Free Trade and Uneven Development

Free Trade and

UnevenDevelopment

The North American Apparel Industryafter NAFTA

Gary Gereffi, David Spener, and

Jennifer Bair

Temple University Press, Philadelphia

Copyright © by Temple UniversityAll rights reservedPublished

Printed in the United States of America

The paper used in this publication meets the requirements of the American NationalStandard for Information Sciences—Permanence of Paper for Printed Library Materials, z.-

Library of Congress Cataloging-in-Publication Data

Free trade and uneven development : the North American apparel industry after NAFTA /edited by Gary Gereffi, David Spener, and Jennifer Bair.

p. cm.Includes bibliographical references and index. ---X (cloth : alk. paper) — --- (pbk. : alk. paper)

. Clothing trade—North America. . Clothing trade—Government policy—NorthAmerica. . Textile industry—North America. . Textile industry—Governmentpolicy—North America. . Free trade—North America. . Canada. Treaties, etc.

Oct. . I. Gereffi, Gary. II. Spener, David, – III. Bair, Jennifer, –

.

'.'–dc

Contents

List of Tables and Figures vii

Acknowledgments xi

Part I: Analytical Overview

. :

David Spener, Gary Gereffi, and Jennifer Bair

. : , ,

Jennifer Bair and Gary Gereffi

Part II: The Changing Face of the Apparel Industry in the United States

. :

Florence Palpacuer

.

Judi A. Kessler

. : , , ,

Robert J. S. Ross

. ’ Edna Bonacich

Part III: The U.S.-Mexico Border Region

. : ,

David Spener

. :

Robine van Dooren

.

Jorge Carrillo, Alfredo Hualde, and Araceli Almaraz

Part IV: Interior Mexico

. : Gary Gereffi, Martha Martínez, and Jennifer Bair

.

Enrique Dussel Peters, Clemente Ruiz Durán, and Michael J. Piore

. ..

Ulrik Vangstrup

. , :

Jorge Mendoza, Fernando Pozos Ponce, and David Spener

Part V: Central America and the Caribbean

.

Michael Mortimore

. ’ -

Dale T. Mathews

Part VI: Conclusion

.

Jennifer Bair, David Spener, and Gary Gereffi

About the Contributors

Index

vi

List of Tables and Figures

Tables

. Employment in the North American Apparel Industry, ‒

. World’s Leading Apparel Exporters, ‒

. U.S. Apparel Imports by Region and Country, ‒

. U.S. Apparel Imports: Total and ⁄ Trade by Mexico and Caribbean Basin Initiative (CBI) Countries, ‒

. Apparel Plants in Mexico and the Caribbean Basin,

. Ethnic Distribution of Resident Labor Force, New York City Garment Industry,

. Ethnic Distribution of Resident Labor Force, New York City Garment Industry,

. Characteristics of Firms Interviewed in New York City’s Women’s Wear Industry

. Interview Guidelines

. Typology of Firms’ Profiles in New York City’s Women’s Wear Industry

. Apparel (SIC ) Employment: Los Angeles County, ‒

. Los Angeles County Apparel Industry Employment (SIC ): Sewing and Nonsewing, Selected Years

. Factors Contributing to Increased Hiring, by Occupation and Number of Firms Reporting ()

. Factors Contributing to Decreased Hiring, by Occupation and Number of Firms Reporting ()

. Retail Concentration in the “Top ,” ‒

. Import Penetration in U.S. Apparel Market, ‒

. Typology of Old and New Sweatshops in the United States

. Distribution of the Economically Active Population of El Paso, Texas, by Ethnicity and Nativity,

. Selected Characteristics of the Economically Active Population ofEl Paso, Texas,

. Population, Employment, and Wages in El Paso and Cd. Juárez,

. Number of Companies and Employees in the Garment Industry for Selected U.S. Cities

. Number of Companies and Employees in the Clothing Industry in Several Mexican Cities,

. Typology of Companies in the El Paso–Cd. Juárez Sample

. Main Clients for Torreón Apparel Exports

. Apparel Industry Indicators for La Laguna Area

. General Data on Garment Industry, ‒

. Mexico: Exports, Imports, and Trade Balance, ‒

. Mexico: Export Structure, ‒

. Maquiladora Exports of Garments in Mexico, ‒

. Mexico’s Textile and Apparel Exports

. Exports of Selected Knitwear Products by Nonmaquiladora Manufacturers, ‒

. Knitwear-Producing Industrial Clusters

. Mexican Consumption of Domestically Produced and Imported Finished Garments, ‒

. Mexican Imports of Garments and Accessories by Country ofOrigin, ‒

. Principal Types of Retail Clothing Outlets in Mexico

. Percent Share of Mexican Retail Clothing Sales Captured by Enterprises of Different Types

. Mexican Retail Clothing Sales in , by Type of Enterprise and Class of Customer

. Distribution of Value Added among Three Types of Distribution Channels for Imported Clothing in Guadalajara,

. The Principal Country Sources of Apparel (SITC ‒) for the North American Market during ‒

. Dominican Republic: Its Competitiveness in the North American Market, ‒

. Costa Rica: Its Competitiveness in the North American Market, ‒

. Labor Costs in the Apparel Industry, ‒

viii

. Dominican Republic EPZ Employment and Exports, ‒

. Export Processing Zones, December

. Export-Processing Zone Investments by Country of Origin

. Country of Origin for Imports by Number of EPZ Firms

. Value of Principal U.S. Imports of Textiles and Clothing Originating from the Dominican Republic

. Value of U.S. MFA Imports under USTS () by Principal Beneficiaries, and

. Quotas for the Caribbean—Trade Partnership Act, : Fabric

. Quotas for the Caribbean—Trade Partnership Act, : T-Shirts

Figures

. Employment in Mexico’s Apparel Maquiladoras, ‒

. Los Angeles County Apparel Firms Sourcing Profile

. Difference in February-to-May Apparel Employment, Los Angeles County, ‒

. De Facto Deregulation: Employees per Wage and Hours Investigator, Selected Years, ‒

. Average Annual Apparel Employment in El Paso, Texas, ‒

. Supply Chain for Verde

. Supply Chain for Rojo and Azul

. Traditional Interfirm Networks in Monterrey

. Original Equipment Manufacturing Networks in Monterrey

. Original Brand-Name Networks in Monterrey

. Traditional Maquiladora Networks in Juárez

. Interfirm Networks in Juárez: Vertical Disintegration with Local Linkages

. Apparel Commodity Chain: Activities and Location

. Pre-NAFTA Blue Jeans Assembly Networks

. Post-NAFTA Full-Package Networks in Torreón

. The Winners’ Circle: A Stylized History of the Economic Growth of Nations

. Shifts in the Regional Structure of North American (U.S. and Canadian) Apparel Imports (SITC ‒) during ‒

. Dominican Republic: Relationship between Relative Labor Costs and EPZ Employment

ix

Acknowledgments

This book grew out of a conference on “Global Production, Regional Responses, and Local Jobs:Challenges and Opportunities in the North American Apparel Industry” that was held at DukeUniversity in November . Financial support for this meeting came from a variety of sources,including the Howard E. Jensen Fund in the Sociology Department at Duke, the North Amer-ican Studies Program and the “Globalization and Equity” Common Fund project at Duke, andthe Canadian Studies Conference Grant Program in the Office of the Canadian Embassy inWashington, D.C. Gary Gereffi and Jennifer Bair co-organized the Duke conference, with theassistance of a large number of administrative support staff and student volunteers at theuniversity.

David Spener wishes to acknowledge several institutions and individuals for their support inmaking publication of this book possible. First, the Ford Foundation’s Mexico City and NewYork offices supported the efforts of a research team, in which he was a participant, that exam-ined economic development issues in the U.S.-Mexico border region and in the Mexican inte-rior. This research was supported by a grant to the Population Research Center of the Univer-sity of Texas at Austin and the Colegio de la Frontera Norte and included collection and analysisof data on the apparel industry in El Paso, Los Angeles, Ciudad Juárez, Monterrey, Mexico City,and Guadalajara. Second, Bryan R. Roberts, who holds the C. B. Smith Centennial Chair inU.S.-Mexico Relations at the University of Texas at Austin, provided generous financial sup-port to Spener and other contributors to this book that permitted their participation in severalmeetings in diverse locales. Third, the Tom and Mary Turner Faculty Fellowship of TrinityUniversity underwrote Spener’s contribution to the writing and editing of several of the chap-ters herein.

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Part IAnalytical Overview

David Spener, Gary Gereffi, and Jennifer Bair

Introduction: The Apparel Industry

and North American

Economic Integration

The economic and social consequences ofinternational trade agreements have become amajor area of inquiry in development studiesin recent years. As evidenced by the energeticprotests surrounding the Seattle meeting ofthe World Trade Organization (WTO) inDecember and the controversy aboutChina’s admission to the WTO, such agree-ments have also become a focus of politicalconflict in both the developed and developingcountries. At issue are questions of job gainsand job losses in different regions, prices paidby consumers, acceptable standards for wagesand working conditions in transnational man-ufacturing industries, and the quality of theenvironment. All these concerns have arisenwith regard to the North American Free TradeAgreement (NAFTA) and can be addressedthrough an examination of changes in thedynamics of the apparel industry in the post-NAFTA period.1 In this book, we examine theevolution of the apparel industry in NorthAmerica in order to address some of thesequestions as they pertain to North America,with an eye toward the broader implicationsof our findings. We also consider the countries

of the Caribbean Basin and Central America,whose textile and apparel goods are nowallowed to enter the U.S. market on the samebasis as those from Canada and Mexico(Odessey ).

Globalization and Regionalization of the Apparel Industry

As Michael Mortimore notes in Chapter ,

the apparel industry has served as a crucialstepping-stone in the economic developmentof all the advanced industrialized nations andit has also been an important engine of growthfor the successful newly industrializing econ-omies of East Asia. Apparel manufacturing istraditionally one of the largest sources ofindustrial employment for most countries. Inaddition, apparel is a quintessential globalindustry. It exemplifies, more than any otherindustry, the process by which firms haverelocated their labor-intensive manufacturingoperations from high-wage regions in theadvanced industrialized countries to low-costproduction sites in industrializing nations.

