1. Briefly highlight the key Global buying environment issues faced by UK retailers that might induce a global sourcing strategy The emergence of low cost producers in the developing countries provides an enormous opportunity to UK retailers to source goods at rates available in the developing world, use sophisticate procurement systems to ensure quality and delivery, and sell them to consumers in the UK at truly significant price differentials. The very fact that labour costs less than 40 p an hour in China and good quality jeans are available for 5 GBP in good stores in India gives an indication of the enormous cost benefits that drive retailers in the UK to source their goods from the developing world. An analysti??s report posted on the groupi??s website illustrates the contrast: a B&Q knife was originally sourced for 88p and is now sourced for 40p, while a Castorama wrench was originally sourced for i??8.
50 and is now sourced for i??2 (Wilding and Braithwaite, 2006) Figures from the World Trade Orcanisations (WTO) report for 2005 on International Trade Statistics reveal that the growth in trade of global manufactured goods is more than three times the overall rate of growth in developed countries; an indicator of the huge amount of goods that are being produced all over the world. A significant part of these goods find their way into the hands of UK retail customers. This growth in retail sales of globally sourced goods have, apart from driving corporate profits and shareholder value for British retailers, also made goods available at cheaper prices for consumers in the United Kingdom. (Wilding and Braithwaite, 2006) While this may appear to be a Win-Win situation for the producers, transporters, retailers and consumers, serious apprehensions are being expressed from various quarters about the possible downside of such rampant increases in production, sourcing and consumption. Continuous global sourcing has created apprehensions about environmental degradation, global warming, safety, abuse of human rights, ethical trading practices, sustainability and waste management. Corporate social responsibility requires companies engaged in retail to take cognizance of these issues and tailor their activities accordingly.
Most European countries, including the UK have developed guidelines, norms, practices and regulations to increase compliance with corporate social responsibilities, with particular reference to global sourcing. The retail sector in the UK is a major buyer of globally sourced goods, which include thousands of items from diverse industries like agricultural produce, textiles, leatherwear, carpets, and engineering items. Many of these items are associated with issues that involve environmental protection, sustainability and the possible abuse of human rights. Two important initiatives pertinent to environmental concerns are sustainable sourcing and fair trade.
Sustainable sourcing and fair trade have distinct but similar objectives. While the focus of sustainable sourcing is on ensuring supplies that are environmentally and socially sustainable and can continue without depleting economic, environmental or social resources, the fair trade movement deals with the social implications of buying, and seeks to improve social and economic development through compassionate trade and marketing. The movement works through informing customers whether products on offer in retail outlets have met certain social criteria in their production. A few worthwhile initiatives mentioned by Elliot J. Schrage (2004) in his article on sustainable sourcing refers to the successful international initiatives to stop child labour in the manufacture of footballs in Pakistan, toys in China and cocoa in Cote d Azure. China creates tremendous challenges for sustainable sourcing and leading multinational corporations and global industries that rely on China as a pivotal sourcing market.
They are grappling to determine how far they can push to encourage sustainable practices while remaining competitive in production. It is clear that the private sector, acting alone, will not be able to encourage more sustainable financial, environmental or social production practices in Chinese industry. (Schrage, 2004) The use of sustainable sourcing and environmental protection, while being an issue that has received vociferous support from the retail industry is yet to find real adoption by the retail industry. A recent report by Rebecca Smithers and Leo Hackman (2006) in the Guardian, using National Consumer Council figures, states that sourcing strategies of the major supermarket chains are currently inadequate and can contribute much more towards environmental production. The NCC chairperson, Lord Whitty, said, i??We all need to understand that food is the typical household's number-one contributor to climate change.
By throwing away 10bn carrier bags each year and transporting carrots from Egypt and strawberries from New Zealand, we hit the environment hard. (Smithers and Hickman, 2006) Global sourcing in retail in the UK will need to squarely focus on these issues in the coming years. Sustainable sourcing will progressively become an integral part of corporate social responsibility and induce buying strategies that address these concerns adequately. Buying from China could well prove to be the major challenge facing the buying decisions of UK retailers as they struggle to reconcile the poor human rights record of the country with their buying practices.
2. Critically evaluate the rationale for imposing quotas on imports from China to the EU The EU is the largest trading partner of China. While the EU states were net exporters to China in the 1980s, the situation is drastically different today. EU trade with China has increased more than 60 times since 1979 to 210 billion Euros in 2005.
