International Fragmentation in Textile and Apparel Production - A Case Study of ASEAN and Thailand

Abstract: This study evaluates the international production fragmentation and the specialization of the textile and apparel sector in the ASEAN countries. Moreover, it examines Thailand’s participation in textile and apparel supply-chains with the aim of finding prospects for more value-added production. The finding of the study is that production fragmentation only exists to a small extent in the ASEAN countries’ trade with the world and that a higher degree of fragmentation cannot be connected to the relative increase of exports in the countries. This is explained by the fact that most ASEAN countries are middle-income countries, which have attempted production at different stages in the value-added chain but have not yet left the most labor-intensive production. Instead, the export results seem to depend on the comparative advantages in production. The development of a regional supply-chain is hindered by the ASEAN countries being too similar in their textile and apparel production structure and hence have to find their own ways of remaining competitive. The decreasing performance of the textile and apparel sector in Thailand pressures for an upgrading of the production. Thai large-scale apparel manufacturers rely to a high degree on exports to the quota markets. However, the structure of the domestic textile sector is unbalanced and the prospects for supplying full-package services and developing OBM are low. High import duties have protected the ineffective textile sector, which has contributed to the decreased competitiveness of apparel producing SMEs. The measures taken by the government, such as the ‘Bangkok Fashion Center’ and the initiation of a certification program, will most likely only have limited effects on the upgrading of the apparel sector in Thailand. The lowering of import duties would give apparel producing SMEs an incentive to gain market skills and an understanding for foreign contractors’ demands.