South Africa: Textile and Apparel cluster

Bachir DussekRosemarie Gomes

Tom HellingTamba Lamin

Hong Li

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Agenda:South Africa Country AnalysisCluster Analysis 

Global Textile & Apparel Industry South Africa Textile & Apparel Cluster

Cluster Competitiveness  Intra-Custer

(Western Cape vs. Kwa-Zulu Natal) Inter-Cluster

(China & India Textile Clusters vs. South Africa Textile Cluster)

Cluster Analysis Porter's Diamond Analysis Alternative Framework approach to

Porter's Diamond Analysis Knowledge Learning; Sharing;

Management & Technology Methods 

Recommendations

Presented 11.19.09

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South Africacountry analysis

1652Dutch East India Co.

1869Suez Canal

1867Diamonds

discovered

1886Golddiscovered

1948Apartheid asstate policy

1994Apartheid ends;

Transition to democracyNelson Mandela elected

President

ProtectionistPolicies

1980s

Geographicimportanceand history:

Cape Town

Johannesburg

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South Africa: Country Analysis

Economic profile and performance

the most advanced economy in Africa

cluster development

Economic profile and performance

the most advanced economy in Africa

cluster development

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South Africa: Country Analysis

Societal and political economic, political and social issues are rooted in a long history of racial segregation and apartheid a development process that created gross inequality along racial lines

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Strategic Issues

South Africa faces a set of key challenges regarding its competitiveness:

Economic instabilityRegional opportunities are limitedThe economic impact of apartheidInfrastructure challenges

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Global Textiles and Apparel IndustryGlobal exports of textiles and apparel in 2008 represented over $612 billion, and 3.9% of total world trade in merchandiseMulti-Fiber Arrangement (MFA) 1974-1994The WTO Agreement on Textiles and Clothing (ATC) 1995-2004

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Global Textiles IndustryGlobal exports of textiles

32.1%29.8%

3.8%

2.3%2.9%

4.1%

2.9%

4.1%

5.0%

Top ten economies = 88.5% of the total 2008 textile exports…roughly equivalent to what the top ten economies represented in 2000

1.5%

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Global Apparel IndustryGlobal exports of apparel

31.1%33.2%

3.8%

3.0%

3.0%

1.2%

2.5%

1.4%

1.2%

Top ten economies = 82.1% of the total 2008 apparel exports…an increase of 10.3% versus what the top ten economies represented in 2000

1.7%

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Global Cluster AnalysisQuotas, tariffs and the end of the MFAJobs and poverty reduction Trends in the value chain

geographical shiftsemergence of international retailerssourcing and product turnover trends

Fibers

Yarn

Fabric

Finished ProductNatural

Man-MadeCardingCombingSpinningDyeing

WeavingKnittingBleachingDyeingFinishing

ClothingHome FurnishingsIndustry

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Textile & Apparel Cluster in South Africa

Development of the clusterTextile and apparel industries

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Cluster Map Cluster Map

12

Inpu

t Ind

ustr

ies

Output Industries

Collaborating Institutions

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South Africa’s textile and clothing industry is concentrated in three provinces: Western Cape, Kwazulu-natal and Gauteng.

Kwazulu-natal produces about 30% of the country’s manufactured textile exports. And the textile and clothing sector makes up 15% of manufacturing in the province. Western Cape creates about 35 percent of South Africa’s total added value from textile, clothing and leather goods. The clothing and textile industry remains the most significant industrial source of employment in the province.

Western Cape Northern areas KwaZulu-Natal0

50

100

150

200

250

300

350

327

239219

Clothing Firms(South Africa, 2004)

Cluster Competitiveness (Intra-Cluster)

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South Africa

Development of textile

manufacturing cluster in

Cape Town and Johannesburg

1920s

Cluster expands Into Industrial textiles and apparel1945

Protectionistpolicies eased

(GATT)1994

Development of the Textile & Apparel Cluster (Intra) :

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Cluster Competitiveness (Intra-Cluster)Western Cape Kwazulu-natal

South Africa self-owned firms

Mainly located in Cape Town metropolitan area

Higher labor cost

Produce value-added higher end products

Focus more on domestic market

Many foreign owned firms (Chinese, Taiwanese, Indonesian etc)

Both Durban metropolitan area and other non-metropolitan areas.

