Looking Back to Look Forward: Setting Future Research Agenda for International Business in Textiles and Clothing Industry

Some of the common determinants of bilateral trade flow used in the majority of studies are those which had developed from the original gravity model. As shown in table 2, these include economic, geographical, social, political and trade quantity & price variables. For economic variables, GDP, per capita GDP, and exchange rate were the most common variables explored in previous research. GDP is associated with the economic development level of a country (Ekanayake et al. 2010). The GDP of an exporting country measures the productive capacity of the nation, whilst the GDP of the importing country represents its purchasing power or absorptive capacity (Chi and Kilduff 2010; Ekanayake et al. 2010). Per capita GDP is an indicator of capital or labour-intensive trade and to express the level of economic development (Chi and Kilduff 2010). Martinez-Zarzoso (2003) evaluated the determinants of bilateral trade flow among 47 countries in the period 1980-1999, and measured the effects of preferential trade agreements between several economic blocs. They identified the trade pattern for different economic blocs within the time period analysed, and showed that different determinants can be used to explain these trade patterns. For example, exporter population explained the growing importance of scaled economies and market-size which affected international trade from 1991 and onwards.

The geographical variables concerned factors related to country population size/growth, distance, time, and common borders. In this category, distance was the most frequently investigated factor. Distance is a variable used to capture transportation costs, for example, Ekanayake et al. (2010) elaborates on factors that could make trading difficult for countries to engage in e.g. time, access to market information and markets. Population size and population growth rate were also common variables studied in bilateral trade studies. The size of a country’s population is used to reflect export/import demand. A larger country is expected to absorb imports better than smaller countries, and experience economies of scales which will give them a comparative advantage in their export industries (Ekanayake et al. 2010).

Other than the common economic and geographical related variables, some studies also included common dummy variables to measure socio-cultural similarity among trade partners, such as common language and historical relationships e.g. colonialism (Ekanayake et al. 2010). These dummy variables are all believed to be significant enablers for bilateral trade (Chi and Kilduff 2010). The findings also revealed a set of variables concerning import and export demand, quantity and price, were used in earlier studies (e.g., Thursby and Thursby 1987; Summary 1989; Gould 1998), but has not been included in later studies. Tsang and Au (2008) and Lau and Bilhin (2010) were the only two recent studies which included these variables, and both these studies had examined bilateral trade for the T&Cs sector.

The regional blocs examined in the studies reviewed varied from study to study. The findings show investigation of bilateral trade relations with EU and ASEAN countries were the most popular. In addition, variables such as common memberships in a Free Trade Area or trade organisation have frequently been included in the gravity model as factors that can enhance or impede trade between nations. From the studies reviewed, trade agreements with North American Free Trade Area (NAFTA), European Free Trade Association (EFTA),World Trade Organisation (WTO), ASEAN Free Trade Area (AFTA) and the Economic Cooperation Organization (ECO) were also identified to be the most frequently investigated in the literature. For example, Huot and Kakinaka (2007) investigated the impact of trade structure on Cambodia’s bilateral trade flow after the country’s entry into the AFTA. They modelled several different gravity equations: a basic gravity model, modelling GDP, per capita GDP and distance; and an extended model, which included a regional arrangement dummy, exchange rate volatility, and trade conformity index (TCI). Their study proved their modified gravity model to be effective and applicable in explaining Cambodia’s bilateral trade flows, which is dependent on inter-industry trade from factor endowment difference between Cambodia and is trading partners, rather than intra-industry trade from monopolistic competition.

Tsang and Au (2008) examined the impact of North American Free Trade Agreement (NAFTA) on T&C exports from South and Southeast Asian developing countries and the NAFTA member to the US. Determinants such as total production of T&C, total consumption of T&C, labour costs, distance and a regional indicator dummy variable for NAFTA membership were used to measure the trade-enhancing effects of the Free Trade Agreement among member countries. Their results showed that T&C intra trade within the NAFTA could be identified increasing trends in the regional indicator variables in three consecutive intervals from 1990 to 2001.

