CENTER on
GLOBALIZATION,
GOVERNANCE &
COMPETITIVENESS
EXECUTIVE SUMMARY
The Apparel
Global Value Chain
ECONOMIC UPGRADING AND WORKFORCE DEVELOPMENT
Karina Fernandez-Stark
Stacey Frederick
Gary Gereffi
Contributing CGGC Researchers: Penny Bamber and Ghada Ahmed
NOVEMBER
2011
The Apparel Global Value Chain: Economic Upgrading and Workforce Development
“Skills for Upgrading: Workforce Development and Global Value Chains in Developing Countries”
This research project examines workforce development strategies in developing countries in the context
of the shifting upgrading dynamics of global value chains. Funded by RTI International and carried out by
Duke CGGC, this research addresses policymakers, donors and development practitioners to improve our
understanding of how workforce development strategies can enhance the upgrading efforts and
competitiveness of developing countries in global industries.
Acknowledgements
We would like to thank all of our co-authors, collaborating researchers, support staff, and interviewees,
who gave generously of their time and expertise. We would also like to thank Anna Wetterberg of RTI
International for comments on early drafts.
None of the opinions or comments expressed in this study are endorsed by the companies mentioned or
individuals interviewed. Errors of fact or interpretation remain exclusively with the authors.
The authors can be contacted at:
Stacey Frederick
[email protected]Gary Gereffi
[email protected]Duke University Center on Globalization, Governance and Competitiveness (Duke CGGC)
The Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC) is affiliated
with the Social Science Research Institute at Duke University. Duke CGGC is a center of excellence in
the United States that uses a global value chains methodology to study the effects of globalization in
terms of economic, social and environmental upgrading, international competitiveness, and innovation
in the knowledge economy. Duke CGGC works with a network of researchers and scholars around
the world in order to link the global with the local and to understand the effects of globalization
on countries, companies and the full range of development stakeholders.
© November, 2011
Center on Globalization, Governance & Competitiveness, Duke University
Posted: November 17, 2011
The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Executive Summary
This report uses the global value chain perspective to examine workforce development initiatives
in a number of developing countries that are participants in the global apparel industry. Apparel
production is considered an important catalyst for national development, and often it is the typical starter
industry for countries engaged in export-oriented industrialization due to its low fixed costs and emphasis
on labor-intensive manufacturing. The expansion of this sector has played a critical role in the economic
development of many low-income countries, which today account for three-quarters of the world clothing
exports. Formal employment in the sector totals over 25 million in low- to mid-income economies (ILO,
2005).
While global expansion of the apparel industry historically has been driven by trade policy, by
2005, the Agreement on Textiles and Clothing (ATC) by the World Trade Organization had phased out
many of the quotas that had previously regulated the industry. This caused a tremendous flux in the global
geography of apparel production and trade, and a restructuring of firm strategies seeking to realign their
production and sourcing networks to accommodate new economic and political realities (Gereffi &
Frederick, 2010). This change has brought other key factors for country competitiveness to the forefront,
including labor costs, productivity, and competencies. Low-cost countries—such as China, India, and
Bangladesh—are emerging as leaders in the lower-value assembly segments of the value chain, while
smaller countries are being forced to upgrade into higher-value segments, such as branding and design
that rely on high-quality human capital to maintain their competitiveness. As a result, workforce skills
will become increasingly important elements for developing economies to maintain and upgrade their
positions in the global apparel value chain.
This report examines the role that different workforce development initiatives have played in
the evolution of the apparel industry in five developing countries: (1) Bangladesh, (2) Lesotho, (3)
Nicaragua, (4) Sri Lanka, and (5) Turkey. These nations represent different stages of industry
development. Lesotho and Nicaragua are in the lowest stage of the value chain, offering only assembly
operations. Bangladesh is one step more advanced because it adds purchasing and distribution
capabilities. Sri Lanka has been able to add design capabilities, while Turkey is also selling their own
brand products.
Our analysis reveals the following findings with respect to workforce development and upgrading
in this sector:
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Economic Upgrading
The main stages of upgrading in the apparel value chain are
1. Assembly/Cut, Make, and Trim (CMT): Apparel manufacturers cut and sew woven or
knitted fabric or knit apparel directly from yarn.
2. Original Equipment Manufacturing (OEM)/Full Package/Free on Board (FOB): The
apparel manufacturer is responsible for all production activities, including the CMT activities, as well as
finishing. The firm must have upstream logistics capabilities, including procuring (sourcing and
financing) the necessary raw materials, piece goods, and trim needed for production.