Traditional low-tech forms of production arelinked with advanced communications andinformation technologies in a complex post-modern web of design, manufacturing, mar-keting, and distribution.

The internationalization of garment manu-facturing began earlier and has extended fur-ther than that of any other industry. Since thes, the newly industrializing economies, ledby East Asia and followed more recently byLatin America, have seen a massive increasein export-oriented production (Appelbaum,Smith, and Christerson ; Bonacich et al.; Christerson and Appelbaum ; Ger-effi , ; Mittelhauser , ; Mur-ray ). World apparel exports grew from amodest $ billion in , with developingcountries accounting for just percent of thetotal, to $ billion in , with developingcountries supplying percent (Murray ).The U.S. market was the recipient of thelargest share (around one-third) of apparelexported by the newly industrializing econ-omies (Murray ), and U.S. apparel im-ports grew from just $ billion in to nearly$ billion by (Bonacich and Waller ,

). By the world market for apparelexports was valued at $ billion, and U.S.apparel imports represented more than one-quarter ($ billion) of the world total (seeTables . and . in Chapter ).

By imported garments accounted forover half of apparel purchases in the UnitedStates (Mittelhauser ). More than anyother industry, apparel manufacturing hasexemplified the emergence of a new interna-tional division of labor, as the rise in ThirdWorld imports has been accompanied by mas-sive declines in employment in advancedindustrial countries such as the United States.Table . documents the resulting employ-ment shifts in the North American apparelindustry. U.S. apparel employment peaked ataround . million workers in . By

around a third of those jobs had either disap-peared or been transferred to overseas pro-duction sites (Bonacich and Waller ; Mit-telhauser , ; Murray ), and thistrend of increasing import penetration cou-pled with massive job loss continued throughthe end of the twentieth century. By gar-ment employment in the United States hadfallen to just over , workers (AmericanApparel Manufacturers Association ),while garment imports had risen to nearly $

billion, more than double their level (U.S.Department of Commerce ).

Canadian apparel employment has beenmore uneven throughout this period. TheCanadian industry suffered its greatest declinein the late s, following the implementa-tion of the Canadian-U.S. Free Trade Agree-ment. The industry has since reboundedunder NAFTA, with apparel employment inCanada increasing from , in to, in (see Table .).

Whereas the Northeast Asian economies oncedominated developing-country apparel exportsto the United States, since the mid-s thecountries of the Caribbean Basin and Mexicohave risen to prominence. In the North-east Asian economies (China, Hong Kong, Tai-wan, South Korea, and Macao) exported a totalvalue of $. billion worth of garments to theUnited States, accounting for more than halfof total U.S. imports. By , however, theseeconomies’ share of total U.S. garment importsdeclined to less than percent. Meanwhile,garment exports from Central America,2 theCaribbean, and Mexico skyrocketed from $.

billion in to over $. billion in ,

accounting for nearly percent of U.S. totalapparel imports. Particularly dramatic wasMexico’s rise to become the top-ranked gar-ment exporter to the United States at the endof the century, as its exports grew from just$ million in to over $. billion in

(see Table . in Chapter ).

, ,

The movement of garment production tothe Caribbean Basin and Mexico has been pro-moted by U.S. government policies, including:

• provisions of the U.S. tariff code that haveencouraged the growth of production inmaquiladoras, which are plants that assem-ble U.S.-made components that are thenexported back into the United States, withtariff paid only on the value added in theexporting country;

• the Caribbean Basin Initiative (CBI), whichgave preferential access to U.S. markets tothe countries of Central America and theCaribbean beginning in the s;

• the progressive lifting, since the late s,of U.S. quotas limiting apparel importsfrom developing countries; and, most re-cently,

• the North American Free Trade Agree-ment, which, together with the ‒

peso devaluation, has cemented Mexico’sposition as “the low-cost manufacturingcenter of North America” (Martin ).

These policy changes have substantially alteredthe conditions that confront garment manu-facturers who wish to produce for the U.S.market. Particularly dramatic has been theeffect of NAFTA on Mexico’s garment pro-duction for export. In , the first year thatNAFTA was in effect, maquiladoras em-ployed , workers sewing garments (Fig-ure .). By December there were more

than , workers sewing garments in, maquiladoras in Mexico.3 The numberof maquiladora workers fell in to ,,

though the number of maquiladora plants ded-icated to apparel production increased to ,.

Despite this dip in employment, the number ofworkers employed in apparel maquiladoras in was more than three times greater than in (INEGI ). The expansion of the ma-quiladora sector is evidence of Mexico’s im-pressive NAFTA-era export dynamism in theapparel industry. Although exports from theCaribbean Basin countries have also been strongin recent years, these economies were disadvan-taged by the region’s exclusion from NAFTA.The passage of the Trade and DevelopmentAct of by the U.S. Congress extends aweak version of NAFTA parity to the region,but it is too early to tell what impact it will havein increasing the CBI’s export dynamism rela-tive to Mexico.

In addition to the quantitative boom in Mex-ico’s apparel exports in the post-NAFTA pe-riod, production in this economic sector isundergoing a qualitative transformation. Besidethe growth of maquiladora sewing operationsMexico has witnessed the emergence of cut-ting, laundering, and finishing operations, asthese parts of the production process aremoved south of the U.S. border to various sitesthat are undertaking “full-package” produc-tion. This upgrading of Mexico’s productivecapacity has, in turn, attracted a number of

.. Employment in the North American Apparel Industry, ‒ (thousands ofworkers)

1985 1988 1991 1994 1995 1996 1997 1998 1999 2000

Canada 89.9 95.8 64.3 82.8 85.5 89.9 87.4 91.9 91.1 93.7United States 1,120.4 1,085.1 1,106.0 974.0 935.8 867.7 823.6 765.8 690.1 633.2Mexicoa 146.8 196.4 221.3 231.3 263.2 395.6 454.9 761.9 607.0 557.0

Sources: Statistics Canada, Employment, Earnings and Hours; U.S. Bureau of Labor Statistics; INEGI, Censos Economicos.aMexico’s figures in this table include maquiladora and non-maquiladora apparel employment. The and employment fig-ures are estimates based on data from the Camara Nacional de la Industria del Vestido and Apparel Industry Magazine, respectively.

large textile producers, including BurlingtonIndustries and Cone Mills, which alone or in concert with Mexican firms have openedplants in Mexico’s interior for the productionof fabrics.

With regard to product segments, Mexico isnot only gaining in standardized apparel butalso making inroads in the fashion sector thathas traditionally been dominated by Asianfirms. The emphasis is, nevertheless, still onmen’s sport-fashion apparel (e.g., designerjeans) rather than women’s apparel (althoughsome women’s brands are being produced inMexico for labels such as Donna Karan,DKNY, and the Limited). As a consequence,Mexico’s apparel exports to the United Statesremain dominated by such mass-produced,standardized garments as men’s trousers andshirts, women’s trousers, and brassieres (U.S.Department of Commerce ; Gereffi ).

Most studies indicate that the overall impactof NAFTA on employment and wages in theUnited States has been quite small; imple-mentation of the agreement, however, has con-tributed greatly to the elimination of directproduction jobs in apparel manufacturing.Although the apparel industry accounted forjust . percent of all manual jobs in U.S. man-ufacturing in , percent of the NAFTA-induced job losses documented by the U.S.Department of Labor between and

were accounted for by apparel workers whoseplants moved to Mexico or laid off workers inresponse to surging imports. Overall, apparelemployment in the United States declined by percent from to , with the bulk ofthis loss occurring in states such as Tennesseeand the Carolinas that, like Mexico, special-ized in the mass production of standardizedgarments (Spener and Capps ).

, ,

.. Employment in Mexico’s Apparel Maquiladoras, ‒

Source: INEGI, “Banco de información económica,” data available at <http://www.inegi.gob.mx>.

As mass-production jobs in the industrywere lost, the leading garment districts inNew York City and especially Los Angelesretained jobs not only in design but also indirect production by relying on immigrantworkers to sew small-batch, high-fashion gar-ments. Indeed, although overall U.S. apparelemployment declined precipitously in thes, the net number of immigrant workersengaged in sewing and other direct-produc-tion tasks actually grew from , in

to , by , an increase of more than percent. As native U.S. employees lost theirapparel jobs or found better work in otherfields, the immigrants’ share of direct-pro-duction apparel jobs rose dramatically, fromaround one-quarter of the total U.S. garmentworkforce in to nearly one-half by

(Spener and Capps ; see also Chapters and in this volume, by Florence Palpacuerand Judi Kessler, respectively).

The principal reason for the growth ofimmigrant employment in the U.S. apparelindustry during the s was Los Angeles’prominence as the leading garment district inthe United States. There employment in theindustry grew throughout the decade, whileit declined nearly everywhere else. In

more than percent of Los Angeles gar-ment workers were foreign born, the major-ity being Mexican, even though Mexicansmade up just percent of all garment work-ers nationwide. By the end of the decade,however, percent of all garment workersin the United States were Mexican immi-grants, with most of these working in LosAngeles. Thus we see that Mexico has cometo play a doubly important role in the pro-duction of garments for the U.S. market,with more than , Mexicans working inapparel maquiladoras south of the border andanother , sewing, cutting, and finish-ing garments north of it (Spener and Capps).

Apparel Production in the Era ofNAFTA: The Dynamics ofInterfirm Networks

The purpose of this book is to document theways in which firms in the textile-apparel com-plex have responded to the changed trade envi-ronment in terms of new production and mar-keting strategies and, in turn, to consider theimplications for job creation and retention,wages, and working conditions in variousregions in Mexico, the United States, CentralAmerica, and the Caribbean. Given the rapidpace of change in the geography of productionin recent years, there is a great deal of room fornew documentation and analysis in the aca-demic literature on the organization of the in-dustry. This is in itself an important task, giventhat the textile-apparel complex has, untilrecently, been the largest U.S. manufacturingsector in terms of employment and also hascome to play a substantial role in the Mexican,Central American, and Caribbean economies.With this collection of essays we are able, at aminimum, to provide a useful service to read-ers by updating the extant literature on theglobal apparel industry (e.g., Bonacich et al.; see also chapters on apparel in diverseedited volumes, such as Gereffi and Korzenie-wicz ; Gereffi and Kaplinsky ).

