Sustainable outsourcing : Trends in the clothing industry

Abstract: Globalization has led to freedom of trade between countries and allowed people to accessitems that were previously unavailable to them. This has in turn also lead to competitive pricing, making it possible for businesses to access much wider markets. Firms are able to optimize their resources more easily, thus increasing profits by working toward a more sustainable economy. But globalization is not only positive. There are disadvantages too. Globalization has increased the level of unemployment in home markets as jobs are outsourced to countries that pay lower wages.There is an increase in outsourcing as never before and it keeps growing every year. Competitiveness has forced firms to rethink their strategies to stay profitable and saved them from bankruptcy by moving their production to low-cost countries like China. But times are changing and the cost of labor and outsourcing is increasing. Studies have shown that it is important to know if, where and what to outsource and that outsourcing costs usually are much higher than estimated due to many different factors. Such factors could be quality improvements, logistic costs, communication difficulties due to language and cultural differences to mention a few. This has lead to an increasing awareness of making the right strategic decisions, which has had an effect on the outsourcing trends studied in this report.This report covers an analysis of two Swedish clothing companies, H&M and Björn Borg, and their outsourcing strategies. Empirical data has been gathered through interviews with key employees from both firms as well as an interview with an outsourcing expert on China. The results have shown that the trends depend on the size of the firm, their different strategiesas to what segment they are targeting and previous experiences from outsourcing. Firms witha longer experience of outsourcing, especially to China, choose to stay to a greater extent and develop the relationship with their Chinese suppliers. While new, relatively inexperienced firms, see the potential in putting their resources into nearby countries as well as in the domestic regions. Strategies like these are often referred to as nearsourcing and resourcing. Low-cost segment chains are more prone to being affected by outsourcing costs and have to work closely with their suppliers, i.e. have a more relational contracting, than firms targeting a more exclusive end-customer segment. Nearsourcing and resourcing has been found to be easier and more cost effective in the longterm for many firms. Their advantages include shorter lead times, better communication and quality. Additionally, they are considered to stand stronger against risky investments in China. A trend in taking back outsourced work from China has been seen in the US. The consulting firm Boston Consulting Group reports that up to 30% of US-based large manufacturers are planning to bring back production to the US from China. Furthermore the report does not cover other sectors like IT or services, which could very well show the same effects in the long term. Manufacturing businesses are affected by logistic costs that are derived from oil prices, while the services and IT sectors are not. On the other hand labor costs are continuously increasing in the developing countries and will affect all kinds of outsourcing. Suggestion for further research is offered, since it is a quite complex field of study. The results presented are general with indications showing that outsourcing strategies differ with every firm.