness to assist at any time and her enthusiasm for my research went far above her faculty role. I am also thankful to many fellow graduate students and co-workers that have given technical advice, suggestions, or just listened to issues during the process. My family and friends were a great influence in life, and their support through this process was invaluable. I greatly appreciate my parents for their encouragement and for teaching me to value education from a very early age. Heartfelt gratitude goes to Nicole Seitz, a valued friend whose efforts made a great deal of this research possible. Denise Boyd, an amazing woman whose fortitude and gusto in life have taught me so much about being a valuable and strong woman. Her editing abilities, support, and encouraging words were invaluable to me. Without the encouragement and support of my husband, Bill Glenn, this lifelong goal would not have been v possible. His belief in me and my abilities kept me motivated many days during this research. I am truly grateful to have him in my life and for his unwavering strength. My deepest gratitude is for my advisor, Dr. Leslie Stoel. She has been such an inspiration throughout this process. Without her encouragement, cheerleading, friendship and guidance the research process would have been much less fun. Her tireless efforts to push me harder, farther and expecting more from me than I thought was possible, is the true measure of excellence. She epitomizes the mark of a great teacher, and now, a friend. vi VITA July 31, 1972 Born- Pinehurst, North Carolina 1994 B.F.A. Fashion Design, Virginia Commonwealth University 1996 M.S. Textile Management and Technology, North Carolina State University 2002-2005 Graduate Teaching Associate, The Ohio State University RESEARCH Glenn, Ann R. and Stoel, Leslie (2004). NAFTA and the US Demand for Apparel Imports. Oral presentation at ITAA 2004 Annual conference, Portland, Oregon, Nov. 4-7. Glenn, Ann R. and Stoel, Leslie (2005). Trade Effects on price and availability of US apparel imports. Online abstract at Global Symposium for Consumer Sciences, Spring 2005. FIELDS OF STUDY Major Field: Textiles and Clothing Concentration Area: International Apparel Trade Minor Concentration: Agricultural Economics vii TABLE OF CONTENTS Abstract……………………………………………….……………………..…...……ii Dedication….................................................................................................................iv Acknowledgments………………………………………………………….………....v Vita……………………………………………………………..………….………...vii List of Tables………………………………………………………..….………….....xi List of Figures……………………………………………..………….…………..….xii Chapters: 1. Introduction…………………………………..…………………………..1 1.1 Problem Statement…………………………………………………..4 1.2 Significance………………………………………………………….4 1.3 Purpose………………………………………………………………5 1.4 Structure……………………………………………………………..6 1.5 Definition of Terms………………………………………………….7 2. Background……………………………………………………………10 2.1 Historical Industry Development…………………………………....10 2.1.1 Protectionism History……………………………………11 2.1.2 GATT and the WTO……………………………………12 2.1.3 Agreement on Textiles and Clothing…………………...14 2.1.4 Cotton Subsidies………………………………………..17 2.2 Current Industry Structure…………………………………………18 2.2.1 Apparel Commodity Chains Structure………………….19 2.2.2 Shifting Commodity Chains……………………………21 2.2.3 Current Trade Barriers………………………………….22 2.3 Sourcing……………………………………………………………24 2.3.1 Sourcing vs. Buying…………………………………….24 2.3.2 Sourcing Variables in the Apparel Industry…………….25 2.4 Sourcing Barriers…………………………………………………..26 viii 2.4.1 Quotas…………………………………………………..26 2.4.2 Tariffs…………………………………………………...28 2.4.3 Lead-time……………………………………………….30 2.4.4 Exchange Rates…………………………………………31 2.4.5 Labor Cost………………………………………………32 2.4.6 Average Apparel Unit Cost……………………………..33 2.5 Summary…………………………………………………………..35 3. Qualitative Study……………………………………………………….36 3.1 Buying Decisions…………………………………………………..37 3.2 Sourcing Barriers to Trade ………………………………………...40 3.3 Framework…………………………………………………………42 3.4 Qualitative Research Questions……………………………………44 3.5 Methodology……………………………………………………….44 4. Quantitative Study……………………………………………………...47 4.1 Explanatory Framework……………………………………………48 4.1.1 Heckscher-Ohlin Model………………………………...48 4.1.2 Gravity Equation………………………………………..50 4.2 Operational Framework……………………………………………51 4.3 Quantitative Hypothesis……………………………………………56 4.4 Methodology……………………………………………………….56 5. Results…………………………………………………………………..63 5.1 Qualitative Results…………………………………………………63 5.1.1 Demographics of Sample……………………………….65 5.1.2 Interview Themes……………………………………….67 5.1.2.1 Internal Barriers………………………………...68 5.1.2.2 External Barriers………………………………..74 5.2 Post 2005 Sourcing Strategy Changes……………………………..82 5.3 Emergent Theory…………………………………………………..86 5.4 Quantitative Results………………………………………………..89 5.4.1 Sample Summary……………………………………….89 5.4.2 Analysis…………………………………………………94 6. Discussion……………………………………………………………….99 6.1 Qualitative Study…………………………………………….……..99 6.1.1 Findings………………………………………….……...99 6.1.2 Importance…………………………………………….101 6.1.3 Limitations…………………………………………….102 6.2 Quantitative Study………………………………………………..102 6.2.1 Findings……………………………………………….103 6.2.2 Limitations…………………………………………….106 ix 6.3 Integrative Discussion…………………………………………….106 6.3.1 Findings……………………………………………….106 6.3.2 Future Research……………………………………….107 Appendices A. Qualitative Study- Phone Interview Questions…………………..……...109 B. World Trade Organization Member and Non-Member List…….………110 C. SPSS Syntax…………………………………………………………….116 List of References…………………………………………………………...……...117 x LIST OF TABLES Table Page 2.1 US Apparel Safeguards 2005…………………………………..…..……..….16 5.1 Respondent Demographics………………………………..…………………66 5.2 Sample Company Demographics……………………...……………………..67 5.3 Import Values of T-Shirts from the Top 20 Exporters to the US for 1997- 2005…………………………………………………………………………..90 5.4 Top 20 US Import Countries Quota and Tariff Assessments…………..……92 5.5 Maximum and Minimum GDP for 1997-2005 Top 20 T-Shirts US imports..93 5.6 Multiple Regression Analysis for Gravity Model…………………..………..96 5.7 Multiple Regression Results for T-Shirt Imports to the US……….....…….96 xi LIST OF FIGURES Figure Page 3.1 Proposed Framework Based on Leonidou (1999)…………………………...43 4.1 Glenn Apparel Sourcing Framework: Macro-Economic Perspective for Quantitative Study…………………………………………………………...57 5.1 Glenn Apparel Sourcing Framework: Micro-Economic Perspective for Qualitative Study………………………………………………………….....87 6.1 T-Shirt Units for Top 20 US Importers for 1997-2005……………….……105 xii CHAPTER 1 INTRODUCTION The textile and apparel industry accounts for 7.5% of manufacturing in the world and 5.6% of
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