Industrial Upgrading Within The Apparel Commodity Chain example essay topic

Industrial Upgrading as an Historical and Organizational Learning Process From a theoretical point of view, there are three defining elements in this historically and organizationally grounded, global commodity chains approach to industrial upgrading. First, sequences of export roles are contingent, not invariant, features of industrial upgrading. While the progression from assembly to OEM to OBM export roles is quite typical, success in one role does not guarantee success in subsequent ones. Backsliding is possible and the sequences may vary, especially for more advanced forms of upgrading. These export roles are not mutually exclusive, either.

In fact, most nations are tied to the world economy in multiple ways (Gereffi, 1995). In the case of apparel, for example, the East Asian NIEs have engaged in assembly, OEM, and OBM from the 1960's through the 1990's, and they have extended their OEM and to a lesser degree OBM capabilities to a diverse array of other export industries. Prominent apparel exporters like China, Mexico, and Turkey are currently making a successful transition from assembly to OEM production, while most nations have not progressed beyond the assembly export role. Second, industrial upgrading is embedded in a social structure of producers, which is made up of "organizational chains" of buying and supplying firms. From this perspective, industrial upgrading involves organization learning to improve the position of firms or nations in international trade and production networks (Gereffi and Tam, 1998). Participation in global commodity chains is a necessary step for industrial upgrading because it puts firms and economies on potentially dynamic learning curves.

There are many obstacles, however, to moving up these chains. The barriers to entry for each export role are more demanding as one moves along the industrial upgrading trajectory. Subsequent stages generally require the mastery of skills associated with the previous stage, although new resources and capabilities are also involved in upgrading shifts. Entry into the apparel commodity chain in the assembly export role, for instance, requires that an economy have low labor costs, political stability, and favorable quotas or other forms of trade access to major export markets.

The shift from assembly to the OEM role requires, in addition to the foregoing conditions, a local infrastructure of firms capable of supplying a variety of apparel inputs (e. g., textiles, thread, buttons, zippers, labels) at the quality and quantity levels required for export production, as well as a good working relationship with a new set of foreign buyers (e. g., retailers and marketers) willing to place full-package orders. Third, industrial upgrading requires not only physical and human capital, but also social capital - i. e., relevant and effective networks. Economic theories of industrial upgrading indicate that as capital (both physical and human) becomes more abundant relative to labor and the endowments of other countries, nations develop comparative advantages in capital- and skill-intensive industries (Porter, 1990). However, industrial upgrading does not occur to a random set of capital- or skill-intensive industries or activities, but rather to products that are organizationally related through the lead firms in global commodity chains (Gereffi, 1999).

Industrial upgrading within the apparel commodity chain involves building and coordinating networks with different kinds of lead firms that have access to distinct pools of design, production, and marketing resources needed to create new forms of national and regional competitive advantage. Sustained competitiveness in the world economy involves continual changes in economic roles and capabilities. New exporters are constantly entering global commodity chains, which is pushing existing nations and firms to cut costs, upgrade, or exit the market. There is a perceived need to run faster to stay in place.

To facilitate adjustment and indeed survival in the volatile, contemporary international environment, industrial upgrading typically requires organizational linkages to the buyers and suppliers in developed country markets. The commodity chains framework provides us with a set of tools for understanding not only the importance of strategic positioning by firms and nations in global industries, but also the ways in which institutional and regulatory factors can shape development prospects in the world economy.

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