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  • 1. An Empirical Assessment of Technology Transfer Emerging from Integration into Buyer-Driven Commodity Chains in the Global Apparel Industry By Jonathan A. Fink & Shahdad Naghshpour University of Southern Mississippi
  • 2. Research Objective
    • Discuss Emerging Academic Debate: Does integration into value/commodity chains in apparel industry lead to process of industrial upgrading?
    • Present empirical test on impact of value chain integration and the shift from maquiladora assembly to a more advanced form of integrated manufacturing, on industrial upgrading in the cotton denim apparel industry of Torreon, Coahuila, Mexico.
  • 3. Why Is Our Study Important?
    • Allows for deeper understanding of implications of outsourcing production on economic development in LDC’s.
    • Provides policymakers at both national and local levels with roadmap for design of trade, investment and industrial policies that contribute to growth in wages, employment, income and sustainable development.
  • 4. Literature Review: Origins and Development of Commodity Chain Theory
    • Hopkins and Wallerstein (1978). Developed theory that production based on integrated network of transnational processing nodes.
    • Wallerstein’s World Systems Theory = chain domination by core country firms with no positive developmental benefits for LDC’s arising out of chain integration.
    • Gereffi (1994, 1999) Defines commodity chains as either producer or buyer-driven. Gereffi’s research focus = buyer driven chains in the apparel industry.
  • 5.  
  • 6. Industrial Upgrading Hypothesis
    • Upgrading defined as shift into higher value added manufacturing as documented by movement in upward trajectory:
    • Assembly OEM OBM
    • Upgrading is a function of technical transfer & learning from foreign buyers in the chain.
  • 7. Industrial Upgrading Hypothesis: Assumptions
    • Technical knowledge transfer from buyers leads to:
      • Improvements in LDC human capital and quality control = gains in output per worker.
      • LDC manufacturers taking on additional production (raw material processing) and service oriented roles (logistics management, order processing etc) within the chain.
      • Higher skill = better quality garments. Allows for marketing to higher end foreign retailers = higher per unit price & increase in firm/industry value added.
  • 8. Industrial Upgrading Hypothesis
    • Developed by Gereffi (Early 1990’s). Major case study of upgrading in Torreon, Coahuila-Mexico denim apparel industry performed by Bair and Gereffi (2003)
    • Theory advanced in qualitative case studies of apparel and other labor intensive industries by: Korzeniewicz (1992); van Grunsven and Smakman (2002); Humphrey and Schmitz (2000); Schmitz & Knorringa (2000) & other scholars at Institute of Development Studies (IDS), Univ. of Sussex, Brighton, England.
  • 9. Industrial Upgrading: Theory Critique
    • Empirical case work:
      • Schrank (2004) Mixed Methods case study in the apparel industry of the Dominican Republic.
      • Hassler (2003) Qualitative Case in Indonesia
      • Gibbon(2004) Qualitative Case study of the apparel industry in Sub-Saharan Africa.
      • Appelbaum (2004) Emphasizes need to measure and operationalize the concept of industrial upgrading in order to extend Gereffi’s pioneering exploratory work.
  • 10. Our Study
    • Develop exploratory model to measure impact of movement within the value chain in an upward trajectory from assembly to OEM/full package production ) on per unit value added the denim apparel cluster of Torreon, Coahuila, Mexico.
    • Does the transfer of knowledge from foreign buyers to LDC manufacturers lead to upgrading and increases in value added at the firm level?
  • 11. Why Denim? Why Torreon, Coahuila?
    • Mexico = Leading world exporter of denim trousers (men’s and women’s to the USA with 55% and 48% market shares of U.S. imports. (OTEXA)
    • 50% of Mexico’s denim exports produced in denim cluster of Torreon, Coahuila and surrounding areas. (Gereffi, 1999b)
    • Cluster growth: 500,000 pieces/week in 1993 to 6.5 Million/week by 2000. (van Dooren, 2003)
  • 12. Source: U.S. Department of Commerce, Office of Textiles and Apparel Major Shippers Report. Online at www.otexa.ita.doc.gov .
  • 13. Source: U.S. Department of Commerce, Office of Textiles and Apparel Major Shippers Report. Online at www.otexa.ita.doc.gov .
  • 14. Test of Hypothesis
    • H 0 : There is no tangible relation between the denim apparel commodity chain and industrial upgrading in apparel manufacturing as firms move from assembly processing to OEM.