Lower labor cost

Mainly focus on the lower end market

More suitable for export

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Cluster Competitiveness (Intra-Cluster)

Cluster CCTC KZN CTC

Year of Establishment 2005 2006

Participants 43 28

Member firms FCM: 19CMTS: 12Textile Firms: 9Retailers: 5

Textile Manufacturers: 10Clothing Manufacturers: 6CMTS: 2Footwear and Other: 4Design/Trading Houses: 3Retailers: 2

CCTC: Cape Clothing and Textile Cluster KZN CTC: KwaZulu-Natal Clothing and Textile Cluster

FCM: Full Clothing ManufacturersCMTS: Cut-make-and-trim Manufacturers (like OEM)

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Cluster Competitiveness (Inter-Cluster)

The global textile and clothing trade was $583 billion USD in 2007

Categories Economies/Areas (Data for 2007)

Biggest textile exporters

EU27, China, Hong Kong, the USA, South Korea, Taiwan, India, Turkey, Pakistan, Japan

Biggest textile importers

EU27, the USA, China, Japan, Turkey, Mexico, Vietnam, Canada, Russia

Biggest clothing exporters

China, EU27, Hong Kong, Turkey, Bangladesh, India,Vietnam, Indonesia, Mexico, the USA

Biggest clothing importers

EU27 (46%), the USA (24%), Japan (7%), Hong Kong, Russia, Canada

Biggest textile and clothing trade surplus economies

China, India, Turkey, Italy, Pakistan

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Cluster Competitiveness (Inter-Cluster)

China is the largest exporters of textiles and clothing in the world. In 2005, the textiles and clothing exports of China reached 125 billion USD, about 26% of the global textile and clothing trade.India’s textiles industry is one of the largest textiles industries in the world. Indian textiles and clothing exports reached 16 billion USD in 2005.China and India, including other Asian countries/areas such as Bangladesh and Vietnam have relatively lower labor cost and abundant textile resources such as cotton and wool as well as stronger textile clusters.

Economies Value (USD million) Share of World Exports

China 74, 163 26.9%

India 8, 290 3.0%

South Africa 173 0.1%

Clothing Exports for selected economies (2005)

Country South Africa China India

USD per hour 1.36 0.68-0.88 0.38

Laborcost

(2002)

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South Africa Textile Cluster Challenges

1. Imports impact:Imports of Chinese clothing products increased by 335% from 2002 to 2004. China is the most important source of South Africa’s clothing imports (74.3%), followed by India (5.4%). (2004)South Africa’s tariff on clothing products is 45%, the highest level allowed by WTO (2009).The imported productions have dominated the local textile and clothing market and thus seriously threaten the survive of the local manufactures.It is estimated that the volume of illegal imports is almost the same as that of legal imports and therefore presents a significant challenge.

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South Africa Textile Cluster Challenges

2. Exports decline:

Textile exports kept increasing from 1995 to 2002, but begun declining since 2003.

3. Employment crisis:The employment of textile and clothing sector declined remarkably from about 190,000 (2000) to about 130,000 (2006).55,000 textile workers struck for two weeks in September, 2009, requesting for higher pay.

2001 2002 2003 2004 2005 20060

2

4

6

3.44.5

3.8 3.2 3.2 3.1

South Africa Textile Exports (2001- 2006) (Rebellion)

Exports

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South Africa Textile Cluster Challenges4. Economy crisis

GDP declined from the fourth quarter of 2008

Unemployment rate is now close to 30%

5. Workplace productivity:Low levels of productivity and managementLack of innovation and technology enhancementLack of skilled workers and technicians

Quarter Q1 2009 Q2 2009

GDP rate -6.4% -3.0%

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South Africa Textile Cluster Challenges6. Poor Infrastructure