3. Original Design Manufacturing (ODM)/Full Package with Design: This is a business model
that focuses on adding design capabilities to the production of garments.
4. Original Brand Manufacturing (OBM): This is a business model that focuses on branding
and the sale of own-brand products.
Figure 1. Curve of Value-Added Stages in the Apparel Global Value Chain
Source: Frederick, 2010.
• Developing countries enter into the lowest segments of the value chain due to various advantages,
including favorable trade agreements, low-cost labor, and proximity to end markets. Four of the five
countries studied entered the industry principally because of favorable trade agreements. Bangladesh
and Sri Lanka benefited significantly from preferential trade agreements with Europe and the United
States, which facilitated their early entry and growth, while, more recently, Lesotho and Nicaragua
benefited from the African Growth and Opportunity Act (AGOA), as well as the Dominican
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Republic-Central America Free Trade Agreement (CAFTA-DR) and Trade Preference Level (TPL)
agreement, respectively.
• To upgrade into higher segments of the value chain, other factors become more relevant. These
include the presence of a domestic or regional textile industry; the presence of large textile and
apparel manufacturers in the country; and, in the cases of upgrading into design and branding, a
strong commitment to industry growth by both the public and private sectors to develop the necessary
talent and establish a national brand.
Workforce Development
• The majority of workers are concentrated in the production-related segments of the value chain (CMT
or OEM), and, historically, they have mainly been young, female workers with limited education.
Only 3%–4% of total factory workers are not involved in assembly line positions, such as production
planners, engineers, mechanical technicians, and operations support (Nathan Associates Inc., 2006).
However, while the required formal skill level is relatively low in the CMT segment of the value
chain, this rises rapidly as countries upgrade into higher value stages, and workers with more
advanced skills are needed to support new functions, such as logistics, finance, design, and marketing.
• Despite its potential for increasing productivity and upgrading, workforce development initiatives
alone play a secondary role in improving competitiveness. The case studies discussed later in this
report provide several key lessons for workforce development in the sector, such as follows:
o First, in the early stages of the value chain, all of the countries studied maintain a heavy
emphasis in on-the-job training carried out by supervisors to address the skills gaps in the
apparel labor force, rather than the use of formal training. This preferred method of training is
less costly, but it also stems from the limited number of vocational and training institutions
(public or private) dedicated to the apparel industry and the mismatch between skills provided
by these institutions and private sector needs.
o Second, there is frequently a shortage of skilled labor, in general, and qualified supervisors
and management, in particular, to support industry upgrading in developing countries.
Expatriates generally meet this skills gap or, where possible, when existing skills are not
present in the local labor market, certain upstream or downstream activities are performed
abroad in firm headquarters.
o Third, new initiatives are emerging from more mature suppliers to professionalize the apparel
labor force, including managerial training to deal with growing pressures for lean
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
manufacturing and compliance with corporate codes of conduct and the creation of national
certifications for product and process upgrading in Turkey and Sri Lanka. Initiatives such as
these are important precursors to establishing comprehensive workforce standards for
upgrading.
Institutions
• In those segments of the value chain focused on manufacturing, the private sector has played the
leading role in workforce development, and most firms offer internal training of entry-level
employees. There have been a number of efforts by both the public sector and donor agencies to
engage technical and vocational training schools in the industry, often with only limited degrees of
success.
• In the two countries (Turkey and Sri Lanka) where the industry has upgraded to higher stages of the
apparel value chain, we observe superior degrees of stakeholder coordination, along with some
public-private partnerships (PPPs) to support workforce development. These alliances include private
firms, industry associations, educational institutions, and the private sector to improve the quality of
those skills.
• Successful workforce development for ODM and OBM stages in the value chain has leveraged know-
how in the developed world by engaging foreign universities in successful apparel countries to help
design curriculum for local programs and hiring foreign consultants to help develop in-house talent.
Fostering collaboration with successful training institutions in the developed world can speed firm-
level learning for upgrading, rather than relying solely on learning through experience.
• The International Labor Organization (ILO) has partnered with International Finance Corporation
(IFC), a branch of the World Bank, to establish the Better Work program to raise labor standards in
global supply chains. While currently, the Better Work program has been implemented in Cambodia,
Haiti, Jordan, Lesotho, Vietnam, and most recently Nicaragua, to date the ILO-IFC partnership has
focused primarily on encouraging social dialogue and improving working conditions. Thus far,
however, it has been unable to link participation by developing countries in the Better Work program
to more favorable contracts or other long-term benefits with global buyers in the apparel value chain.
