Introduction
This paper presents and evaluates the costing system used in the textile industry by comparing domestic production to offshore production for the textile industry. The potential benefits and disadvantages of local and offshore manufacturing approaches to small corporations will also be discussed. Currently, the benefits of outsourced production to the large companies have gotten much consideration, more so the apparel industry. There is the main advantage of an outsourced production process for the large attire firms concerning cost decreases and expanded efficiency based on labor market distinctions. In any case, the impact of the strategy with regards to the attractiveness and viability for the small attire firms is unknown.
The increased number of small attire corporations constantly producing in their domestic marketplace, irrespective of differences in the labor market, demonstrates that the benefits of outsourced production is not as dire for a majority of corporations regarding their competitiveness.
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Globalization
Today, the apparel business has provided several opportunities as well as challenges to its members. As a result of experiencing high development and growth, the attire business has been considered an epitome of global development. Apparel corporations have expanded access to the international marketplace. The accessibility is as a result of the elimination out of the multi-fiber structure. This structure was founded in 1974 to give the clothing organizations of developed countries an intermediate laxity from the competition of developing countries. At the same time, the apparel firms are facing increased competition in their domestic marketplace. On the other hand, traditional industry actors have been to some level tested by worldwide competition, fast-changing technology, and market volatility. Another issue here has been the increased intensity of labor in the apparel business, which has led to many industries both small and large to give external contracts for the manufacturing process to international or local organizations (Sirilertsuwan, Ekwall, &Hjelmgren, 2018).
Since labor accounts for a high percentage of the final cost of clothing, significant cost-cuts can be realized by utilizing the differentials in the labor market. However, it must be considered that these savings can overstate the true market outlook with regard to the differentials. Nonetheless, a number of the clothing productions in the world are currently found in the less-developed nations or those that are newly developed, for instance, East Asia and Latin America. The transformation shows the search for the ideal manufacturing approach which has been enhanced by developments in sectors such as transport and communication as well as liberal trade processes (Venkatesh, Dubey, & Bhattacharya, 2015). The prevalence of the small-wage production areas represents a substantial strategic disadvantage to smaller businesses which prefer a local manufacturing scheme.
Optimal Manufacturing Approach
In a given industry such as the clothing business, an effectual manufacturing approach is crucial to surviving the ever-changing business environment. Thus, an effectual approach helps to create and sustain a competitive advantage. Manufacturing approach is an effectual production plan aptitude for the realization of the goals of the business. There are four main features of manufacturing approach including quality, flexibility, cost, and delivery. However, this paper will focus on cost system or issue in the apparel industry (Sirilertsuwan et al., 2018).
The cost can be defined as the price efficiency or price of production of a garment. As a result of the seasonality and volatility nature of apparel demand, a majority of the corporations choose to manufacture across the borders irrespective of whether these corporations produce on a domestic or international basis. However, certain firms will only thrive when they are domestically concentrated closer to their main buyers. The same case applies when apparel firms utilize the low-cost factor, though based on their products or their features, the apparel firms will weigh the advantages with those from other sources in determining their manufacturing approach (Venkatesh et al., 2015). Where there are conflicting sources, the firms have to select from the set of characteristics that offers the best benefit when compared to competitors.
Offshore Production from the Perspective of Small Firm
Corporations may experience substantial advantages from shifting certain features of their business offshore. The approach works for corporations in the clothing industry. Many of the businesses in the clothing industry have shifted their production approach from local to offshore positioning. When choosing a country for outsourced production, some of the aspects such as labor and cost of production as well as the extent of the liberalization of trade come into play (Sirilertsuwan et al., 2018). But, having external facilities of production is not an important part of an outsourced production approach as it is not the best mode of entry for small corporations. The high number of clothing businesses that produce offshore, subcontract production to offshore contract manufacturers; thus, they can concentrate on their competitive advantage, main capabilities and any specialties that they choose.
Cost Differentials
The basis of outsourcing in the clothing business is as a result of the enhancements in technologies, which have enabled corporations to shift labor-intensive features of the operations to small-wage places and still maintaining crucial activities in heavily capitalized and industrialized countries. Based on the fusion of resources and location, the approach enables the apparel business to maximize profit. The benefits of international sourcing are mainly derived from the reduction of cost (Venkatesh et al., 2015). On the other hand, the imperfections in the labor market and highly labor-intensive kind of attire production show demonstrate that substantial reductions in the costs of labor exist through offshore sourcing. But, countries with higher costs of labor are likely to have high productivity in certain cases. Irrespective of the costs saving from international sourcing, several small corporations in the clothing business still opt to produce in their local marketplace, demonstrating that the clothing business cannot be characterized solely on the Sirilertsuwan and colleagues' argument. It is also important to note that international sourcing can also bring about cost-associated benefits. By apparel businesses producing outside the country, they become increasingly disintegrated in the vertical scope. This disintegration results in the increase in the volume and speed of inter-corporation capital as well as commodity and information transaction. Consequently, the costs of communication, information exchange, transportation as well as searching and scanning also increases.