Nevertheless, this book does much morethan update earlier works. The emergence ofan integrated North American regional econ-omy in the latter half of the s constitutesa qualitative change in the dynamics of theapparel industry that requires new forms ofanalysis. While a great deal can be gained bysimply studying the effects of national tradepolicies and exchange rates on the geographyof production, such an approach fails toexplain the important shifts that are occurringwithin countries as well as the socioeconomicconsequences of such subnational or localtransformations. Contributors to this book

address the new regional dynamics of produc-tion in the apparel industry by taking a firm-centered approach that focuses on the ways inwhich interfirm networks are creating newtextile-apparel supply chains in a more inter-dependent and complex North Americanproduction and trade landscape. This firm-centered approach has several advantages.

First, this approach allows us to identify the“lead firms” in the textile and apparel com-modity chain and to document the evolutionof the strategies and organizational behaviorsthey adopt in response to changes in the regu-latory regime for international trade. Oftenthese lead firms are not themselves garmentmanufacturers but rather are to be found in theretail, design, or textiles and fiber segments ofthe supply chain. Thus we are able to demon-strate how apparel producers are dynamicallylinked to other strategic actors in the textile-apparel complex. In addition, by focusing onthe behavior of lead firms in vertically struc-tured interfirm networks, we can trace theactual mechanisms through which the geogra-phy of apparel production is changing, account-ing for spatial shifts in regional employment,the upgrading or downgrading of productivetechnologies, job quality, and so forth.

Second, the network approach allows us toexamine the extent to which cooperative tiesexist among small- to medium-scale firms thatparticipate in cross-border networks in partic-ular locales in the United States and Mexico.This permits us to talk about the emergence orrenewal of industrial districts in the UnitedStates and Mexico and whether such districtsare following the “high road” to developmentexemplified by the famous “Third Italy” caseof Emilia-Romagna.4 Thus, a network per-spective provides a unique opportunity to linkmultiple levels of analysis: from the strategicdecision making of lead firms, to the modes ofinsertion into the apparel commodity chain ofsmall-scale garment enterprises, to the dynam-

ics of local industrial districts, to an investiga-tion into the wages and working conditionsprevalent among peripheral contractors.

Third, an interfirm network perspectiveallows us to demonstrate how a variety of sub-national regions in Mexico and the UnitedStates are dynamically linked with one anotheracross the national boundary dividing the twocountries (e.g., El Paso, Texas, and Torreón,Coahuila; Los Angeles and Tehuacán, Puebla;San Francisco, California, and Aguascalientes).In this regard, our edited collection comple-ments the publication of new monographs onthe industry, such as Edna Bonacich andRichard Appelbaum’s Behind the Label: In-equality in the Los Angeles Apparel Industry(), that center on a single productionlocale rather than on the web of relationsamong multiple sites.

Fourth, the network perspective integratesa variety of research methodologies, rangingfrom strategic interviews with key personnel oflead firms in order to trace transborder pro-duction chains, to plant surveys, analysis ofofficial trade and employment data, and theexamination of published records and datafrom the textile-apparel firms themselves.

The Contexts in Which Networks Operate

Focusing our attention on interfirm networksin the garment industry gives us considerableanalytical leverage. In concert with oneanother, firms make a series of decisions thatshape the textile-apparel commodity chain:where different aspects of the design–produc-tion–marketing–distribution process take place;how each aspect is organized and managed;and what types of workers are hired, underwhat sorts of conditions, at what pay levels,and with how much opportunity for upwardmobility.

, ,

Nevertheless, it is important to bear in mindthat firms are not the only actors in the apparelcommodity chain that determine its evolution.Rather, they contend with other collective orinstitutional participants that influence notonly production decisions but also the relevanteconomic and social outcomes. These partici-pants include national, state, and local govern-ments, supranational regulatory agencies (e.g.,the NAFTA Secretariat and the World TradeOrganization), labor unions, nongovernmentaladvocacy groups, banks, local entrepreneurialelites, advertising and media companies, house-holds, and transnational migrant communities.Thus, although we grant analytical primacy tothe role of different types of interfirm networksin determining the evolution of the textile-garment chain and the generation of wealth atdifferent points along it, we recognize that thesocioeconomic consequences of this process areembedded in a multilayered institutional set-ting that incorporates a variety of other factorsas well.

In this regard, it is instructive to contem-plate the interaction between firm strategiesand macroeconomic and macropolitical con-texts, that is, the dynamic relation between pri-vate firms and nation-states. These contextsplay a powerful role in determining whatstrategies are pursued at a given point in anindustry’s development and in limiting thebenefits and costs to a particular region thatresult from changes in firm strategies. Forexample, it is clear that changes in the macrocontext—in the form of NAFTA and a se-verely devalued peso—have led brand-nameapparel firms vigorously to pursue opportuni-ties to manufacture garments in Mexico, suchas mass-produced men’s and boys’ trousers.The structural advantages of Mexico as a pro-duction site include:

• the relatively low cost and high productiv-ity of its labor force;

• the existence of a Mexican entrepreneurialclass within the industry that is capable ofundertaking assembly and in some cases alsofull-package production;

• the generally acceptable quality of its trans-portation, utilities, and communicationsinfrastructure, especially in comparison toother developing nations;

• its physical proximity to the United States(which keeps transportation costs from wip-ing out other cost savings); and

• its preferential tariff and quota treatmentunder NAFTA.

At the same time, the varying structuralconditions that firms encounter within Mexicoinfluence their strategic decisions with regardto production. For example, we see that thepossibilities for expansion of garment pro-duction on Mexico’s northern border are lim-ited by the saturation of the labor and com-mercial real estate markets with auto-parts andelectronics maquiladoras. This has made pro-duction at the border relatively more expensivethan elsewhere in Mexico, encouraging a shifttoward interior production locations. Althoughthe majority of maquiladora employees con-tinue to work in plants located along Mexico’snorthern border— percent in —thisproportion has declined from percent in (Buitelaar and Padilla Pérez ). Atpresent, the rate of growth in the maquiladorasector is higher in the interior of Mexico thanalong the border, and this is particularly truefor apparel plants.

As a consequence, in some interior locationsof the Mexican garment industry (e.g., Mon-terrey, Guadalajara, and Torreón) we see estab-lished domestic producers shifting to the exportmarket on an original equipment manufacture(OEM) basis, that is, manufacturing ready-made garments for branded U.S. customers, orselling to new foreign retail chains in the Mex-ican market (see Chapters , , and in this

book; see also Bair ). In other interior loca-tions (e.g., the rural municipalities near GómezPalacio, Durango), we see garment productionundertaken on a “green field” basis, tappingheretofore unutilized labor reserves, especiallythose constituted by young women in smallertowns and rural areas. We also find variation inthe types of garments that dominate produc-tion in different regions. In general terms, the“new” production centers concentrate onmass-produced men’s and boys’ garments,such as blue jeans, while the types of garmentsmade in regions that are experiencing a shiftfrom domestic- to export-oriented productiondepend more on the preexisting infrastructurethat has served the Mexican market.

Shifts in the geography of apparel produc-tion within Mexico, with sites in southern andcentral Mexico growing rapidly, are driven bythe combination of push and pull factorsalluded to above. The push factors, as noted,are high turnover and increasing wages on theborder, which have led many leading U.S.firms to relocate production and sourcingoperations to the interior. State governments,seeking to attract foreign investment and cre-ate jobs, offer various incentives to these firmsin order to pull them to particular locationsthat are often green-field (i.e., new and poten-tially “fertile”) sites with respect to apparelproduction. Another pull factor is the exis-tence in several parts of Mexico of nationalfirms that are looking for maquiladora orderseither to replace or to supplement productionfor a stagnant domestic market.

While in the past Mexico’s apparel pro-duction for export was limited to assembly,NAFTA has prompted a substantial flow ofadditional capabilities to Mexico, includingtextile production, cutting, trimming, laun-dering, and distribution. The growth in non-assembly production activities has been es-pecially pronounced in interior regions. Inaddition, the post-NAFTA period has wit-

nessed the emergence of a number of “full-package” production networks linking theUnited States and Mexico. Such full-packagemanufacturing in Mexico has a number ofadvantages, including local “backward” link-ages,5 technology transfer, and skill upgradingat the direct-production, technician, and man-agerial levels, as high-status, brand-name com-panies contract to local producers that canmeet exacting standards for quality, timelydelivery, and cost. These local producers maybe U.S.-owned, Mexican-owned, or joint ven-tures. Meeting such standards typically in-volves the use of state-of-the-art technologiesand forms of work organization that, in turn,require a trained, disciplined, and stable work-force.

The ability to fill full-package orders forU.S. buyers gives Mexican firms a competitiveedge vis-à-vis their maquiladora competitorsin Central America and the Caribbean. Thetransition to full package may also benefitMexican workers in the form of better work-ing conditions and perhaps even higher wagesthan those of their peers with jobs in “low-road” maquiladoras and smaller producersthat are more technologically and organiza-tionally backward.

Nevertheless, the macro context in whicheven such “elite,” high-productivity garmentnetworks operate can place strong limits on thebenefits accruing to Mexican workers. Thus,while the expansion of garment production forthe world market has generated considerableemployment in Mexico in recent years and hasled to productivity growth in some regions ofthe country, workers’ incomes may not riseconcomitantly if their purchasing power isreduced by currency devaluations or govern-ment attempts to keep exports competitive bydeliberately limiting wage growth. Indeed,research by Harley Shaiken () into tech-nologically advanced, export-oriented plants inMexico in the automobile, consumer electron-

, ,

ics, and computer industries demonstrates thatsuch an outcome for the garment industry isnot out of the question.6 In this regard, it isimportant to bear in mind that firms in thegarment industry do not set the average wagelevels in most of the local labor markets inwhich they operate, that is, they are “price tak-ers” with respect to wages. The wages they paymay be relatively high in local labor marketsbut may still be insufficient to lift workersabove the subsistence level. At the same time,macroeconomic factors that depress workerwages give transnational firms an incentive toshift production to low-wage regions.

