GROWING MARKETS AND ITS PRODUCTIVITY

Growing Markets and its Productivity

Growing Markets and its Productivity

Introduction

The textile and apparel industries in the United States have a long history of productivity improvements that exceed those of other regions (Baumol, 1984; Ramcharran, 2001; R. Reichard, 2000). Yet domestic companies continue to engage in outsourcing to improve their cost positions, and as trade barriers gradually decrease the foreign market share of US textile market continues to increase, especially for imports from the Asia Pacific region (Felgner, 2005; Milberg, 2004). Superior productivity is usually associated with competitiveness, and the paper evaluates if traditional manufacturing productivity measures are adequate to evaluate competitiveness.

In addition to outsourcing, the textile industry sees ongoing merger activity in a non-growth market. The paper investigates the goals and outcomes of merger activity in this industry and considers if productivity is one of the considerations.

Productivity and Competitiveness

The competitiveness of an industry is often linked to its productivity, and productivity measures are used to describe, control, and improve an industry's competitive position (Drucker, 1974, Porter, 1990). While the labor productivity in the textile industry continually improved at a higher rate than in other regions and above the manufacturing average, the decline in number of plants and companies and the increase in import penetration indicate that the competitive situation of the US textile industry did not improve.

One explanation is of course the self-fulfilling premise that labor productivity must go up if measured as overall output relative to direct labor input. When a company outsources, it incurs a higher material cost (intermediate input increases in value), but it experiences lower labor cost because the labor or operator activities now happen outside of the company. This problem can be avoided by calculating labor productivity as added value relative to labor input. Comparing the two productivities should show if outsourcing does cause a significant improvement of labor productivity, but research by Marshall (Marshall, 2007) showed that the two productivity measures did not show a statistically significant difference. Consequently manufacturing productivity alone does not sufficiently describe the competitive situation of the industry; the productivity of knowledge workers (Drucker, 2000) has clearly started to play a much larger role in describing and measuring competitiveness in the textile industry.

Figure 1: Labor Productivity in the US Textile Industry (based on statistics of the US Bureau of Labor)

Figure 2: Outsourcing in the US Textile Industry (Marshall, 2007, also OTEXA and Bureau of Industry and Security, Department of Commerce)

This means that outsourcing activity may improve a company's labor cost situation, but it alone does not describe the competitive situation, nor does it alone make up a sustainable competitive strategy.

Merger Activity

The US textile industry shows continued merger activity, resulting in fewer domestic players. Mergers should lead to a bundling of resources, thus some synergies, and hopefully to productivity improvements, to economies of scale, and to less competition and therefore more profitable pricing. In practice, however, many mergers fall short of their intended goals, and the cost timeframe of integrating two ...