Trade facilitation factors explored in the literature were fragmented and consisted of numerous studies adopting a variety of determinants. Interestingly, the findings showed it was the more recent literatures, e.g. Wilson et al. (2003); Akinkugbe (2009); Hoekmann and Nicita (2008); and Portugal-Perez and Wilson (2010), which have stated to included trade facilitation related factors in the gravity model. Wilson et al. (2003) developed a trade facilitation index (TFI) to measure trade facilitation factors, and argued there are four key areas: port efficiency, customs environment, domestic regulatory environment and the infrastructure to e-business usage. Similarly, Portugal-Perez and Wilson (2010) proposed trade facilitation measures comprise of hard and soft dimensions. The former refers to tangible elements e.g. physical infrastructure such as roads, ports, highways, as well as telecommunication, and the latter concerns transparency, customs management, and business environment. Several studies (e.g. Akinkugbe 2009 and Hoekmann and Nicita 2008) have used Wilson et al.’s (2003) TFI index in their studies, however, as an overall index indicator to represent the four trade facilitation areas highlighted by Wilson et al. (2003). As this study seeks to synthesis the determinants of bilateral trade, Wilson et al.’s (2003) TFI provided a useful basis to categorise trade facilitation determinants which emerged from the literature.

The findings showed that determinants concerning the regulatory environment and customs where the most frequent trade facilitation factors included in bilateral trade studies using gravity modelling. The regulatory environment concerned transparency and stability of environmental regulations, stringency of regulatory standards, compliance with international environmental agreements, and enforcement of environmental regulation (Wilson et al. 2003). Hoekmann and Nicita (2008) outline that the regulatory environment measures an economy’s approach to regulation. There are numerous studies which have included one or more variables explaining the influence of the regulatory environment on bilateral trade flow, although there is a lack of methodological consistency across the studies. For example, Portugal-Perez and Wilson (2012) measured the business environment which explains the degree of business friendly environment and regulations of a country, and Chen and Li (2014) included a variable measuring a country’s quality of contract enforcement.

The customs determinant concerned factors related to irregular payments, low import fees, hidden import barriers, bribery and corruption. Wilson et al., (2003) and Akinkugbe (2009) included a Corruption Perception Index as a variable in their study. Similar factors have been acknowledged by Hoekmann and Nicita (2008), who refers to these as the cost factors of trading as they require time and human resource to complete e.g. customs clearance procedures and administrative fees, costs for documents, terminal handling charges.

A number of studies have included a determinant labelled infrastructure in their study (Portugal-Perez and Wilson 2012; Chi and Kilduff 2010) to explain the quality or degree of physical infrastructure. This includes various factors such as roads, port and air transport and transport efficiency. Chi and Kilduff (2010) noted that if a country has a high infrastructure rating, it would indicate a good infrastructure which means higher trade and more export to the country. In Wilson et al.’s (2003) study, they found that port efficiency, port facilities and inland waterways, and air transport, have the largest effect on trade. Improvement in these area can lead to the greatest gains for trade.

Several other trade facilitation factors were also found in the literature that were less frequently explored include e-business environments, ICT, communication networks, government support and intellectual property rights. Hoekmann and Nicita’s (2008) study looked at a subset of trade policies that directly affect trade costs associated with administration and entry barriers e.g. tariffs on units (in terms of weight and alcohol content etc.) and non-tariff measures (e.g. quantitative restrictions, technical product regulations etc.). Asides the commonly used determinants of trade flow, Hoekmann and Nicita (2008) included other determinants such as Trade Tariff Restrictiveness Index, non-tariff barriers, Logistic Performance Index, and relative preferential margin. Their results suggest that tariffs and non-tariffs measures continue to be a significant source of trade restrictiveness for low-income countries despite preferential access programs. Reducing the costs associated with trade policies will have a greater payoff than reducing tariffs and non-tariff measures. Moreover, regarding the relative preferential margin, it suggests that measures to improve logistic performance and facilitate trade are likely to have the greatest effects on expanding developing country trade.

The findings summarised in table 2, shows regional blocs and trade policies are widely investigated determinants in the literature. With the current US-China trade war and China’s Belt and Road initiative, trade policies will continue to have significant influence on T&C bilateral trade and thus recognition for future research studies. Moreover, trade facilitation factors also warrants further research with increasing emphasis for environmental and social responsibilities from the T&C industry.