Evaluation of the impact of NAFTA onMexican development must also take accountof changes that have occurred in the country’spolitical and economic landscape since themid-s. Mexico transformed itself fromone of the world’s most closed economies toone of the most open in little more than adecade. Its modernizing agenda, dramaticallyaccelerated by President Carlos Salinas deGortari (‒), placed a high priority onincreasing labor flexibility and making Mexicoan attractive site for foreign direct investment.In effect, this has meant falling real wages formost Mexican workers and a serious decline inthe influence of the once-powerful (if neverdemocratic) unions that for decades providedimportant support to the country’s rulingparty, the Partido Revolucionario Institucional(PRI). The analytical approach taken in thiscollection focuses attention precisely on thissort of interplay between the macroeconomicand political landscape, local environments ofspecific production sites, and interfirm net-works connecting national and foreign compa-nies and their workers.

While the firm-focused approach taken heremeans that this book contains only a few chap-ters that analyze developments within theNorth American garment workforce, it sug-gests a network-oriented path for other ana-

lysts who wish to explore these developments.Similar to the way in which networked firmsdevise production strategies in response tostructural factors, workers and their commu-nities participate in networks that help orga-nize their labor market participation. This canbe seen most clearly in the existence of trans-national migrant networks that link commu-nities of garment workers and their familiesacross national boundaries.

Mexican workers participating in migrantnetworks that transcend the U.S.-Mexico bor-der face strategic decisions in a way similar tothose of networked firms in the garmentindustry. Both confront a North Americanlandscape altered by increased economic inte-gration between Mexico and the United Statesand a transformed legal framework that regu-lates their activities. Mexican workers en-meshed in social networks in certain regions inMexico may find it attractive to remain inMexico in order to pursue employment oppor-tunities with the dynamic export-orientedfirms that are coming to dominate Mexico’smanufacturing sector. Workers in differentsocial settings in other regions may find itattractive to migrate to the United States inorder to pursue productive opportunitiesthere. With regard to the North American gar-ment industry, Mexican laborers are crucial tosubsidizing its development whether theywork in El Paso, Los Angeles, Torreón, orPuebla. The relative benefits they derive fromemployment as garment workers depend onthe types of firms they work for, their pro-ductivity, the effort they put forth as individ-uals, the degree to which they are representedby strong and responsible unions, and thenational macroeconomic context, as well as onsocial and cultural factors inherent to the com-munities in which they live and work.

Within this “social economy” frameworkseemingly peculiar outcomes may arise. Work-ers employed in Mexico as sewing machine

operators in progressive, state-of-the-art ap-parel firms may enjoy wages and benefits thatare substantially higher than those offered byother types of firms in their communities.They may gain new skills and find opportu-nities for occupational advancement. Theirincomes, while perhaps not sufficient to sup-port an entire family, may contribute to sus-taining low-income multiearner households.Mexicans working for garment producers inLos Angeles might find themselves in similarcircumstances. By contrast, especially if theyare undocumented, they may work for sub-standard U.S. wages, receive no benefits, havelittle chance for occupational advancement,and toil in sweatshop conditions.7

In spite of the considerable disadvantagesexperienced by Mexican workers relative toU.S. natives in Los Angeles, national macro-economic factors allow Mexicans workingthere to earn wages up to ten times higherthan those earned by compatriots laboring inthe garment industry in Mexico. Just as thisnational income gap influences firm strate-gies in the North American garment indus-try, so too it influences Mexican workerstrategies. Thus, Mexican women who losetheir jobs sewing jeans in El Paso are unlikelyto move home to Torreón in order to con-tinue plying their trade. But by the sametoken, their nieces, who in earlier times mighthave migrated to the border to work in theindustry, may be less likely to move to El Pasoto join other kin and friends there. Undocu-mented Mexicans in Los Angeles may toler-ate wages and working and living conditionsthat are abysmal by U.S. standards but thatallow them to remit a substantial portion oftheir dollar income home to family membersin their communities of origin. Some of thesefamily members may labor in the same indus-try and may even use the remitted dollars to set up their own garment shops as sub-contractors.8

The Chapters in This Book

Given that this collection directs its attentionto the “new geography” of the North Ameri-can apparel industry, we have chosen a geo-graphic order of presentation of its chapters.But before introducing the individual chaptersand highlighting their contributions, we askreaders to bear two points in mind. First, forthe purposes of description and analysis wehave deliberately chosen a broad definition ofNorth America. Hence we include chaptersdealing with apparel production not only in theUnited States and Mexico but also in CentralAmerica and the Caribbean. As noted above, bythe early s the Central American countriesand certain Caribbean Basin economies suchas the Dominican Republic had become majorexporters of garments to the U.S. market. Afterthe implementation of NAFTA, the CaribbeanBasin region lost market share relative to Mex-ico, although its exports to the United Statescontinued to grow rapidly. Now that the Tradeand Development Act of grants Ca-ribbean Basin countries U.S. market access onmore favorable terms, they are in a better posi-tion to compete with Mexico, and the Carib-bean Basin economies are even more thor-oughly integrated into the development of theNorth American regional apparel market. Forthese reasons, we have included two chapters(by Michael Mortimore and Dale Mathews)focusing on apparel production in CentralAmerica and the Caribbean Basin.

This book does not, however, contain chap-ters focused on the textile-apparel complex inCanada, in spite of that country’s participa-tion in NAFTA. In terms of North Americanregional trade, Canada occupies a relativelyminor niche in the apparel industry, specializ-ing in a small number of products such asmen’s and women’s wool suits. It is a moreimportant exporter of textile products, but forthe most part these are not destined for apparel

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production, instead being used in householdand automotive upholstery. Like the UnitedStates, although on a much smaller scale,Canada has seen employment declines in bothtextiles and apparel owing to competition fromAsian and Mexican imports. For these reasons,we have not included individual chapters ded-icated to the Canadian experience.

The second point we ask readers to remem-ber is that, although the chapters are organizedby the geography of the principal productionsites they examine, the fact that contributorshave taken a firm-centered, network-orientedanalytical approach means that most chaptersrelate developments in the industry to morethan one place in the North American region.For example, Judi Kessler’s discussion of theLos Angeles garment district also considers itsrelationship to emerging Mexican productionsites in Puebla and Cuernavaca, while FlorencePalpacuer’s chapter on New York perforcerelates developments there to those in LosAngeles, its principal geographic competitorin the United States. Similarly, David Spener’sand Robine van Dooren’s chapters on El Pasotake into account the emergence of Torreónas a rival to the Texas city’s claim to be the“blue jeans capital of the world,” while GaryGereffi, Martha Martínez, and Jennifer Bairdiscuss Torreón’s relationship with textile andgarment producers in the U.S. Southeast.Thus the reader of any given chapter in thisbook will learn not only about apparel pro-duction in the principal site described thereinbut also about how and why production thererelates to clothing production and consump-tion elsewhere in the region.

Part I: Analytical Overview

In addition to this introductory chapter, PartI includes a chapter by Jennifer Bair and GaryGereffi that describes the emergence of full-

package production networks in Mexico thatlink new types of U.S. “lead firms” with arange of Mexican partners, including textile,fiber, and apparel companies. Chapter beginswith a review of the evolution of the globalapparel industry since the s. The authorsthen discuss the types of data necessary for afirm-level network analysis, including tradeand production statistics, strategic interviewswith lead companies, and on-site fieldwork.Research conducted by the authors over sev-eral years reveals that firms are developingstrategies to respond both to the changinginstitutional environments created by traderegimes such as NAFTA and to their own con-cerns about profitability and control in increas-ingly global commodity chains. In addition,the authors discuss how the developmentalimplications of “full-package” networks differfrom those associated with the maquiladora orassembly model of production.

Part II: The Apparel Industry in the United States

The initial two chapters in this part of the bookaddress contemporary developments in NewYork and Los Angeles, the two largest garmentdistricts in the United States in terms of em-ployment and cities that are also among theworld’s most important fashion design centers.In Chapter , Florence Palpacuer analyzes howthe structure of the New York garment indus-try has evolved under the impact of globaliza-tion by focusing on its main industrial niche,the fashion-oriented segment of the women’swear industry, and on the subcontracting net-works through which production in this seg-ment is organized. Globalization is here associ-ated with two major trends: () the developmentof international subcontracting networks thatlink garment firms in New York City to foreignproducers in a variety of countries; and () the

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entry of Asian and Hispanic immigrants,which has produced significant diversificationin the social and ethnic composition of the NewYork garment industry.

Palpacuer finds that the majority of NewYork garment firms are still small, but a fewhave grown significantly by adopting new com-petitive strategies in marketing, product design,and production management. Most New Yorkgarment firms use local subcontractors forgarment manufacturing, but the largest havedeveloped transnational production networksin which local producers account for only asmall portion of productive activities. Althoughethnic ties remain an important channel forentry into the New York garment industry, Pal-pacuer finds, subcontracting networks havedeveloped across ethnic communities, creatingnew patterns of social and industrial segmen-tation in the local industry.

In Chapter , Judi Kessler focuses on theevolution of Los Angeles as a major center forgarment production and on the changes thathave occurred there since . She presentsevidence that although NAFTA has helpedpromote Southern California as a center forapparel services for North America, it has alsopulled segments of the apparel commoditychain from Los Angeles to Mexico. In partic-ular, she highlights a survey of Los Angelesapparel manufacturers that she conducted in and , in which half the respondentsreported that they sourced at least some oftheir production in Mexico—up from just

percent of the same respondents surveyed in. The vast majority of respondents in‒ maintained that NAFTA was a pri-mary reason for shifting production to Mex-ico, more important than the ‒ pesodevaluation that lowered Mexican labor costs.

