This document provides an analysis of the textile and apparel cluster in South Africa. It begins with an overview of the country and history of the textile industry. It then analyzes the global textiles industry and South Africa's textile cluster specifically. Challenges facing the cluster are discussed, including high imports and declining exports. Recommendations are provided for improving the cluster through increasing investment, developing workforce skills, promoting innovation, and strengthening linkages between industries.

1. South Africa: Textile and Apparel cluster Bachir Dussek Rosemarie Gomes Tom Helling Tamba Lamin Hong Li

2. Agenda: South Africa Country Analysis Cluster Analysis Global Textile & Apparel Industry South Africa Textile & Apparel Cluster Cluster Competitiveness Intra-Custer (Western Cape vs. Kwa-Zulu Natal) Inter-Cluster (China & India Textile Clusters vs. South Africa Textile Cluster) Cluster Analysis Porter's Diamond Analysis Alternative Framework approach to Porter's Diamond Analysis Knowledge Learning; Sharing; Management & Technology Methods Recommendations Presented 11.19.09 2

3. South Africacountry analysis Johannesburg Geographic importance and history: 1994 Apartheid ends; Transition to democracy Nelson Mandela elected President Cape Town 1867 Diamonds discovered 1886 Gold discovered Protectionist Policies 1980s 1652 Dutch East India Co. 1948 Apartheid as state policy 1869 Suez Canal 3

4. South Africa: Country Analysis Economic profile and performance the most advanced economy in Africa cluster development 4

5. South Africa: Country Analysis Societal and political economic, political and social issues are rooted in a long history of racial segregation and apartheid a development process that created gross inequality along racial lines 5

6. Strategic Issues South Africa faces a set of key challenges regarding its competitiveness: Economic instability Regional opportunities are limited The economic impact of apartheid Infrastructure challenges 6

7. Global Textiles and Apparel Industry Global exports of textiles and apparel in 2008 represented over $612 billion, and 3.9% of total world trade in merchandise Multi-Fiber Arrangement (MFA) 1974-1994 The WTO Agreement on Textiles and Clothing (ATC) 1995-2004 7

8. Global Textiles Industry Global exports of textiles 3.8% 5.0% 32.1% 4.1% 29.8% 2.9% 2.9% 2.3% 4.1% 1.5% Top ten economies = 88.5% of the total 2008 textile exports …roughly equivalent to what the top ten economies represented in 2000 8

9. Global Apparel Industry Global exports of apparel 3.8% 1.2% 31.1% 1.2% 33.2% 2.5% 3.0% 1.4% 1.7% 3.0% Top ten economies = 82.1% of the total 2008 apparel exports …an increase of 10.3% versus what the top ten economies represented in 2000 9

10. Global Cluster Analysis Quotas, tariffs and the end of the MFA Jobs and poverty reduction Trends in the value chain geographical shifts emergence of international retailers sourcing and product turnover trends Natural Man-Made Carding Combing Spinning Dyeing Weaving Knitting Bleaching Dyeing Finishing Clothing Home Furnishings Industry 10

11. Textile & Apparel Cluster in South Africa Development of the cluster Textile and apparel industries 11

12. Cluster Map 12 Cluster Map Input Industries Output Industries Collaborating Institutions 12

13. Cluster Competitiveness (Intra-Cluster) South Africa’s textile and clothing industry is concentrated in three provinces: Western Cape, Kwazulu-natal and Gauteng. Kwazulu-natal produces about 30% of the country’s manufactured textile exports. And the textile and clothing sector makes up 15% of manufacturing in the province. Western Cape creates about 35 percent of South Africa’s total added value from textile, clothing and leather goods. The clothing and textile industry remains the most significant industrial source of employment in the province. 13

14. Development of the Textile & Apparel Cluster (Intra) : South Africa Protectionist policies eased (GATT) 1994 Development of textile manufacturing cluster in Cape Town and Johannesburg 1920s Cluster expands Into Industrial textiles and apparel 1945 14

15. Cluster Competitiveness (Intra-Cluster) 15

16. Cluster Competitiveness (Intra-Cluster) CCTC: Cape Clothing and Textile Cluster KZN CTC: KwaZulu-Natal Clothing and Textile Cluster FCM: Full Clothing Manufacturers CMTS: Cut-make-and-trim Manufacturers (like OEM) 16

17. Cluster Competitiveness (Inter-Cluster) The global textile and clothing trade was $583 billion USD in 2007 17

18. Cluster Competitiveness (Inter-Cluster) Clothing Exports for selected economies (2005) China is the largest exporters of textiles and clothing in the world. In 2005, the textiles and clothing exports of China reached 125 billion USD, about 26% of the global textile and clothing trade. India’s textiles industry is one of the largest textiles industries in the world. Indian textiles and clothing exports reached 16 billion USD in 2005. China and India, including other Asian countries/areas such as Bangladesh and Vietnam have relatively lower labor cost and abundant textile resources such as cotton and wool as well as stronger textile clusters. Labor cost (2002) 18