Domestic Manufacturing
Whereas local and international manufacturing approaches are assessed against one another, the benefits of one approach tend to be the drawbacks of the other. For example, citing low costs as the main benefit of the outsourcing approach, all business mention high production and operation cost as a result of the comparatively high cost of labor as the main challenge of the approach (Macchion, Moretto, Caniato, Caridi, Danese, &Vinelli, 2015). Also, the disadvantage of a local manufacturing approach not highlighted in the literature is the professional level in the production place where the apparel manufacturing industry is located. As a result of the comparatively high cost of labor and the pressure to lower costs, the apparel industry is not very lucrative. Consequently, the apparel industry is not very competitive; thus, it lacks professionalism. Therefore, the apparel industry is associated with poor management, inability to innovate, insufficient documentation, and the will to do like some of the disadvantages of domestic manufacturing. Besides, domestic manufacturing is associated with a shortage of skilled labor irrespective of the high cost of labor.
Offshore Sourcing
The main advantage of offshore sourcing is the comparatively lower costs arising from differentials in the labor market. Small corporations are taxed two to three folds as much for a small number of orders; thus, the subsequent output to cost ratio alongside the production level makes the approach lucrative. However, the main shortfall of offshore sourcing experienced by apparel firms is the loss of control related to the offshore sourcing. Another main drawback for the apparel firm is the increased lead times. The increased lead times together with the loss of authority accompanying offshore sourcing leads to great uncertainty with regards to the quality of garments received as well as when it will be received (Venkatesh et al., 2015). Moreover, the inability to carry out short runs makes the offshore sourcing both unappealing and unviable to the small corporation that is unable to support the minimum amount of orders required. Barbat, Hlady Rispal, and Randerson (2014) highlight other demerits associated with offshore sourcing such as the need for careful and effective planning of production, the need to track the increased quantity of counterfeit merchandises or the level of returns, the overseas travelling costs to build networks and business relations and upfront payment.
Discussion of Findings
The relatively low cost of production is seen as the main benefit of offshore sourcing both by industries with and without offshore expertise in production. However, it must be noted that corporations without offshore expertise are likely to overrate the possible cost reserves realized through offshore manufacturing since the firms are ignorant of the hidden charges related to the industry. The somewhat inflated costs of domestic production are viewed as the approach's leading challenge, specifically for export trades during the times of unfavorable currency fluctuations (Bellagamba, 2015). To address the high production costs, domestic manufacturers may combine the ideal manufacturing approach to new technologies, for example, costing due to ultrasonic and laser. But, given the increased cost coupled with an extended payback timeframe of the given technologies, the strategy will doubtfully take place. One of the cost associated benefits that domestic or home-based production has is its favorable terms of credit. The terms of credit ease the flow of cash of small enterprises. In the absence of credit terms, certain small firms are likely not to operate effectively.
Irrespective of the high cost of production, domestic manufacturing model has a certain appeal, for example, allowing small apparel corporations to maximize on profit by capitalizing on their effective designs due to restricted lead times. Businesses that focus on changing production must establish the point at which the cost savings is realized to offset the capability to capitalize on effectual strategies. Flexibility realized through restricted lead times is also becoming highly significant as merchants have started demanding instant response to their orders (Yu & Lindsay, (2011). The factors are instrumental in attracting corporations to produce domestically as a result of the restricted lead times that are achievable. Corporations that produce offshore are prohibited to maximizing on their effective plans and are usually rigid as a result of long lead times as well as the inability to precisely predict demand. The problem can be solved in the future since merchants highly use electronic information interchange; thus, companies can more precisely forecast and strategize for production for prospective demand. Firms can, therefore, strategize for extensive lead times at an early stage (Venkatesh et al., 2015).