In conducting in-depth interviews withmanagers of Los Angeles firms that sourcedproduction to Mexico, Kessler found that the

interior states of Guanajuato, Puebla, Tlax-cala, and Jalisco, as well as the greater MexicoCity region, figured most prominently as newproduction states. Many of the managersstated that a principal reason for sourcing pro-duction to Mexico was to avoid the burden ofcomplying with state and federal labor regula-tions governing production in Los Angeles. Atthe same time, Kessler found that many smallmanufacturers lack the “global reach” to relo-cate production to Mexico or other offshoresites and continue to exploit a vulnerableimmigrant workforce, many of whose mem-bers are undocumented Mexicans. Shouldemployment of direct-production workers inLos Angeles remain constant or grow in thefuture, it will likely be in this small-scale,immigrant-dominated sector.

As both Palpacuer and Kessler note in theirchapters, many immigrant workers in the NewYork and Los Angeles garment districts toil in substandard conditions. In Chapter , RobertRoss takes up the issue of sweatshop employ-ment in the U.S. apparel industry. He examinesa variety of statistical and historical records tomeasure the extent of sweatshop exploitationduring the evolution of the U.S. apparel indus-try in the twentieth century. Adopting the U.S.General Accounting Office’s definition of a“sweatshop” as “a business that regularly vio-lates both wage or child labor and safety orhealth laws,” Ross estimates that in

around percent of the eight hundred thou-sand garment workers in the United Stateslabored in sweatshops.

Based on his examination of historicalrecords, including documents and statementsfrom officials of the International Ladies Gar-ment Workers Union (ILGWU); studies con-ducted by independent scholars; and an exam-ination of the conditions of Puerto Ricanworkers in New York City’s garment industryin the s, Ross concludes that sweatshop

employment, which had been endemic earlyin the century, had declined to a marginal levelby the s. He then describes the four sig-nificant factors in the resurgence in sweatshopemployment in the apparel industry since thelate s: the declining capacity of the stateto enforce labor law; the increasing marketpower of retailers through concentration ofsales; the competitive pressure brought aboutby massive imports from low-wage exportplatforms; and the availability of a large poolof vulnerable immigrant labor.

In Chapter , the final chapter in Part II ofthis book, Edna Bonacich shows how organ-ized labor is confronting global production inthe apparel industry. The shift to global out-sourcing in the last decades of the twentiethcentury led to huge losses in membership inthe two leading unions in the U.S. apparel sec-tor: the ILGWU and the Amalgamated Cloth-ing and Textile Workers Union (ACTWU).When the ILGWU and ACTWU merged in to form UNITE (the Union of Needle-trades, Industrial, and Textile Employees), anew chapter in the U.S. labor movement waslaunched. Bonacich describes how each ofthese three unions (ILGWU, ACTWU, andUNITE) responded to the challenges of glob-alization, with an emphasis on the key limita-tion of labor’s strategy in the North Americanapparel industry: its reluctance to try to linkdomestic organizing of apparel productionworkers with organizing efforts directed atgarment workers in developing countries. Thechapter ends with a discussion of new strate-gies by labor that include linking solidarity ini-tiatives associated with the “anti-sweatshopmovement,” a strategic ally of the NorthAmerican labor movement, to real organizingin offshore production locations.

Part III: The U.S.-Mexico Border Region

The apparel industry was an importantemployer in the border region long before themaquiladora system and NAFTA were imple-mented. In many ways, the border region wasthe first place where, prior to Mexico’s unilat-eral trade opening of the s and its subse-quent entry into NAFTA, North Americaneconomic integration occurred, in the form ofexport-oriented assembly on the Mexican sidecoupled with commercial distribution of in-dustrial and consumer goods and large-scaleemployment of Mexican nationals in agricul-ture, manufacturing, and services on the U.S.side. Business organizations in the region werestrong proponents of NAFTA, and the borderwas seen as a harbinger of the economic ben-efits that U.S.-Mexican free trade could bring(see Spener ). Ironically, the border regionhas been hard hit by NAFTA-related disloca-tions, especially in the apparel industry. Threechapters in this book address themselves todevelopments in the border region.

In Chapter , David Spener describes howbilateral trade regulations negotiated underthe auspices of the Multifiber Arrangement(MFA)9 promoted the development of El Pasoas a low-cost producer of denim apparel in theUnited States and how subsequent liberaliza-tion of the regime encouraged firms to relocatecutting, sewing, and finishing operations tosites in Mexico. Spener pays special attentionto the case of Levi Strauss, El Paso’s largestprivate employer, which has laid off nearlythree thousand employees in El Paso since theimplementation of NAFTA began. He arguesthat while NAFTA was not the proximatecause of the company’s plant shutdowns in ElPaso, the trade agreement favored its greatlyincreased reliance on a network of overseascontractors, especially in Mexico. The new

NAFTA trade regime has also negativelyaffected smaller subcontractor firms in El Paso,whose activities (such as cutting and launder-ing of denim garments) were formerly pro-tected from Mexican competition. Spenerconcludes his analysis by highlighting the chal-lenges created for the El Paso community byjob loss in its principal industry. The apparelsector had traditionally provided employmentfor large numbers of Mexican immigrantwomen, whose lack of education and English-language ability makes them especially diffi-cult to retrain for jobs in other industries.

In Chapter , Robine van Dooren alsodirects attention to the El Paso case, but shefocuses on the lack of cross-border linkagesbetween the Texas city’s garment district andapparel production in Ciudad Juárez, El Paso’s“twin” city across the border and the home toMexico’s largest concentration of maquilado-ras. From her examination of a survey of sixtycompanies in this binational metropolitan area,van Dooren concludes that very little comple-mentarity exists between the two cities’ indus-tries, largely because of their differing productspecializations—El Paso focuses on blue jeansproduction, whereas Ciudad Juárez makes amuch wider variety of garments, ranging fromwomen’s wear to uniforms, with very littleemphasis on jeans. In the free-trade environ-ment, low-cost production in Juárez is favoredin the short run, while the production of stan-dardized garments in El Paso is seriouslythreatened by competition not from Juárez butrather from cities in the Mexican interior, suchas Torreón/Gómez Palacio, Aguascalientes,and Puebla. In the long run, however, Juárezmay experience a decline in garment produc-tion due to a tight labor market brought on bylarge-scale maquiladora production in elec-tronics and auto parts. This tight labor marketand high real estate costs make Juárez anincreasingly unattractive site for garment pro-duction relative to other Mexican locales.

In Chapter , Jorge Carrillo, Alfredo Hual-de, and Araceli Almaraz compare the differentexperiences with free trade of the apparel sec-tors of Monterrey, in the state of Nuevo León,and Ciudad Juárez. Specifically, the authorsidentify the different types of interfirm net-works that have arisen in each city. In Mon-terrey these include traditional assembly,OEM (or full-package production, as it is bet-ter known in the apparel industry), and origi-nal brand-name manufacture (OBM) net-works, in which local firms have moved beyondOEM production for foreign buyers to estab-lishing their own brand names that they mar-ket themselves. Ciudad Juárez has two distinctforms of international subcontracting net-works, one that features significant backwardlinkages to the local market and one with nosuch linkages. In examining the internationalcompetitiveness of firms participating in eachtype of network, the authors conclude that,contrary to the predictions of developmenttheory, firms participating in networks withoutlocal backward linkages tend to be more flexi-bly competitive in the new free-trade environ-ment, while locally linked firms tend to sufferfrom a number of disadvantages, includingtechnological and organizational limitationsand a lack of forward linkages to the interna-tional market.

Part IV: Interior Mexico

Mexico’s rise to prominence as an apparelexporter has resulted from the rapid expansionof production in its interior, far from the tra-ditional sites of maquiladora assembly on theborder with the United States. Three chaptersin this part examine the export-oriented ap-parel sector in the Mexican interior, while afourth addresses the evolution of the domesticretail market for apparel. Together, these chap-ters outline the challenges and opportunities

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facing the Mexican apparel industry in thefree-trade period. Mexican producers haveconfronted the double challenge of the pene-tration of Asian imports and the shrinking ofthe domestic apparel market caused, respec-tively, by the country’s entry into the GeneralAgreement on Tariffs and Trade (GATT) inthe s and by the drastic devaluation of thepeso in the mid-s. As a consequence, manyMexican producers have had to shift to pro-ducing for the U.S. market in order to survive.For the most part, this has meant working assubcontractors for U.S.-based manufacturersand retailers or for larger Mexican producers,an opportunity that has been enhanced by bothNAFTA and the devalued peso.

Nowhere in Mexico has the rise of apparelproduction for export been more dramatic thanin Torreón, Coahuila, which by the end of thetwentieth century had replaced El Paso as the“blue jeans capital of the world.” In Chapter, Gary Gereffi, Martha Martínez, and Jen-nifer Bair detail the rapid rise of Torreón as anexporter and discuss its potential as a modelfor surpassing the traditional maquiladora formof production in the apparel sector. Theydescribe how Torreón’s blue jeans firms havetransformed themselves in just a few years fromproducers for the domestic market, to maqui-ladora exporters, and then to full-packageexporters working as partners with U.S. “leadfirms,” for whom they manufacture on anOEM basis. In this process, apparel employ-ment has mushroomed in the area, from justtwelve thousand jobs in to seventy-fivethousand by . In addition, Torreón’s riseas a jeans exporter has attracted U.S. textileproducers to the region, leading to the openingof new denim mills close to local producers.

Although the authors establish that Torreónhas moved well beyond the traditional maqui-ladora model, with positive consequences thatinclude improved wages and conditions forworkers, skill upgrading, and the deepening of

local backward linkages, firms there do nothave the institutional support associated witha traditional “industrial district,” and no firmhas been able to move into the most profitableactivities in the apparel chain, namely, designand marketing. The authors also question theextent to which Torreón’s experience is replic-able in other Mexican locales that do not sharesome of the city’s strategic advantages, includ-ing close proximity and easy transport to theU.S. border, the existence of an apparel-man-ufacturing tradition prior to NAFTA, and aclass of local entrepreneurs able to upgradetheir factory operations.