Trade policies has regulated global T&C trade since the 1970s. As it is evident from the literature, trade policies or bilateral agreements are among the most influential factors in T&C trade (i.e. Chan and Au, 2007; Chi and Kilduff, 2010; Lau et al., 2017). On the other hand, the global T&C industry has continuously been evolving since the 1970s in terms of production locations. Key factors influencing the change in the industry included high labor costs and trade barriers. From 1974 to 2004, the Multi-fibre arrangement (MFA) and Agreement on Textiles and Clothing (ATC) had seen many relocation activities among T&C manufacturers. Production first migrated from North America and Western Europe to Japan, then to the Asian Big Three: Hong Kong, Taiwan and South Korea. This was due to tariffs imposed on cotton. In 2005, the quota phase-out led to relocation of factories to China and it then became the next T&C production base as labour costs and rents increased in the Asian Big Three countries. In recent years, production migration has been to developing countries such as Malaysia, India, Pakistan and Tunisia.

Interestingly, factors such as cotton tariffs and cost of rent have not been identified as variables used in the gravity model in the studies analysed in this paper. While policy changes with direct impacts on export competitiveness, especially the potential risk of a US-China trade war heightened by the US higher tariffs on Chinese goods and China’s response (Churchill and Delaney, 2018), are expected to have a strong impact on T&C trade, this has not been well researched. Thus future research may analyse their influence on T&C trade. Moreover, institutional factors such as non-tariff measures, and environmental and employment regulations, have spurred relocation of some T&C factories in China to other Asian nations (Churchill and Delaney, 2018). China is renowned as the world’s largest exporter of T&C (Lau et al., 2017), however, a potential relocation shift for many firms could be foreseeable in the industry’s continuous cycle for chasing low-cost labour production. It has been evident in the industry’s history, yet relocation proves to be a successful strategy applied by T&C companies in the past to deal with the industry’s trade restrictions and protectionism. Whilst the US-China trade war may present potential trade barriers, China’s Belt and Road initiative (BRI), established in 2013, could present solutions for T&C manufacturers to relocate production to neighbouring Asian countries, another potential variable to include for future research.

Sustainable development covers not only the economic but also social and environmental factors as the three interrelated components of development. Sustainable development is an important agenda not only in T&C manufacturing and trade, but for other industries; many countries have now considered environmental impacts and management as an important aspect of public and economic policy. Similarly, the social aspect of the T&C labour force cannot be overlooked. However, this has not been well considered in the literature. While existing studies have covered the effect of extensive economic factors, they tend to overlook the social and environmental aspects of T&C manufacturing and trade. Chan and Au (2007), and Lau et al. (2017) used a dummy variable for the number of women in the workforce of foreign manufacturing firms. Although labour cost can apply to all industry-sector analysis, it was not a variable considered in any of the other studies reviewed. Given the growing importance of sustainability practices in the T&C industry, determinants relating to green policies, environmental standards and indexes, factory working standards, or issues surrounding the implementation of CSR in manufacturing firms have not been explored as determinants that could enhance or impede T&C trade. It is evident, that a call for more empirical studies on determining trade facilitation factors for the T&C sector is needed.

It is reported that by 2030, clothing production is expected to increase by 63% (WGSN 2018a) and the production process is always connected with environmental problems (Perry et al. 2014). T&C products have a significant impact on the environment, where manufacturing, using and even deposing these products cause environmental degradation (Khan and Islam 2015). The Natural Resource Defense Council (NRDC 2016) commented that textiles-making is incredibly wasteful and polluting; and is concluded to be one of the most polluting industries in the world (Pedersen and Anderson 2015). This prevailing issue is increasing pressure for better environmental management and environmentally friendly clothing (Zhu et al. 2011). As consumers are gradually changing and becoming more aware of the impacts of T&C production, and what overconsumption has on the environment, consumers are demanding more sustainable and ethically-sourced products. As a result, T&C companies have to meet higher environmental standards. Some of the strategies put in place include encouraging the recycling of textiles and production leftovers as a way to close the loop on fashion (WGSN 2018b).

