Can Apparel Export Industries Catalyse Industrialisation? Combining GVC Participation and Localisation

For a long time, the apparel export sector has been recommended as a gateway to industrial development, as it played a fundamental role in the early stages of industrialisation in countries such as the UK, the US and Germany, and later in Northeast Asia. Apparel export sectors resulted in much more than employment and foreign exchange through which imports could be financed. They resulted in the generation and capture of wealth that was used for reinvestment in the same or other sectors, knowledge for local firms to build capabilities that the countries later built on to move into more technologically advanced activities and sectors, and a deepening of their economies through forward and backward linkages in the domestic economy. However, these benefits were gradually eroded as more and more countries developed apparel export sectors and as global competition increased, leading to changes in global apparel value chains. These changes include the purchasing and sourcing practices of retailers and branded manufacturers in the Global North, which have led to a ‘squeeze’ on supplier firms that now face lower prices and more stringent requirements. Large transnational supplier firms, mainly from Asia, that have developed economies of scale and scope in order to remain profitable in such conditions, now dominate production in the apparel global value chain. They set up factories in multiple countries that engage in assembly activities, keeping higher value activities in their home countries, which reduced the opportunities for domestic linkages in the host countries. This paper explains and documents the original industrial development benefits of Northeast Asian countries and the evolution of the global apparel value chain up to the present period, based on an analysis of international trade data combined with a systematic review of individual country case studies and extensive fieldwork in sub-Saharan African apparel-supplier countries. The analysis shows that there still is potential within the apparel and textile industry to drive industrialisation if it involves substantial localisation through the presence of local firms and intra-sectoral linkages. Local firms are critical for cumulative capability building and developing a local supply chain, and an extensive and diversified textile base is key to industry-level upgrading beyond competing based on labour costs and preferential market access.