In Chapter , Enrique Dussel Peters,Clemente Ruiz Durán, and Michael Pioreelaborate further on how Mexican apparel pro-ducers can upgrade their operations by part-nering with foreign firms. They note that tradeliberalization in Mexico has created a splitbetween a relatively small set of companieswith current technology and manufacturingmethods that are able to compete in a globalmarket, on the one hand, and a larger group offirms catering to domestic demand that havebeen negatively affected by the opening ofmarkets, on the other hand. Firms that havemade a successful transition to exporting haverelied heavily on their relationships with for-eign firms placing orders in Mexico. Theauthors examine the learning process thataccompanied these successful transitions andargue that the type of investment required ofboth foreign and Mexican manufacturers lim-its the likelihood that these tutelage relation-ships will prove common enough to upgradethe Mexican apparel industry on a wide scale.The chapter concludes with a set of policy rec-ommendations for a “bootstrapping strategy”that can extend to a broader range of compa-nies the benefits created by one-on-one rela-tionships between foreign and national firms.

In Chapter , Ulrik Vangstrup examines theexperiences of domestic knitwear manufacturers

in the central and western states of Guanaju-ato, Hidalgo, México, Michoacán, and Jaliscothat have recently begun exporting. He focuseson the potential benefits provided to theseprimarily small and medium-sized enterprisesas a result of their location in industrial clus-ters. Drawing on industrial-districts and col-lective-efficiency literature, Vangstrup asks ifthe empresas integradoras (“integrative firms”)and credit unions that emerged in the earlys, during Mexico’s most intense period ofeconomic reform, have encouraged Mexicanentrepreneurs to export. Contrary to the em-phasis that the industrial-districts literaturehas placed on the importance of inner-clusterdynamics for small and medium-sized enter-prises, the rich case studies presented in thischapter reveal that external links to global com-modity chains have been critical in allowingcompanies to initiate successful export pro-grams. Specifically, contacts with foreign (andespecially U.S.) buyers were found to be moreimportant than the advantages provided bymembership in a producer association or loca-tion in a cluster. Vangstrup concludes with rec-ommendations for increasing the efficacy ofthe producer associations, noting the potentialcompetitiveness of Mexican knitwear manu-facturers in the global market.

In Chapter , Jorge Mendoza, FernandoPozos Ponce, and David Spener describe theevolving structure of the Mexican retail mar-ket for apparel in terms of the growing impor-tance of large-scale discount chains anddepartment stores and the persistence of infor-mal distribution channels. In reviewing trendsin Mexican clothing imports and consumptionin the s and s, the authors present atypology of enterprises engaged in the retailsale of clothing in Mexico and describe themarket segment served by each type, as well astrends in the overall market share of each. Inaddition, they undertake a case study of infor-mal distribution channels for imported cloth-

ing in Guadalajara that link Mexican entre-preneurs, workers, and consumers of modestmeans with manufacturers and brokers ofU.S.- and Asian-made clothing located in theLos Angeles garment district. In their conclu-sions, the authors argue that the emergence ofMexico in the early s as a consumer mar-ket for U.S.- and Asian-made apparel was the-oretically significant, as buyer-driven com-modity chains came full circle, with FirstWorld firms bringing their Third World–produced goods to an emerging market thatwas itself located in the Third World.

Part V: Central America and the Caribbean

We have included Central America and theCaribbean in our examination of the “NorthAmerican” apparel industry because theseregions are significant exporters to the UnitedStates and have enjoyed preferential access tothe U.S. market under the Caribbean BasinInitiative and Item of the U.S. tariff code.The two chapters in Part V analyze the chal-lenges facing apparel producers and nationalgovernments in the Caribbean Basin region astheir special advantages for exporting to theUnited States were being eroded by NAFTAin the latter half of the s. Now that a ver-sion of NAFTA parity has finally been grantedto the Caribbean Basin countries, it remains tobe seen how the region’s exporters will farerelative to Mexico and Asia.

Michael Mortimore discusses in Chapter

how apparel production served as an engine ofgrowth and development for all the world’sadvanced national economies in earlier stages oftheir industrial development. He notes that theapparel industry has been an important step-ping-stone for developed countries and severalof their Asian challengers to promote indus-trialization and to generate significant exports

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to the international market. Nonetheless, hequestions whether the apparel industry canserve such a function for the small countriesof Central America and the Caribbean today.Reviewing relevant trade statistics and takingCosta Rica as a case study, Mortimore con-cludes that over the long run apparel produc-tion is unlikely to produce positive devel-opmental outcomes for the region. This is sobecause only low-value-added assembly oper-ations take place in the Caribbean Basin; pro-ducers are not competitive with their Asiancounterparts without preferential access to theU.S. market; no significant backward linkagesinto local economies are being developed; andlittle tax revenue is being generated that couldbe invested by governments in other importantdevelopment projects. In addition, because ofthe small size of their domestic markets andthe lack of local textile suppliers, no nationalfirms are capable of moving beyond maquila-dora-style subcontracting and into full-pack-age production, as has been occurring in someMexican locations. Although the Caribbeanand Central American countries’ disadvantagevis-à-vis Mexico has been reduced by theawarding of “NAFTA parity” for their gar-ment exports, they still face the threat posed bythe termination of the MFA in .

Dale Mathews finds that Mortimore’s con-cerns also apply to the Dominican Republic,where the export-oriented apparel industryhas been a leading source of employment sincethe Caribbean Basin Initiative was imple-mented in the s. In Chapter , Mathewsdescribes how the competitiveness of theDominican Republic’s assembly industry isthreatened by two recent trends: the liberal-ization of the global apparel trade regime, asrepresented by the phaseout of the MultifiberArrangement and the establishment of theWorld Trade Organization, and the emergenceof Mexico as the Caribbean’s main competitorfor the U.S. apparel market since the passage

of NAFTA. He argues that the costs of tradediversion from the Caribbean to Mexico areparticularly high for the Dominican Republic,although it is not yet clear if the U.S. Tradeand Development Act of , which helpslevel the playing field between the CaribbeanBasin countries and Mexico, will slow orreverse this trend. Much like the contributionfrom David Spener in Chapter , this chapterunderscores how changes in trade regimes candramatically reshape a country’s competitive-ness in the global apparel industry. For the rel-atively homogeneous and less-industrializedeconomies characteristic of the CaribbeanBasin, these changes can mean not only joblosses but also the need to rethink a nationaldevelopment strategy dependent on the vital-ity of export processing zones.

Part VI: Conclusion

The relationship of apparel production anduneven development between and within na-tions is revisited in Chapter . Mexico’smeteoric rise to the number-one spot amongapparel exporters to the United States isemblematic of the costs and benefits associ-ated with the export-oriented developmentmodel that the country has followed since themid-s. The last two decades have wit-nessed a profound transformation not just ofMexico’s economy but also of the political andsocial relationships underlying its peculiarbrand of postrevolutionary, authoritarian cor-poratism (Middlebrook ). This corpo-ratist model has become increasingly less ten-able, especially since the abandonment of theimport-substitution industrialization strategyin the early s, the subsequent liberaliza-tion and industrial restructuring of the econ-omy, and the onset of a new era of electoraldemocracy in Mexico. What is emerging in itsplace is still unclear, but the extent to which

Mexico’s shift in development strategy willproduce positive outcomes for Mexican firmsand workers will depend to a significant degreeon the organization and performance of inter-firm networks that link capital and labor onboth sides of the border.

Notes

. Throughout the book we use the terms ap-parel industry or garment industry to refer to theproduction of clothing and textile industry to referto the production of fibers and fabric. When wewish to emphasize the links between these tworelated industries, we speak of the “textile-apparelcomplex.”

. Guatemala, Honduras, El Salvador, andCosta Rica.

. This includes only those workers who aredirectly employed in a plant registered as a ma-quiladora. Because much maquiladora production iscarried out by subcontractors in small and medium-sized firms working for registered maquiladoras,these data underestimate the number of both firmsand workers involved in export-oriented apparelproduction, although it is difficult to know to whatextent.

. Since the publication of The SecondIndustrial Divide by Michael Piore and CharlesSabel, much has been written about the renewedpotential for local “districts” of small- to medium-scale enterprises to lead regional economic devel-opment (Saxenian ; Sengenberger ; Stor-per and Scott ). Inspired by Piore and Sabel’sdescription of the successful example of the Emilia-Romagna region of Italy, where an industrial ren-aissance occurred as the result of the organizationof small-scale metalworking, ceramic, apparel, andfurniture firms into flexible production networks,analysts have constructed a variety of industrial-district models that are based on a number of com-mon elements, including () highly skilled, well-compensated employees working in a craft tradition;() small-batch production facilitated by computer-assisted, multitask tools and cross-trained workers;() intense local social networks that link workers

and managers across enterprises in the district; ()competitive cooperation, such that small firms rou-tinely compete for orders from the same set ofclients but then collaborate with one another aspartners when a given work order exceeds a singlefirm’s immediate capacity; and () local and regionalgovernment policies that support districts’ institu-tional infrastructure.

. Industrial commodities are manufactured,marketed, and distributed by producers and sellerslinked to one another in a chainlike fashion. Thus,for any set of companies located at a particular pointalong a supply chain, backward linkages refers to thesource of needed inputs for their stage of the pro-duction–marketing–distribution process. Locatingmultiple segments in a supply chain within the samecommunity or geographic region can be especiallybeneficial to local economic development becausethese businesses create ancillary employment op-portunities for other firms in the community, inaddition to diversifying the community’s productiveinfrastructure.

. To take one example, Shaiken found that aplant run by one of the U.S. Big Three auto man-ufacturers was as productive as any of the com-pany’s plants located in the United States. Labordisputes arose in the plant in the late s whenworkers claimed that productivity gains associatedwith specialized training for many of its workerswere not accompanied by proportional raises inwages (Shaiken ). Indeed, Shaiken (,

‒) reports that in April workers at the topof the plant’s pay scale were earning around $.

per hour (entry-level workers earned just $. perhour). At the same time, the average hourly wage forall manual workers in the U.S. automobile industrywas $. per hour (calculation made by theauthors of this chapter using the Percent PublicUse Microdata Sample of the U.S. Census ofPopulation and Housing).