As T&C production is highly labour-intensive, it is attractive for factories to be located in developing countries with lower labour costs (Pal et al. 2018; Boström and Micheletti 2016). Since the 1950s, the T&C industry has undergone several structural shifts in manufacturing locations, first starting from North America and Western Europe to Japan in the 1950/60s, then from Japan to Hong Kong, Taiwan and South Korea in the 1970/80s. Another shift in the 1980/90s was from Hong Kong, Taiwan and South Korea to other developing countries e.g. Malaysia, Pakistan and Tunisia. In the 1980s, production partially moved to China, as well as Indonesia, Thailand, Malaysia, the Philippines, and Sir Lanka. The 1990s saw Turkey becoming a major producer of clothing exports, and in the 2000s, the Philippines, Vietnam, Bangladesh, Sri Lanka, Morocco, and four European countries, namely, Czech Republic, Romania, Poland, and Hungry. As environmental and social problems are changing the T&C manufacturing industry, a shift towards more sustainable supply chains is being supported (Henninger et al. 2015). As a result, the pressure for greener supply chains, sustainability and transparency is increasing (Uluskan et al. 2016). In addition, the realisation that T&C manufacturing is no longer just about costs, but also factors such as product quality, human labour rights and the skills of workforce is pushing more and more companies to reshore production back to their home countries (Moore et al. 2018). Pal et al. (2018) note that brands are reshoring T&C production to local and domestic manufacturers, which is something that consumers value (Niinimäki and Hassi 2011).

Asides environmental issues, the social and ethical problems surrounding factory working conditions and standards is another area of concern for T&C manufactures all over the world. Issues concerning compliance with human and labour rights (particularly regarding the economic empowerment of women, and decent work and living wages); and the use of toxic substances in the production of clothes, and its transparency and traceability in the value chain, are the focal issues in a recent Staff Working Document from the European Commission (2017). These concerns can potentially give rise to new regulations and restrictions being approved by the EU, which could affect T&C traders and manufacturers, particularly those operating in international markets.

In the industry, achieving sustainable development in the supply chain is now a key aim of many T&C companies. International retailers such as H&M, have been addressing sustainability issues through the efficient use of materials and natural resources, and reducing the output of toxic substances to the environment (Ho 2014). Some of their sustainable and eco-friendly practices include manufacturing their garments using organic, recycled, biodegradable or recyclable materials; reducing water usage; and using environmentally friendly dyes for example (Ho 2014). It is acknowledged that various processes are implemented by manufacturers across different sectors concerning the reduction of air emissions, water waste, solid waste, and energy consumption (Sivapraksam et al. 2015). In counties like Brazil, de Abreu (2011) highlight that wastewater treatment, electric energy conservation, solid waste management and air pollution controls are all key operational practices implemented in textiles manufacturing. Increased awareness from consumers and demands from international brands ultimately means that including determinants that measures water usage, level of chemical waste and gas emissions can be important indicators for estimating T&C trade flow in future studies. Moreover, the consideration of these factors could help Chinese manufacturers evaluate what is important to consider when building T&C manufacturing firms in foreign countries, given the increased opportunities for Chinese T&C companies to expand manufacturing into foreign countries from the BRI.

Production technology is another trend that is changing the T&C manufacturing landscape. For example, digital technologies enable designers to create individual and unique looks, where consumers’ needs are placed at the centre of the design process (Niinimäki 2009; Niinimäki and Hassi 2011). Technologies such as digital printers, embroidery and laser cutting machines, digital weaving machines, and 3D printers all offer an opportunity to meet consumers’ needs and preferences, and thereby saving the amount of materials used, or recycling excess materials than compared to traditional manufacturing at an industrial scale (Niinimäki 2009). Advancement of information technology is also contributing changes to the T&C industry. Companies are now utilising the availability of big data for more accurate and efficient logistic and supply chain processes that run in real-time. In retail, radio frequency identification (RFID) technology for example, is enabling all partners to collect real-time data, and visualise sales and predict trends (Kwok and Wu 2010). In T&C supply chain, RFID can be used to streamline the activities in the supply chain, where all partners can exchange data in real-time. This means there can be a reduction in lead time for product replenishment and delivery (Kwok and Wu 2010), and allows the control of material flow in the supply chain. It is evident from the trends in the T&C industry that there are many factors to consider for T&C trade. Including such factors in the future analysis on its effectiveness towards the trade flow could significantly enhance or impede T&C trade between countries.