Value chains need to be strengthened (no raw material suppliers in CCTC and KTN CTC)Electric Supply quality deterioration; power outages (lack of sufficient investment by ESKOM)

7. Health and welfare of the population:HIV/AIDS & Tuberculosis pandemic affecting workers abilitiesExcessive and widespread crime (S.A ranked last among 74 countries)Equality through creation of opportunities for disadvantaged black population

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TYPES OF CLUSTERSStatic Clusters:

Clusters that show lackluster performance & growth lacking in innovativeness & synergistic tendencies

Dynamic Clusters: Intense local rivalry (prestige battles and feuds, stimulating change & more advanced & diverse supplier base)Dynamic competition stemming from entry of new firms & spin-offs from large incumbentsIntense cooperation organized via various institutes for collaboration (professional organizations, chambers of commerce, cluster organizations, networks)Access to increasingly specialized & advanced factors of production (human capital, financial capital, infrastructure, universities, research institutes)Linkages to related industries, sharing pools of talent & new technological advancementsProximity to sophisticated & demanding buyers

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TYPES OF CLUSTERSPromising Clusters:

High level of innovativenessImprovement of products & servicesHuman capital enhancementDistinct specialization development

Leading Clusters:Upward spiral where incumbent firms gain from & add to local spill-oversValuable to the surrounding firms

Dynamic cluster is the type of cluster that policy makers & cluster managers should strive for. Promising clusters may/may not survive. Leading clusters show signs of maturity & must know how to create new areas of growth.

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PORTER’S DIAMOND MODEL

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South Africa Country Diamond

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South Africa Textile/Apparel Cluster Diamond

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DIAMOND MODEL CRITICSMany theories from different scientists, theorists, institutions have been presented since the introduction Porter’s Cluster Diamond Model; each presents its own benefitsPorter sees clusters from micro-economic perspective (how firms benefit)Does not reveal whole picture of cluster benefits (micro & macro economics, social science, economic geography)Vague boundaries & limitations; unanswered questionsNo general agreement of what exactly qualifies as a clusterOpinions on clusters’ stated benefits vary a lot/not homogeneous

“Not a model but a mere way of thinking” concerning national economyModel gets older & leaves gaps to fill (19 year old theory/framework)Internet & its dynamics has caused the rules of competition to change

Focuses more on existence of elementsbut lacks an in-depth analysis of the processes or behaviors that make the elements work together to produce synergy

Provides the who, how & why of cluster performance but is it enough to allow cluster developers & policy makers to ensure that the anticipated synergy materializes?

Does the CDF need supplementary factors added to model in order to better suit the dynamic business world of today?

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A Holistic Framework Approach applied to Porter’s CDM

Clusters by nature are difficult to define. The true challenge is not the cluster concept itself, but the cluster-based framework offered to policy makers/managers for cluster analysis & development

A strong framework should be able to provide the “full” picture of a cluster complete with the aspects that will enable the users to have an understanding & appreciation of each cluster’s unique context – This is where CDM struggles

Need a framework that “does more than just tell us what we need to have in order to be able to establish a cluster.” Need a framework that will help guide sustainable cluster development

Macro-Analysis: Cluster Lifecycle Model-provides understanding of origin of cluster, its development process & forecasting ability to strategize for long-term cluster development

Micro-Analysis: Cluster Performance Pyramid-analyzes the makeup of the cluster-the dynamics, the actors and its performance

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CLUSTER LIFECYCLE

Antecedence-stage before emergence of cluster, helps to understand what spurs the emergence of the cluster (policy actions, natural resources, etc.)Embryonic-this early stage of clustering is critical; recognizing the signs can help trigger policy efforts that can strengthen the process & quicken the formation of the critical massDeveloping Cluster-if embryonic stage is successful, there is a fully fledged cluster. Dynamics are in full force & economic impacts start to be significantMature Cluster-as time passes, clusters will show signs of maturity due to product lifecycles & resources nearing or reaching physical and/or natural limits.