19. South Africa Textile Cluster Challenges 1. Imports impact: Imports of Chinese clothing products increased by 335% from 2002 to 2004. China is the most important source of South Africa’s clothing imports (74.3%), followed by India (5.4%). (2004) South Africa’s tariff on clothing products is 45%, the highest level allowed by WTO (2009). The imported productions have dominated the local textile and clothing market and thus seriously threaten the survive of the local manufactures. It is estimated that the volume of illegal imports is almost the same as that of legal imports and therefore presents a significant challenge. 19

20. South Africa Textile Cluster Challenges 2. Exports decline: Textile exports kept increasing from 1995 to 2002, but begun declining since 2003. 3. Employment crisis: The employment of textile and clothing sector declined remarkably from about 190,000 (2000) to about 130,000 (2006). 55,000 textile workers struck for two weeks in September, 2009, requesting for higher pay. 20

21. South Africa Textile Cluster Challenges 4. Economy crisis GDP declined from the fourth quarter of 2008 Unemployment rate is now close to 30% 5. Workplace productivity: Low levels of productivity and management Lack of innovation and technology enhancement Lack of skilled workers and technicians 21

22. South Africa Textile Cluster Challenges 6. Poor Infrastructure Value chains need to be strengthened (no raw material suppliers in CCTC and KTN CTC) Electric Supply quality deterioration; power outages (lack of sufficient investment by ESKOM) 7. Health and welfare of the population: HIV/AIDS & Tuberculosis pandemic affecting workers abilities Excessive and widespread crime (S.A ranked last among 74 countries) Equality through creation of opportunities for disadvantaged black population 22

23. TYPES OF CLUSTERS Static Clusters: Clusters that show lackluster performance & growth lacking in innovativeness & synergistic tendencies Dynamic Clusters: Intense local rivalry (prestige battles and feuds, stimulating change & more advanced & diverse supplier base) Dynamic competition stemming from entry of new firms & spin-offs from large incumbents Intense cooperation organized via various institutes for collaboration (professional organizations, chambers of commerce, cluster organizations, networks) Access to increasingly specialized & advanced factors of production (human capital, financial capital, infrastructure, universities, research institutes) Linkages to related industries, sharing pools of talent & new technological advancements Proximity to sophisticated & demanding buyers 23

24. TYPES OF CLUSTERS Promising Clusters: High level of innovativeness Improvement of products & services Human capital enhancement Distinct specialization development Leading Clusters: Upward spiral where incumbent firms gain from & add to local spill-overs Valuable to the surrounding firms Dynamic cluster is the type of cluster that policy makers & cluster managers should strive for. Promising clusters may/may not survive. Leading clusters show signs of maturity & must know how to create new areas of growth. 24

25. PORTER’S DIAMOND MODEL 25

26. 26 South Africa Country Diamond

27. 27 South Africa Textile/Apparel Cluster Diamond

28. DIAMOND MODEL CRITICS Many theories from different scientists, theorists, institutions have been presented since the introduction Porter’s Cluster Diamond Model; each presents its own benefits Porter sees clusters from micro-economic perspective (how firms benefit) Does not reveal whole picture of cluster benefits (micro & macro economics, social science, economic geography) Vague boundaries & limitations; unanswered questions No general agreement of what exactly qualifies as a cluster Opinions on clusters’ stated benefits vary a lot/not homogeneous “Not a model but a mere way of thinking” concerning national economy Model gets older & leaves gaps to fill (19 year old theory/framework) Internet & its dynamics has caused the rules of competition to change Focuses more on existence of elements but lacks an in-depth analysis of the processes or behaviors that make the elements work together to produce synergy Provides the who, how & why of cluster performance but is it enough to allow cluster developers & policy makers to ensure that the anticipated synergy materializes? Does the CDF need supplementary factors added to model in order to better suit the dynamic business world of today? 28

29. A Holistic Framework Approach applied to Porter’s CDM Clusters by nature are difficult to define. The true challenge is not the cluster concept itself, but the cluster-based framework offered to policy makers/managers for cluster analysis & development A strong framework should be able to provide the “full” picture of a cluster complete with the aspects that will enable the users to have an understanding & appreciation of each cluster’s unique context – This is where CDM struggles Need a framework that “does more than just tell us what we need to have in order to be able to establish a cluster.” Need a framework that will help guide sustainable cluster development Macro-Analysis:Cluster LifecycleModel-provides understanding of origin of cluster, its development process & forecasting ability to strategize for long-term cluster development Micro-Analysis:Cluster PerformancePyramid-analyzes the makeup of the cluster-the dynamics, the actors and its performance 29

30. CLUSTER LIFECYCLE Antecedence-stage before emergence of cluster, helps to understand what spurs the emergence of the cluster (policy actions, natural resources, etc.) Embryonic-thisearly stage of clustering is critical; recognizing the signs can help trigger policy efforts that can strengthen the process & quicken the formation of the critical mass DevelopingCluster-if embryonic stage is successful, there is a fully fledged cluster. Dynamics are in full force & economic impacts start to be significant Mature Cluster-as time passes, clusters will show signs of maturity due to product lifecycles & resources nearing or reaching physical and/or natural limits. 30