. In Los Angeles, percent of garment work-ers in were Mexican born and earned an aver-age hourly wage of $., compared to $. perhour for U.S. natives (calculation made by authorsusing Percent Public Use Microdata Sample of the U.S. Census of Population and Housing). SeeChapter by Robert Ross on the rise of sweatshopconditions in the Los Angeles garment district.

, ,

. Research on Mexican migrant communitiesshows that this possibility is not at all far-fetched.See Massey et al. (), Massey (), and Mas-sey and Parrado ().

. From to , international trade in tex-tiles and apparel was governed by the MultifiberArrangement, a framework for bilateral agreementsor unilateral actions established within the GeneralAgreement on Tariffs and Trade. The MFA estab-lished quotas for limiting textile and apparelimports into countries whose domestic industrieswere threatened by rapidly increasing imports. In the MFA was superceded by the WTO’sAgreement on Textiles and Clothing (ATC). A moredetailed explanation of the history of the MFA andits replacement by the ATC can be found on theWTO Web site at <http://www.wto.org>.

References

American Apparel Manufacturers Association.. “: The Year in Numbers.” In ApparelIndustry Trends (March). Arlington, Va.: Amer-ican Apparel Manufacturers Association.

Appelbaum, Richard P., David Smith, and BradChristerson. . “Commodity Chains andIndustrial Restructuring in the Pacific Rim: Gar-ment Trade and Manufacturing.” In CommodityChains and Global Capitalism, ed. Gary Gereffiand Miguel Korzeniewicz, pp. ‒. West-port, Conn.: Greenwood.

Bair, Jennifer. . “Successful Cases of Small andMedium Enterprises in Mexico: Lessons fromthe Aguascalientes Apparel Industry.” In Condi-ciones y retos de las pequeñas y medianas empresasen México: Estudios de casos de vinculación deempresas exitosas y propuestas de política, ed. En-rique Dussel Peters, pp. ‒. Santiago, Chile:United Nations Economic Commission for LatinAmerica and the Caribbean.

Bonacich, Edna, and Richard P. Appelbaum. .

Behind the Label: Inequality in the Los AngelesApparel Industry. Berkeley: University of Cali-fornia Press.

Bonacich, Edna, Luci E. Cheng, Norma Chinchilla,Nora Hamilton, and Paul Ong. . “The Gar-ment Industry in the Restructuring Global

Economy.” In Global Production: The ApparelIndustry in the Pacific Rim, ed. Edna Bonacich,Lucie Cheng, Norma Chinchilla, Nora Hamil-ton, and Paul Ong, pp. ‒. Philadelphia: Tem-ple University Press.

Bonacich, Edna, and David V. Waller. . “Map-ping a Global Industry: Apparel Production inthe Pacific Rim Triangle.” In Global Production:The Apparel Industry in the Pacific Rim, ed. EdnaBonacich, Lucie Cheng, Norma Chinchilla, NoraHamilton, and Paul Ong, pp. ‒. Philadel-phia: Temple University Press.

Buitelaar, Rudolf, and Ramón Padilla Pérez. .

“Maquila, Economic Reform, and CorporateStrategies.” World Development , : ‒

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Christerson, Brad, and Richard P. Appelbaum.. “Global and Local Subcontracting: Space,Ethnicity, and the Organization of Apparel Pro-duction.” World Development , : ‒.

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. Westport, Conn.: Praeger.———. . “International Trade and Industrial

Upgrading in the Apparel Commodity Chain.”Journal of International Economics , (June):‒.

———. . “The Transformation of the NorthAmerican Apparel Industry: Is NAFTA a Curseor a Blessing?” Integration and Trade , (May–August): ‒.

Gereffi, Gary, and Raphael Kaplinsky, eds. .

“The Value of Value Chains: Spreading the Gainsfrom Globalisation.” Special issue of IDS Bul-letin , (July).

Gereffi, Gary, and Miguel Korzeniewicz, eds. .

Commodity Chains and Global Capitalism. West-port, Conn.: Praeger.

Instituto Nacional de Estadística, Geografía e Infor-mática (INEGI). . Banco de informacióneconómica. Retrieved on October , , from<http://dgcnesyp.inegi.gob.mx>.

Martin, Philip. . “Mexican-U.S. Migration:Policies and Economic Impacts.” Challenge(March–April): ‒.

Massey, Douglas S. . “March of Folly: U.S.Immigration Policy after NAFTA.” AmericanProspect (March–April): ‒.

Massey, Douglas S., Rafael Alarcón, Jorge Durand,and Humberto González. . Return to Aztlán:The Social Process of International Migration fromWestern Mexico. Berkeley: University of Califor-nia Press.

Massey, Douglas S., and Emilio A. Parrado. .

“International Migration and Business Forma-tion in Mexico.” Social Science Quarterly , :

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———. . “Employment Trends in Textilesand Apparel, ‒.” Monthly Labor Review: ‒.

Murray, Lauren A. . “Unraveling EmploymentTrends in Textiles and Apparel.” Monthly LaborReview : ‒.

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, ,

Jennifer Bair and Gary Gereffi

NAFTA and the Apparel Commodity

Chain: Corporate Strategies,

Interfirm Networks, and

Industrial Upgrading

The apparel industry is one of the oldest andlargest export industries in the world, withglobal trade and production networks thatconnect firms and workers in countries at alllevels of economic development. This chapterexamines the impact of the North AmericanFree Trade Agreement (NAFTA) as one of themost recent and significant developments toaffect patterns of international trade and pro-duction in the apparel and textile industries.Trade policies are changing the institutionalenvironment in which firms in this industryoperate, and companies are responding tothese changes with new strategies designed toincrease their profitability and strengthen theircontrol over the apparel commodity chain.Our hypothesis is that lead firms are estab-lishing qualitatively different kinds of regionalproduction networks in North America fromthose that existed prior to NAFTA, and thatthese networks have important consequencesfor industrial upgrading in the Mexican textileand apparel industries. Post-NAFTA cross-border production arrangements include full-package networks that link lead firms in the

United States with apparel and textile manu-facturers, contractors, and suppliers in Mex-ico. Full-package production is increasing thelocal value added provided by the apparel com-modity chain in Mexico and creating newopportunities for Mexican firms and workers.

The chapter is divided into four main sec-tions. The first section uses trade and pro-duction data to analyze shifts in global apparelflows, highlighting the emergence and con-solidation of a regional trade bloc in NorthAmerica. The second section discusses theprocess of industrial upgrading in the apparelindustry and introduces a distinction betweenassembly and full-package production net-works. The third section includes case studiesbased on published industry sources andstrategic interviews with several lead compa-nies whose strategies are largely responsiblefor the shifting trade patterns and NAFTA-inspired cross-border production networksdiscussed in the previous section. The fourthsection considers the implications of thesechanges for employment in the North Ameri-can apparel industry.

Regionalization in the Global Apparel Industry

The world textile and apparel industry hasundergone several migrations of productionand trade since the s, and prior to thes all these migrations revolved aroundAsia. The first was from North America andWestern Europe to Japan in the s andearly s, when a sharp rise in imports fromJapan displaced Western textile and clothingproduction. The second supply shift was fromJapan to the “big three” Asian apparel pro-ducers (Hong Kong, Taiwan, and SouthKorea), which permitted the latter group todominate global textile and clothing exports inthe s and s. The mid-s throughthe s saw a third migration of produc-tion, this time from the Asian big three to anumber of other developing economies. In thes the principal shift was to mainlandChina, but it also encompassed Southeast andSouth Asian nations as well as Turkey. In thes the proliferation of new suppliersincluded apparel exporters in Eastern Europe,Central America and the Caribbean, and,above all, Mexico (Khanna ; Gereffi).

The shifting patterns of international tradein the apparel industry are highlighted in Table., which lists the twenty-five leading apparelexporters in the world. Each economy in thetable (with the exception of Costa Rica) had atleast $ billion of apparel exports to the worldmarket in ,1 which in total were valued atjust over $ billion. Examining the growth inapparel exports of these nations in , ,

and , one sees a stair-step pattern of entryinto the global apparel market. In onlyfour developing countries had apparel exportsof at least $ billion: the Northeast Asianeconomies of Hong Kong, South Korea, Tai-wan, and China. By seven more countrieshad passed this threshold: Indonesia, Thailand,and Malaysia in Southeast Asia; India and Pak-

istan in South Asia; Turkey in Central Europe;and Tunisia in North Africa. Finally, by

the billion-dollar club of apparel exporters hadadded ten new members: the Philippines andVietnam in Southeast Asia; Bangladesh and SriLanka in South Asia; Poland, Romania, Hun-gary, and the Czech Republic in Eastern Eu-rope; the Dominican Republic in the CaribbeanBasin; and Mexico.2

How can we explain these internationaltrade shifts? A simple market explanation isthat the most labor-intensive segments of theapparel supply chain will be located in coun-tries with the lowest wages. This account issupported by the sequential relocation of tex-tile and apparel production from the UnitedStates and Western Europe to Japan, the Asianbig three, and China, since each new tier ofentrants to the production hierarchy had sig-nificantly lower wage rates than its predeces-sors. While differences in wage rates helpexplain the shift of apparel production frommore-expensive to less-expensive sites glob-ally, labor costs alone fail to reveal a key struc-tural feature of the apparel industry: It is notjust global in scope but also regional in itsorganization.

Each macro global region (Asia, Europe, andNorth America) is characterized by a regionaldivision of labor whereby countries at differentlevels of development carry out complemen-tary activities and play distinct roles in theapparel commodity chain. The ability of theEast Asian newly industrializing economies(NIEs) to sustain their export success over sev-eral decades and to develop a multilayeredsourcing hierarchy in Asia must be examined inthe context of an interrelated regional econ-omy (Gereffi ). The apparel export boomin the less-developed southern tier of Asia hasbeen driven to a significant extent by industrialrestructuring in the northern-tier East AsianNIEs. As Northeast Asian firms began to movetheir production offshore, they devised ways tocoordinate and control their sourcing networks.