New Global-Local Interactions
• The rationalization of global supply chains in apparel, which has been accelerated by the phase out of
the Multi Fibre Arrangement (MFA) quota system after 2005, is leading to concentrations in the
market share of the leading apparel exporting countries and an emphasis on fewer, larger, more
capable and strategically located suppliers (Gereffi & Frederick, 2010). In 2008, for example, the top
two apparel exporters, China and the European Union (EU), accounted for 64.3% of global apparel
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
exports, and the top five developing countries (China, Bangladesh, India, Turkey, and Vietnam) had
45.5% of the apparel total. In 2000, China and the EU-27 represented 46.6% and the top five
developing economies (China, Hong Kong, India, Mexico, and India) 33.9% of apparel exports. This
consolidation increases the importance of linking workforce development initiatives to economic
upgrading in the apparel value chain, since those countries that cannot meet the demanding
requirements of OEM, ODM, and OBM production risk being marginalized in the chain.
• The rapidly increasing labor costs in China, the dominant producer and exporter in the global apparel
value chain, as well as a slump in demand by the advanced industrial economies, is leading to a
regionalization in apparel value chains, with large emerging economies like China, India, and South
Africa becoming significant new markets for nearby developing country producers (Frederick &
Gereffi, 2011; Morris et al., 2011). This provides new opportunities for low-income economies like
Lesotho and Bangladesh to compete against dominant exporters like China and India, but they can
only do so if they can meet the more stringent upgrading and workforce requirements of post-MFA
supply chains.
• Lead firms have taken a more active role in facilitating training in two key areas: (1) quality control
and (2) improving working conditions. For example, in Turkey global brands—such as Liz Claiborne,
Hugo Boss, and Marks and Spencer (M&S)—train, certify, and audit Turkish suppliers on quality
control, information systems, and working conditions (Tokatli, 2007).
• The impact of lead firms pushing country upgrading through demand for additional services is
affected by the length and capabilities inherent in the supply chain. Our research suggests that global
lead firms influence functional upgrading in countries where large integrated suppliers are based and
where the domestic pressures for economic upgrading are strong, but they do not promote upgrading
in countries where the factories engage only in assembly (CMT) activities.
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Table 1. Upgrading Trajectories in the Apparel Global Value Chain
Diagram Description
• Assembly (CMT): The focus of the supplier is on production alone;
(Entry in the value
Assembly/ CMT
suppliers assemble inputs, following buyers’ specifications.
• Inputs—such as textiles, accessories, and packaging—may be imported
chain)
due to limited availability and quality concerns over local inputs.
• Product focus may be relatively narrow.
• Firm takes on a broader range of tangible, manufacturing-related
Product Brand (OBM) Product Design (ODM) Full Package/OEM
functions, such as sourcing inputs and inbound logistics, as well as
(Functional
Upgrading)
production.
• The supplier may also take on outbound distribution activities.
• Supplier carries out part of the pre-production processes, such as design
or product development.
(Functional
Upgrading)
• Design may be in collaboration with the buyer, or the buyer may attach its
brand to a product designed by the supplier.
• In many cases, ODM firms work with designers from the lead firms to
develop new products.
• Supplier acquires post-production capabilities and is able to fully develop
products under its own brand names. Two options:
(Functional
Upgrading)
(1) Supplier maintains a relationship with the buyer and develops brand
collaboratively.
(2) Supplier establishes its own distribution channels by establishing a new
market channel that is typically more profitable and allows the firm to
expand skills. These are often local or regional markets.
• Increase unit value by producing more complex products, which requires
Product Upgrading
increasing the capabilities of the firm.
• Countries must move from low-cost commodities to higher value-added
fashion goods that warrant higher returns as labor rates increase.
• Machinery: Improving productivity through new capital investments.
Process Upgrading
• Information and Logistics Technology: Improving the way the firm carries
out these activities. Benefits both the firm and the chain because it
reduces the total time, cost and increases the flexibility of the supply chain
process.
Source: Duke CGGC.
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Table 2. Job Profiles in the Apparel Global Value Chain
Formal Education Training/ Skill
Position Job Description
Requirements Experience Level
CMT/Assembly /Production
Hand Sewers Sew, join, reinforce, or finish—usually with needle and thread—a No formal education Required
variety of manufactured items. Includes weavers and stitchers. required experience
Sewing Operate sewing machines to join, reinforce, decorate, or perform No formal education Experience: Need
Machine related sewing operations in the manufacture of garment or required; literacy and of speed and
Operators nongarment products. numeracy skills accuracy skills
Experience: Need
Garment Clothing pressers use steam irons and vacuum presses to shape No formal education
of speed and
Pressers garments and remove creases. required
accuracy skills
Cutting
In automated facilities, cutters electronically send the layout to a
Machine Technical education Technical training
computer-controlled cutting machine.