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CLUSTER LIFECYLCE FRAMEWORK

Firms significantly influence a cluster throughout its lifecycle & are significantly influenced by technology factorsLifecycle of dominant technology-base of the main industrial sector within the cluster is likely to have a key impact on the cluster’s lifecycle. The key to mapping a cluster against the lifecycle model is to identify the dominant technologyTechnological sectors tend to influence the clustering pathsIndustry members, policy makers, etc. must constantly monitor & respond to technological changesAn understanding of the cluster lifecycle is crucial in order for cluster managers and governments to be able to ensure long-term sustainability & growth

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CLUSTER PERFORMANCE PYRAMIDCluster Performance

Innovativeness of intellectual properties, products/processes/services; success level of goods produced; start-ups formed in the cluster

Knowledge Creation/InventoryKnowledge stock/inventory/creation seen from R&D done within cluster

Knowledge MovementCritical to create a successful innovation system; leads to enhancement/transformation of knowledge

Cluster ActorsIndustries, research communities, financial institutions, gov’t, cluster facilitators are main actors that have significant impact

Cluster DynamicsThe “must-have” ingredients for a cluster; a checklist to use to gauge cluster’s “health”’. Clusters are not static, they are dynamic & ever-changing systems.

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Knowledge Learning Sharing/Transferring

Entire Africa suffers from a shortage of skilled human capital High unemployment & entrenched inequality persists. It is widespread and continuously increasing as global competition has intensifiedUnemployment is concentrated among low-skilled workers & linked to remnants of apartheid. Job loss is massive in rural areas where wages are lowestUnder-investment in tradable sector for exporting led to unemploymentClothing industry requires significant amount of low-skilled labor; 83% of employees in Western Cape clothing industry are semi-skilled and un-skilled Women dominate Textile & Apparel workforce

66.7% are women94% of workers in clothing industry are blackAt least 5 people are dependent on each breadwinner in the industry

BEE, (Black Economic Empowerment) Policy focuses on extending opportunities to black S.A.s at management levels; has created a small subset of wealthy blacks but nothing done to address chronic unemployment at the low-end of labor market

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Knowledge Learning/Sharing/ Transferring Inadequately educated workforce

Consequences from colonialism and apartheid to invest in education & development of largely black workforce remains unresolvedNet university enrollment is only 15%; translates to higher labor costs of high-skilled workers.

BEE Policy for employment makes it difficult for firms to hire high-skilled foreignersJIPSA, (Joint Initiative for Priority Skills Acquisition) launched by gov’t, businesses and labor organizations; objective is to overcome lack of skilled labor in key sectorsHIV/AIDS high prevalence among working age adults poses serious challenge to availability & stability of labor across the economyCape Clothing & Textile Cluster (CCTC) Initiative developed by gov’t of Western Cape; objective is to facilitate knowledge enhancement through exchange of firm-level expertiseMinimal investment in development of highly skilled workers & technicians:

Current training efforts are not bringing large enough numbers of workers into “learnerships”Industry unable to finance a major skills upgradeManagement capability at all levels is weak

Weak link between businesses and knowledge institutions

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Textile & Apparel Cluster’s Technology

Gov’t plans to increase investments in information and communication technologies, (ICTs) by growing broadband networks & reducing telephony costsQuality of domestic ICT suppliers is high but has limited capacity to meet market demandS.A. has 109 Internet users per 1000 people; higher than China, but significantly lower than other middle-income countries like Brazil & MalaysiaTrails Brazil & Malaysia in landlines per capitaPerforms better in cellular phone infrastructure with 724 lines per 1000 peopleInvestments in capital equipment & level of technological innovation have been very low for the cluster. The industry is not technologically dynamic. Has performed poorly in innovation and technology enhancementIndustry perceived as being a follower rather than a leader

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Cluster RecommendationsFor government:

Increase investment for textile and clothing industry and improve the investment environment to utilize foreign capital more effectively.

Use quotas/tariff policies to combat high levels of illegal imports.

Improve raw material beneficiation, building an integrated value chain and reduce costs.

Improve sustainability of employment and combat sweatshops.

Establish more global partnerships.

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Cluster RecommendationsFor government:

Government support of Cluster Initiatives.