31. CLUSTER LIFECYLCE FRAMEWORK Firms significantly influence a cluster throughout its lifecycle & are significantly influenced by technology factors Lifecycle of dominant technology-base of the main industrial sector within the cluster is likely to have a key impact on the cluster’s lifecycle. The key to mapping a cluster against the lifecycle model is to identify the dominant technology Technological sectors tend to influence the clustering paths Industry members, policy makers, etc. must constantly monitor & respond to technological changes An understanding of the cluster lifecycle is crucial in order for cluster managers and governments to be able to ensure long-term sustainability & growth 31

32. CLUSTER PERFORMANCE PYRAMID Cluster Performance Innovativeness of intellectual properties, products/processes/services; success level of goods produced; start-ups formed in the cluster Knowledge Creation/Inventory Knowledge stock/inventory/creation seen from R&D done within cluster Knowledge Movement Critical to create a successful innovation system; leads to enhancement/transformation of knowledge Cluster Actors Industries, research communities, financial institutions, gov’t, cluster facilitators are main actors that have significant impact Cluster Dynamics The “must-have” ingredients for a cluster; a checklist to use to gauge cluster’s “health”’. Clusters are not static, they are dynamic & ever-changing systems. 32

33. Knowledge Learning Sharing/Transferring Entire Africa suffers from a shortage of skilled human capital High unemployment & entrenched inequality persists. It is widespread and continuously increasing as global competition has intensified Unemployment is concentrated among low-skilled workers & linked to remnants of apartheid. Job loss is massive in rural areas where wages are lowest Under-investment in tradable sector for exporting led to unemployment Clothing industry requires significant amount of low-skilled labor; 83% of employees in Western Cape clothing industry are semi-skilled and un-skilled Women dominate Textile & Apparel workforce 66.7% are women 94% of workers in clothing industry are black At least 5 people are dependent on each breadwinner in the industry BEE, (Black Economic Empowerment) Policy focuses on extending opportunities to black S.A.s at management levels; has created a small subset of wealthy blacks but nothing done to address chronic unemployment at the low-end of labor market 33

34. Knowledge Learning/Sharing/ Transferring Inadequately educated workforce Consequences from colonialism and apartheid to invest in education & development of largely black workforce remains unresolved Net university enrollment is only 15%; translates to higher labor costs of high-skilled workers. BEE Policy for employment makes it difficult for firms to hire high-skilled foreigners JIPSA, (Joint Initiative for Priority Skills Acquisition) launched by gov’t, businesses and labor organizations; objective is to overcome lack of skilled labor in key sectors HIV/AIDS high prevalence among working age adults poses serious challenge to availability & stability of labor across the economy Cape Clothing & Textile Cluster (CCTC) Initiative developed by gov’t of Western Cape; objective is to facilitate knowledge enhancement through exchange of firm-level expertise Minimal investment in development of highly skilled workers & technicians: Current training efforts are not bringing large enough numbers of workers into “learnerships” Industry unable to finance a major skills upgrade Management capability at all levels is weak Weak link between businesses and knowledge institutions 34

35. Textile & Apparel Cluster’s Technology Gov’t plans to increase investments in information and communication technologies, (ICTs) by growing broadband networks & reducing telephony costs Quality of domestic ICT suppliers is high but has limited capacity to meet market demand S.A. has 109 Internet users per 1000 people; higher than China, but significantly lower than other middle-income countries like Brazil & Malaysia Trails Brazil & Malaysia in landlines per capita Performs better in cellular phone infrastructure with 724 lines per 1000 people Investments in capital equipment & level of technological innovation have been very low for the cluster. The industry is not technologically dynamic. Has performed poorly in innovation and technology enhancement Industry perceived as being a follower rather than a leader 35

36. Cluster Recommendations For government: Increase investment for textile and clothing industry and improve the investment environment to utilize foreign capital more effectively. Use quotas/tariff policies to combat high levels of illegal imports. Improve raw material beneficiation, building an integrated value chain and reduce costs. Improve sustainability of employment and combat sweatshops. Establish more global partnerships. 36

37. Cluster Recommendations For government: Government support of Cluster Initiatives. Expand access to higher education; increase education investment to Black South Africans. Increase supply of high-skilled workers (ease immigration rules restricting employment of high-skilled foreigners). Target niche segments and invest in R&D for these segments to allow firms to compete more effectively. Improve development of IFCs (Institutions for Collaboration) to benefit from links/connections with retailers, manufacturers and design related industries. 37

38. Cluster Recommendations For cluster: Exploit local market and Intra-African markets. Improve quality of locally manufactured goods. Promote local sourcing by retailers Promote local products to consumers Set up joint ventures with Asian and American firms, turning competitions into cooperation. Improve efficiencies and supply chain management. Affiliate raw materials suppliers, logistics firms, foreign trade (import/export) firms. Promote product and design innovation Focus on value-added products with more designs. 38

39. Cluster Recommendations For cluster: Adopt new producing processes and technologies. Provide significant training to workers and managers to improve productivity. Focus on specialized and niche training. Provide modernized training facilities for workers. Participate in and/or host fashion expositions. Improve technology. Encourage further knowledge acquisitions; strengthen knowledge institutions and their links with business sector. 39

40. Q&A 40

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