    • H a : Integration into the denim apparel commodity chain by apparel manufacturers has led to a statistically significant increase in industrial upgrading (as measured by per unit value added) as firms move in the upward trajectory from assembly to OEM.
  • 15. Our Model
    • Our estimated regression model is:
    • Y = β 0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + ε
    • Where Y = Estimated Value Added per unit
    • X 1 = Annual Fabric Prices—Imports by Maquiladora firms (based
    • on Mexico import data for H.S. 5209.42.01)
    • X 2 = Annual Labor Productivity in the Torreon, Coahuila apparel Industry
    • X 3 = Integration dummy A (1 for 1989-93 & 0 for 1994-2003)
    • X 4 = Integration dummy B (1 for 1999-2003 & 0 for all other years)
  • 16. Data Collection
    • Per Unit Export Prices for both men’s and women’s denim trousers derived from H.S. Line items in U.S. Department of Commerce, Office of Textiles and Apparel (OTEXA Major Shippers Report) Database.
    • Imported raw material fabric prices derived from INEGI, Anuario Estadistico del Comercio Exterior de los Estados Unidos Mexicanos .
    • Annual Labor Productivity Figures for Torreon, Coahuila derived from 5-Year Mexican Economic Census.
  • 17. Model Results (t-values in parenthesis)
    • Men’s/Boy’s denim apparel:
    • Value Added = 6.05 + 6.66 Labor Productivity -1.21 Fabric Price - .120 dummy A - .653 dummy B
    • (26.61) (2.30) (12.67) (.425) (3.50)
    • Adjusted R 2 = 95%.
    • Women’s/Girl’s denim apparel:
    • Value Added = 5.09 + 1.34 Labor Productivity -1.02 Fabric Price - .094 dummy A - .250 dummy B
    • (23.36) (4.83) (11.13) (.347) (1.40)
    • Adjusted R 2 = 96.3%.
  • 18. Model Analysis
    • Coefficients comparable for the two models.
    • F-test indicates good fit
    • T-test indicates constant, fabric price and labor productivity significant in both models.
    • In men’/boy’s model D2 is significant, but wrong sign (negative) meaning value added is inversely related to the shift from assembly to OEM?
    • In women’s/girl’s model both D1 and D2 are negative and insignificant.
  • 19. Study Limitations
    • Limited Data Points .
    • Labor Productivity statistics only available in 5 year intervals based on Censos Economicos. Due to weak data storage by INEGI, time series analysis in excess of 15 years not feasible. Almost all trade and census data prior to 1989 no longer archived.
    • Inconsistent data reporting by INEGI:
    • 1) Trade data prior to 1993 not segmented by maquila/non-maquila.
    • 2) Reporting of fabric import data, prior to 1996 is in kilograms
    • instead of M2. Leads to less precise calculation of raw material
    • requirements per apparel piece.
  • 20. How Can there be Upgrading Amidst Price Stagnation? Source: U.S. Department of Commerce Office of Textiles and Apparel (OTEXA) Database. Per unit prices converted to Mexican Pesos based on the ILO Laborsta CPI-Mexico Database. (see appendix four)
  • 21. Are Labor Productivity Gains in Coahuila Correlated to Learning from Foreign Buyers? Are other variables the causal agents for productivity gains ? Source: INEGI. La Industria Textil y Del Vestido en Mexico: Serie de Estadisticas Sectorales. Editiones 1998 and 2005
  • 22. Conclusion
    • Our study extends literature on industrial upgrading at the firm level by:
    • Developing an operational definition of upgrading as measured by an increase in per unit value added.
    • Creating an operational measurable definition for learning from from foreign buyers/technology transfer as expressed by changes in labor productivity.
    • Providing an exploratory analysis of the impact of commodity chain integration by denim apparel manufacturers in Torreon, Coahuila, Mexico on upgrading at the firm level.
  • 23. Conclusion
    • Findings of our model indicate no correlation between industrial integration and transformation from assembly to OEM and increases in value added in denim apparel manufacture.
    • Data analysis indicates movement from assembly (maquiladora) to OEM has not led to significant gains in inflation adjusted per unit export prices for the denim apparel industry of Torreon, Coahuila, Mexico, however:
    • Gains in value added highly correlated to a) general pattern of declining fabric prices and b) gains in labor productivity. However, our model indicates that productivity gains in the Torreon industry are not associated with technical transfer of knowledge from foreign buyers.