Operators
High school diploma/
Line Leaders Supervisory roles; ensure work flows expeditiously along the line. Management skills
technical education
Supervisory roles; oversee the pace of the work and ensure
Production Flow Technical education/
stoppages are minimized, monitor production levels, train new Management skills
Supervisors Bachelor’s degree
workers, and manage constant problem solving.
OEM/ Full Package
Maintain final quality prior to distribution of product, monitored by High school diploma/ Knowledsge of
Quality Control
buyers technical education quality systems
Sourcing,
Purchasing, Capabilities related to OEM production: Workers must have Technical education/
and Supply financial skills related to purchasing inputs and coordinating Bachelor’s degree in Industry experience
Chain production schedules. finance/management
Management
ODM
Fabric and Create the blueprint or pattern pieces for a particular apparel
Technical education in
Apparel design. This often involves grading, or adjusting the pieces for Experience
apparel
Patternmakers different sized garments
Tailors,
Technical education in
Dressmakers, Design, make, alter, repair, or fit garments. Experience
apparel
Custom Sewers
Workers must have training in the “aesthetics” of product Technical education/
Designers development, some market and consumer knowledge, and Bachelor’s degree in Experience
technical skills required to translate ideas into samples. clothing design
Bachelors/Master’s
Senior Creative talent within the industry that can develop new design
degree in clothing Experience
Designers lines for production.
design
OBM
Bachelor’s/Master’s
General Responsible for financial management supply chain optimization,
degree in Experience
Business Skills quality control and/or strategy, and new business development.
business/engineering
Branding and Marketing
Responsible for market research, marketing/advertising, Bachelor’s/Master’s
Marketing specialization and
networking, and positioning brands in the market. degree in business
Capabilities experience
Source: Duke CGGC.
Low Low-Medium Medium Medium – High High
Skill
Level No formal education; Literacy and numeracy Technical Technical education University degree and
experience skills; experience education/certification /undergraduate degree higher
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The Apparel Global Value Chain: Economic Upgrading and Workforce Development
Table 3. Workforce Development and Upgrading in the Apparel Global Value Chain
Diagram Workforce Development Implications
Reliance on in-house training provided by supervisors to ramp up new machine
(Entry in the value
operators. Technical staff, such as mechanics and engineers, may benefit from
Assembly
chain)
additional external training programs.
Skills Preparation Institutions
On-the-job training in operation of machines, Private sector/ Industry associations
cutting and pressing equipment. Donor agencies
Firms learn buyer preferences, build relationships with textile suppliers and retail outlets.
(Functional Upgrading)
Recruit experienced employees from the textile industry. New staff hired for financial and
OEM/ Full Package
logistics functions.
Skills Preparation Institutions
On the job training in textiles, sourcing, Private sector
supply chain coordination, and logistics and Educational institution
cost optimization.
Secondary and tertiary education
In-house designers worked in tandem with designers from the buyers to gain a deeper
(Functional Upgrading)
Product Design (ODM)
understanding of preferences. Design functions require innovative skills related to new
product development and knowledge of global standards, process and information
technology upgrading.
Skills Preparation Institutions
Technical training in design. Private sector/ industry association
Tertiary education Educational institutions
Government
The supplier develops know-how related to brand promotion from lead buyers. Firms
(Functional Upgrading)
Product Brand (OBM)
hire employees with skills related to marketing and consumer research. Developed
country consultants can provide important training for the firm.
Skills Preparation Institutions
Soft skills and managerial skills training Private sector (in-house and external
Tertiary education trainers)
Educational institutions (universities)
Suppliers begin to produce increasingly complex apparel products. These products
Product Upgrading
require numerous details and are typically more complex to produce and require specific
inputs.
Skills Preparation Institutions
On the job training Private sector
Tertiary education Educational institutions (technical
schools, universities)
Improves efficiency and is usually part of a low-cost strategy. Performance
improvements from process upgrading: lowers operating costs in the long-run; enhances
quality and delivery performance; shortens time to market.
Upgrading
Process
Skills Preparation Institutions
On-the-job training Private sector (suppliers and lead firms)
Training for use of new equipment Government incentives for investment in
training
Equipment providers
Source: Duke CGGC.
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