Latest figures from the European Commission also reveal that the EU has its biggest bilateral trade deficit with the Peoplei??s Republic. (Bilateral Trade Relations, 2006) The EU supported Chinai??s entry to the WTO in 2001, pursuant to the bilateral EU China agreement in May 2000, and thereby facilitated the countryi??s integration with the global economy. China is also the second largest beneficiary under the Generalised Scheme of Preferences, which involves the granting of autonomous trade preferences, and has a share of 11 % of preferential imports to the EU. The country, in its recent avatar as an economic powerhouse, has become known as the worldi??s manufacturing base; it is able to use its huge low cost production capacity to flood the world market with low priced goods and eliminate competition. The EU has accordingly imposed quota restrictions on China in areas like textiles, because of pressure from the hard pressed European manufacturing sector The low cost of manufacture and the acceptable quality of goods produced in the PRC make Chinese goods keenly sought items by importers and retailers in the EU. The spiralling inward trade from China has led to the creation of unexpected tensions, not just between the EU and China, but within different sectors of trade and business in the member countries of the Union.
EU importers and retailers have made significant investments in setting up mechanisms for procurement and quality control of goods sourced from China. They are dependent, for their sales and profits, on continuous trouble free imports of steadily increasing quantities of Chinese goods. Huge increases in the quantity of imported goods are however beginning to worry manufacturers of clothing, leather wear and other articles about the sustainability of their own businesses. European manufacturers feel that further increases in Chinese imports could lead to reduction in European manufacturing activity and lead to losses of thousands of jobs in EU countries. While these two opposing points of view are important in shaping EU reactions towards Chinese imports, the opinions of customers, who are benefited by being able to access cheaper goods, also influence the framing of EU import policy. Policies concerning fixation of quotas for Chinese imports are governed by these considerations as well as by the necessity of increasing sale of EU goods to China.
The Chinese market, fuelled by the demand of 1.3 billion people, represents, along with that of India, the future of global consumption. Agreements on quotas have to take account of the fact that trade relationships with China have to be cordial and mutually beneficial. In addition, as globalisation policies require markets to be free, measures designed to protect home industries need to be tempered with a realisation of the new global economic realities. The policy makers of the EU must take all these factors into consideration in a global society where nations like China are able to marry attractive costs with good quality and create huge inroads into the markets of advanced economies. In recent years the issue of textile imports has taken centre stage in EU-China trade relationships.
The EU and China agreed, in June 2005, to a regulated growth of Chinese imports of textiles until 2008. Under the terms of the agreement imports of textiles, under specified categories, were to be eligible for regular annual increases for three years, i.e. 2005 to 2008. The signing of this agreement was followed by frenetic importing activity, which resulted in the rapid exhaustion of quotas for 2005. Chinese goods, however, kept on coming and very soon European docks saw huge pile ups of Chinese textiles.
Pressure by retailers and importers of textile goods led to a substantial increase in the quotas for 2005 and release of the material held up at entry points. Leather imports from China, and to a certain extent Vietnam, have also come in for intensive scrutiny and debate. In this case, EU policy makers felt that there had been a clear violation of agreed trade policies, through indirect state subsidizing of leather goods. EU Commissioner Peter Mandelson, in a statement to the press in February 2006 stated as follows. There is compelling evidence of serious state intervention on a large and strategic industrial scale in the footwear sector in China and Vietnam. Along with wide evidence of substantially flawed accounting practice, we have found clear evidence of non-commercial loans or capital grants from the state to producers; improper evaluation of assets; non-commercial rates for land-use and important tax breaks for exports.
These disguised subsidies allow Chinese and Vietnamese producers to export leather shoes to Europe at below the true cost of production in their own countries. Natural comparative advantage is being topped up with anti-competitive behaviour. (Anti-dumping investigation into Chinese and Vietnamese leather shoes, 2006) Imports of Chinese shoes into the EU have increased by more than 400 % in the last two years and more than 1000% since 2001. A 15 month long investigation by the EU concluded that state subsidies had been unfairly used in the manufacture and export of leather goods by China.
A proposed anti-dumping duty was however narrowly rejected by the members of the nation states in an advisory committee vote. In what seems to be another major episode in the EUi??s rather turbulent relationship with China, the Commission is considering the introduction of quotas for Chinese leather imports under a general safeguard measure clause. Observers, however, feel that this may be difficult to implement as it could appear to favour the interests of European shoe manufacturers. Katinka Barysch, a policy analyst from the Centre for European Reform, told EurActiv: "China is the biggest target of EU anti-dumping action. If there were any action on shoes, it would be taken on the basis of anti-dumping rules if it could be shown that China was sending goods to Europe at markedly lower prices than were being sold in Asia.i?? However, she added i??the Commission does not want to be seen to be acting in response to the shoe manufacturing lobby as it would send a message to other lobbies to come and do likewise.
i?? (After textiles, shoes may be the next EU China Trade issue, 2006) While a specific three-year quota agreement regulates import of textiles from China, shoes fall under the general category and are not subject to any quotas. What however comes across with starkness is the power of China in shaping world markets to suit its huge and economic production facilities. 3. Investigate how this has impacted upon the UK textile markets and highlight how some retailers have overcome these problems using sourcing strategies.