When assessing manufacturing approaches, the loss of affirmative country-of-origin consequences must be taken into account for small apparel corporation. Even though the approach is of help to a domesticproduction approach, country-of-origin consequences are not as needful due to many reasons. First, by integrating a local theme into a firm's promotion and branding, the advantages of the effects are likely to be realized without producing apparels domestically. Second, there is sustainability in the growth of the export marketplace. Thus, the domestic marketplace is becoming relatively less influential. Since the affirmative country-of-origin outcomes are only viewed as the authentic value in the domestic marketplace, the constant evolution of the global transactions demonstrates that country-of-origin outcomes are less of an enticement for sustaining production domestically (Bellagamba, 2015).
On the contrary, control of quality is both the main benefit of domestic production approach and the main shortcoming of offshore sourcing approach. For instance, ensuring that all problems are sorted can be significantly important as oversights can lead to great costs of time and damage the reputation of retailers. Thus, by manufacturing locally, hitches can be addressed before they become disastrous. Therefore, until small corporations amass the financial resources to recruit agents whose role is to monitor manufacturing problems, the inability to control quality will continue to be a key drawback of offshore manufacturing. However, domestic manufacturers cannot rely on the advantage rather they must make efforts to provide the levels of professionalism as well as service that the apparel industry demands.
For specific corporations, their size makes the offshore sourcing prohibitive. There is a contrasting minimum amount of orders demanded based on the capability of domestic producers to manufacture short runs; thus, the domestic approach remains the only sustainable option. However, it is important to note that, what is regarded as small firm within the study varies substantially from what is likely to be a small corporation in other countries, for example, the United States of America. Thus, even though several small apparel corporations in developing countries may not be able to meet the minimum amount of orders demanded by offshore manufacturers. The incident may be less of a problem for a small corporation in the USA apparel firms, though there is proof that size influence the sourcing approaches of the USA apparel manufacturers (Yu & Kim, 2018).
Therefore, based on the findings of this exploratory study, there are three proposals. First, whereas the size of the firm is an indicative factor in the choice of sourcing approach, an alternative positive influence on the factor can be the age of the corporation. Generally, the size of the corporation tends to increase with age, though the association may not all the times hold where size is limited by the small domestic marketplace. In an industry as changeable as apparel, age comes with experience. Consequently, the experience leads to a network of relationships that makes offshore sourcing a sustainable alternative (Barbat et al., 2014)). Therefore, according to Macchion et al., (2015), age can be a justifying factor in strategy choice, with only two corporations being the players in offshore manufacturing. Though age is no more than a proposal at this stage it can be tested on different corporations of the same size with different ages. Second, the more production is based on fashion, the more likely it is that to an extent, some of the production can be retained in the domestic context to offer the benefit of rapid response to local designers and customers (Yu & Lindsay, 2011). On the other hand, the decision to mass fashion in the United States of America has not assisted its domestic industry to last. Third, as the response times given by the offshore sources become rapid, domestic manufacturing is becoming more difficult to rationalize even among producers who are fashion-based (Yu & Kim, 2018).
Conclusion
At one point, all of the firms producing offshore started off producing domestically; however, their production approaches evolved and will continue based on their evaluation of manufacturing approaches relative to their cost of production, export growth and size. Firms that manufacture offshore, or where offshore production is viewed as inevitable will remain to produce domestically as offshore production is flexible. But, there are non-economic considerations, for example, the ethics and support for the domestic industry, which will continue to factor into certain decisions of the firms. Some of the insights in the study include the expanded ideas in the sustainability and attractiveness of domestic and offshore manufacturing approaches for the small apparel corporations. The insights specifically are the significant lowering of production costs, which is the main advantage of an offshore manufacturing approach. Regrettably, the inability to control quality is the main disadvantage of offshore manufacturing. But, factors such as country-of-origin effects, terms of payments, and the capability to significantly carry out small runs between corporations remain to be varying features in apparel firms (Da Silveira, 2014).
It is worth noting that even though partial offshore sourcing can be a sustainable alternative for several small apparel corporations, it is not certainly the most lucrative or attractive approach. The approach may not be profitable because of its inability to maximize effective designs, unfavorable country-of-origin consequences, and unfavorable terms of credit. Thus, there is a conflict between offshore production, low costs and the need to create an agile and responsive corporation. Also, small apparel corporations acknowledge the importance of constant monitoring of their production approaches with regards to regulation, technology, and industrial transformation frequently. Besides, the small firms acknowledge that the suitability of their corporation's manufacturing approach is likely to shift based on their size, age as well as global marketplace focus. This study has provided smaller apparel corporations who are in the process of reviewing their production approach with insights into what small apparel corporations’ view as the advantages and disadvantages of domestic and offshore manufacturing approaches based on the cost system.
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