Expand access to higher education; increase education investment to Black South Africans.

Increase supply of high-skilled workers (ease immigration rules restricting employment of high-skilled foreigners).

Target niche segments and invest in R&D for these segments to allow firms to compete more effectively.

Improve development of IFCs (Institutions for Collaboration) to benefit from links/connections with retailers, manufacturers and design related industries.

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Cluster RecommendationsFor cluster:

Exploit local market and Intra-African markets.Improve quality of locally manufactured goods.Promote local sourcing by retailersPromote local products to consumers

Set up joint ventures with Asian and American firms, turning competitions into cooperation.

Improve efficiencies and supply chain management.Affiliate raw materials suppliers, logistics firms, foreign trade (import/export) firms.

Promote product and design innovationFocus on value-added products with more designs.

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Cluster RecommendationsFor cluster:

Adopt new producing processes and technologies.

Provide significant training to workers and managers to improve productivity.

Focus on specialized and niche training.Provide modernized training facilities for workers.

Participate in and/or host fashion expositions.

Improve technology.

Encourage further knowledge acquisitions; strengthen knowledge institutions and their links with business sector.

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Q&A

Sources:Ab. Aziz, K., & Norhashim, M. (2008). Cluster-Based Policy Making: Assessing Performance and Sustaining Competitiveness. Review of Policy

Research , 349-375.Barnes, J. (2005, July 29). A Strategic Assessment of the South African Clothing Sector. Retrieved November 14, 2009, from Trade and

Industrial Policy Strategies: http://www.tips.org.za/files/barnes_nedlac_clothing.pdfChaddha, A., Dhanani, Q., Murotani, R., Ndiaye, F., & Kamukama, R. (2009, May). Textiles and Apparel Cluster in South Africa. Retrieved

October 5, 2009, from hbs.edu: www.isc.hbs.edu/pdf/Student_Projects/SouthAfrica_Textiles_2009.pdf Eghbal, M. (2008, February 4). The Next 11 Emerging Economies. Retrieved October 5, 2009, from euromonitor.com:

www.euromonitor.com/The_Next_11_emerging_economies International Trade Statistics. (n.d.). Retrieved November 14, 2009, from wto.org:

http://www.wto.org/english/res_e/statis_e/its2009_e/its09_merch_trade_product_e.htmPersson, M., Sabanovic, A., & Wester, H. (2007, December). Is Cluster Theory in Need of Renewal? Porter's Diamond revised. Retrieved

October 5, 2009, from Theses Kristianstad University eprints.bibl.hkr.se: http://eprints.bibl.hkr.se/archive/00002001/01/c-uppsats_absolute_final.pdf

Retrieved October 5, 2009, from Cape Clothing & Textile Cluster (CCTC) www.capeclothingcluster.org.za: http://www.capeclothingcluster.org.za/index/members

Retrieved October 5, 2009, from KZN Clothing and Textile Cluster (KZN CTC) www.kznctc.org.za: http://www.kznctc.org.za/kznctc/index/view/alias/Member_Firms

Retrieved October 5, 2009, from Textile Federation: the official organization of the South African Textile Industry: http://www.texfed.co.za/main.htm

Retrieved October 5, 2009, from Global Textiles http://www.globaltextiles.com/: http://www.globaltextiles.com/Trends in World Textile and Clothing Trade. (n.d.). Retrieved October 5, 2009, from www.reportlinker.com:

http://www.reportlinker.com/p0109773/Trends-in-World-Textile-and-Clothing-Trade.htmlVlok, E. (2006). The Textile and Clothing Industry in South Africa. Retrieved November 14, 2009, from Bibliothek der Friedrich-Ebert-Stiftung

library.fes.de: http://library.fes.de/pdf-files/iez/03796/16suedafrika.pdfZeng, D. Z. (n.d.). Africa’s Experience in Cluster Development-What Can We Learn? Retrieved October 5, 2009, from worldbank.org:

http://info.worldbank.org/etools/docs/library/245676/Zhihua%20Zeng%20-%20Africa's%20Experience%20in%20Cluster%20Development.pdf

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