What consideration should retailers give to ethical issues within the strategies they use? The spat between EU policy makers and retailers and importers of Chinese textiles resulted in an increase in quotas for 2005 and the release of millions of pieces of apparel, piled up at ports, into the UK market. While this episode ended with a victory for the retailers, the current situation regarding textile imports from China gives rise to a number of apprehensions that need to be carefully considered by UK importers. The euphoria generated by the elimination of the quota system for textile imports by the advanced nations among textile producing nations lasted only until it became evident that Chinese textiles had created a monopoly, which adversely affected the interests of all other manufacturers. China's textile exports to the European Union rose by 40 percent in the first eight months of the year, at the expense of other Asian and African clothing exporters, while overall EU textiles imports were little changed, the Financial Times reported. The newspaper, citing the European Commission's latest trade figures, said the figures are likely to confirm fears that developing countries are among the main losers after last January's worldwide removal of textiles quotas. Burma and the Philippines were the worst-hit Asian countries, with EU imports down respectively by 54.
4 percent and 41.4 percent in value terms in the first eight months, the paper said. South Korea, Thailand, Pakistan and Bangladesh also saw significant falls, by 28.6 percent, 15.
1 percent, 16.3 percent and 9.3 percent respectively. Imports from the group of African, Caribbean and Pacific nations(C-essentially poor former European colonies given preferential trade treatment by the EU (C-dropped 24 percent in value and 28.1 percent in volume, the paper said. (Chinese exports rise for Europe, 2006) The might of Chinese manufacturing evidenced itself in the autumn of 2005 in the UK, when rapid imports of Chinese textile items led to the breaching of quota boundaries, much before the end of the year.
As importers in the UK continued to demand goods, they found to their chagrin that much of the goods ordered could not find their way to High Street shops because of completed quotas. Observers feel that importers in Europe and exporters in China had anticipated the quota agreement and made arrangements for dispatch of enormous quantities of material to the EU countries, leading in turn to the fast exhaustion of quota limits and the build up of goods at the docks. In London, as in other cities of Europe, retailers and importers waged an intensive media campaign, known as i??The Bra Warsi??, demanding quota relaxation and warning of stock outs, increases in prices and losses to the fashion and garment industry. The huge outcry resulted in a near complete victory for the retailers with the clearance of all Chinese stocks in bonded warehouses, subject to the stipulation that 50 % of the stocks released would be set off against the Chinese quota for 2006.
It was a famous victory, in which people seemed to lose track of some pertinent facts, namely that EU imports of textiles had risen by only 2 % during the last year, that imports from most other developing countries had fallen sharply and that imports from China had increased by nearly 40 %. The whole situation pointed to the planned development of events where one country used its enormous manufacturing power with the active help of buyers and retailers of European nations, including the UK, to reach a quasi-monopolistic situation. During the currency of the crisis, a number of UK retailers had started looking at other suppliers in India, Sri Lanka and Bangladesh to tide over their immediate shortfalls, which fortunately for them, did not have to be followed through. The issues that arises here are firstly the ethical correctness of the justification of blatant use of production muscle to the detriment of other manufacturers, and secondly, the creation of a virtual monopoly on the back of a totalitarian regime, known for its poor record of accomplishment in human rights. The UK is adopting a number of measures for sustainable sourcing and strengthening of fair trade practices in the procurement of items sold through retail.
It is difficult to reconcile these concepts with the eventual denouement of the bra wars. The retail industry in the UK possibly needs to take a reality check on their approach towards sourcing from China and initiate some route corrections in their sourcing policies. Bibliography After textiles shoes may be next EU-China trade issue, 2006, EurActiv, Retrieved December 25, 2006 from www.euractiv.com/en/trade/textiles-shoes-may-eu-china-trade-issue/article-143943 Anti-dumping investigation into Chinese and Vietnamese leather shoes, 2006, Statement to the Press by Commissioner Peter Mandelson, Retrieved December 25, 2006 from ec.europa.eu/commission_barroso/mandelson/speeches_articles/sppm083_en.htm Bilateral Trade Relations, 2006, China, European Commission, Retrieved December 25, 2006 from ec.europa.eu/trade/issues/bilateral/countries/china/index_en.htm Chinese exports rise for Europe, 2006, Fashionunited News, Retrieved December 25, 2006 from www.fashionunited.co.uk/news/archive/china1.htm Schrage, E, 2004, Sustainable Sourcing, Gurusonline.tv, Retrieved December 25, 2006 from www.gurusonline.tv/uk/conteudos/schrage.asp Smithers, R and Hickman, L, 2006, Are supermarkets sweeping up? The Guardian, Retrieved December 25, 2006 from society.guardian.co.uk/givinglist/story/0,,1938744,00.html Wilding, R and Braithwaite, A, 2006, Effective sourcing for transaction success, FT.com., Retrieved December 25, 2006 from www.ft.com/cms/s/3b655f92-5f81-11db-a011-0000779e2340.html