Ultimately they focused on the profitabledesign and marketing segments in the apparelcommodity chain to sustain their competitiveedge. This transformation can be conceptual-ized as a process of industrial upgrading, basedin large measure on building various kinds ofeconomic and social networks between buyersand sellers. An analogous division of laborexists between high-cost and low-cost coun-tries in each region of the world.

Triangle Manufacturing in Asia

In Asia triangle manufacturing arrangementshave shifted the geography of production andallowed the dominant apparel exporters in theregion (Hong Kong, South Korea, and Taiwan)to move to higher-value-added activities (Ge-reffi ). “Triangle manufacturing,” whichthe East Asian NIEs initiated in the s ands, describes an international productionand trade network in which U.S. or other over-seas buyers place their orders with suppliers inthe NIEs with whom they have done businessin the past. These companies, in turn, shiftsome or all of the requested production to affil-iated offshore factories in low-wage countries,such as China, Indonesia, and Vietnam. Thetriangle is completed when the finished goodsare shipped directly to the foreign buyer. Tri-angle manufacturing thus changes the status ofthese NIE companies from established suppli-ers for U.S. retailers and marketers to “mid-dlemen” in commodity chains that create aregional division of labor in Asia between thehigher-wage countries that coordinate thesenetworks and the lower-wage countries thatperform the more labor-intensive portion ofthe production process.

Outward Processing Trade in Europe

Outward processing trade (OPT) in the Euro-pean clothing sector is the practice by whichcompanies export fabrics or parts of garments

to be assembled in another country. Theseare then reimported as finished garments ina European Union (EU) country. Regulatedwithin the European Union since , OPTis widely recognized as accelerating the shift ofapparel manufacturing from high-wage to low-wage countries in Eastern Europe and NorthAfrica (most notably Tunisia and Morocco).Trade policy is, however, designed to retaintextile production in the higher-wage coun-tries. Companies exporting fabrics for assem-bly under OPT that are not manufactured inan EU country are penalized by a tariff of

percent levied on their reimports. The level oftariff duties offsets the advantage of lower pro-duction costs made possible through the OPTarrangement.

Garments made under the OPT option con-stitute a significant portion of the EU marketin apparel, given the European Union’s rela-tively high labor costs. More than percentof OPT clothing imports are concentrated inonly four EU member states: Germany, Italy,France, and the United Kingdom. The ratio ofOPT imports to total clothing imports in

was highest in Germany ( percent of allGerman clothing imports) and Italy ( per-cent) (OETH , ‒).

OPT trade is particularly significant forCentral and Eastern European countries. In themid-s, OPT exports represented per-cent of total exports from these economies tothe European Union, although the relative im-portance of OPT arrangements varied for dif-ferent products. Textile products dominateOPT in Europe, but OPT arrangements inelectrical machinery are also prevalent. Fully

percent of the garments exported to WesternEurope from Central and Eastern Europe wereassembled under the OPT regime (Henriot andInotäi ). In recent years, OPT trade in tex-tile products between this region and the Euro-pean Union has weakened somewhat, reflectingthe increased competitiveness of some Asiansuppliers to the European market.

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Production Sharing in North America

Like their European counterparts, U.S. firmsare also able to export cut parts of garments tolower-wage countries for assembly and reim-port. The United States’ analogue to OPT isknown as production sharing or “ produc-tion” for the numbered clause in the U.S. tradelaws that regulates this type of offshore assem-bly network. The trade law (now clause) provides preferential access to U.S. firmsimporting garments that were assembled off-shore from fabrics cut in the United States.Under an amended version of the ⁄

clause, known as A, these companies re-ceive further incentives (in the form of evenlower tariff rates and essentially limitless quo-tas, known as Guaranteed Access Levels, orGALs) if they use fabrics that are manufac-tured as well as cut in the United States.

Each of these arrangements—triangle man-ufacturing, OPT, and production—is as-sociated with intraregional production net-works that create a division of labor betweenrelatively high-wage and low-wage countries.The latter primarily assemble apparel, whichremains the most labor-intensive part of theproduction process, while the higher-wagecountries have more developed supportingindustries, including textile and fiber manu-facturers that supply apparel companies withthe materials needed for clothing production.Within each of the regional economies, thelowest-wage countries are attempting to con-solidate their importance in existing assemblynetworks, while relatively developed econ-omies (such as Mexico, Turkey, and China)want to expand or upgrade their apparel in-dustries by moving to a new export role.

Assembly versus Full-PackageProduction: The UpgradingChallenge

The global apparel industry is characterizedby a hierarchy of export roles (Gereffi ).Less-developed countries with inexpensivelabor are typically linked to the global apparelindustry through assembly. This type of pro-duction system is the one associated with OPTin Europe and production sharing in NorthAmerica and generally refers to subcontractingnetworks between foreign buyers and localproducers for the assembly of apparel fromimported fabrics, which are often precut.Entry into the apparel commodity chain in theassembly export role requires that an economyhave low labor costs, relative political stability,and favorable quotas or other forms of tradeaccess to major export markets. Participationin assembly networks (often associated withexport-processing zones) is considered the firststep in the upgrading process because itteaches apparel exporters about the price,quality, and delivery standards used in globalmarkets. The assembly role requires that firmslearn how to work with organizational buyers(e.g., manufacturers, trading companies, andbrokers) that supply the exporting firm withorders, as well as with the fabrics and otherinputs needed to assemble garments.

The most typical upgrading trajectory forcountries is to shift from the assembly exportrole to the original equipment manufacturing(OEM) or “full-package” role (as it is moreoften referred to in the apparel industry).Unlike assembly networks through whichexporting firms are provided with inputs, full-package networks require the company receiv-ing the order to perform steps in the produc-tion process beyond assembly, such as makingsamples; purchasing and cutting fabrics; pro-curing other needed inputs, such as buttons

and zippers; and performing whatever finish-ing processes are required, such as launderingor pressing garments. Generally the shift fromthe assembly to the OEM role is also facilitatedby a local infrastructure of firms capable ofsupplying a variety of apparel inputs (e.g., tex-tiles, thread, buttons, zippers, labels) at thequality and quantity levels required for exportproduction, as well as a good working relation-ship between local firms and a new set of for-eign buyers (e.g., retailers and marketers) will-ing to place full-package orders.

At the level of the firm, full-package pro-duction changes the relationship betweenbuyer and supplier in a direction that givesmore autonomy and learning potential forindustrial upgrading to the supplier. It alsoexpands a firm’s potential customer basebeyond the branded manufacturers that typi-cally place assembly orders (such as Fruit ofthe Loom or Levi Strauss) to include retailersand marketers (such as Liz Claiborne and theGap).3 At the level of the national economy,the development of full-package networks rep-resents a form of upgrading because it stimu-lates linkages between related segments of theapparel commodity chain. Unlike assemblynetworks, which usually require the importa-tion of foreign inputs, full-package networksprovide opportunities for firms to find localsuppliers for materials such as fabric, buttons,and thread.

The competitive edge that the full-packagerole has historically given the East Asianexporters to the U.S. market is apparent inTable ., which shows trends in U.S. apparelimports by region and country between

and . During the s, Hong Kong,South Korea, and Taiwan dominated the U.S.market for imported apparel. In thesethree economies, along with China and Macao,accounted for percent of total apparelimports. Although their share of the U.S. mar-

ket has declined in recent years, the AsianNIEs remain significant exporters to theUnited States, despite their higher labor costs.

Table . also reveals the significant growthin North American sources of apparel importsin the s. The countries of Central Amer-ica and the Caribbean increased their share ofU.S. apparel imports from a negligible per-cent in to percent in (a level theymaintained through ), while Mexico’s per-centage of the U.S. import market jumpednearly sevenfold, from percent to percentbetween and . This growth in im-ports from the Caribbean Basin and Mexicounderscores the increasingly regional nature oftrade and production flows in apparel. Theproduction-sharing program that allows U.S.companies to assemble apparel in low-wagesites in North America is largely responsiblefor this boom in intraregional trade.

Apparel Production in Mexico and theCaribbean Basin

Production activities performed in export-pro-cessing plants in the Caribbean’s Free TradeZones or in Mexico (where these factories arecalled maquiladoras) are generally of a verylow value-added nature, which is a direct resultof U.S. policy. Under the production-sharingprogram, export-processing plants have anincentive to minimize locally purchased inputsbecause only U.S.-made components areexempt from import duties when the finishedproduct is shipped back to the United States.This constitutes a major impediment to in-creasing the integration between the activitiesin the zones and the local economy, and it lim-its the usefulness of export-processing activi-ties as stepping-stones to higher stages ofindustrialization.

The majority of apparel produced for theU.S. market in Mexico and the Caribbean Basin

.

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is imported under the program (see Table.). In the Caribbean the production-sharingprogram is known as the Caribbean Basin Ini-tiative, which was implemented in the mid-s. In Mexico, trade is governed by theBorder Industrialization Program, which es-tablished the maquiladora or in-bond industryalong Mexico’s northern border in .

While Mexico and the nations of the Ca-ribbean Basin are similar in that they exportlarge amounts of apparel to the United Statesunder the program, the apparel industriesof these countries differ in important respects.Table . reveals the diversity of the export-oriented apparel industries in Mexico and theCaribbean Basin economies. In , Mexicohad the largest apparel sector by far, with nearlythirteen thousand plants and , garmentworkers. However, these statistics encompassboth the domestic and the export-oriented ap-parel firms. Many of the companies that sup-ply Mexico’s domestic market are undercapi-talized, traditional family-owned workshops or microenterprises ( percent of Mexico’sgarment plants are considered small), whichbrings the national average for the sector downto forty-four employees per plant.

The apparel sector in the Central Americanand Caribbean countries, by contrast, is dom-inated by large export-oriented firms thatsupply the U.S. market under the ⁄

production-sharing program. Among theCaribbean Basin nations, the Dominican Re-public has the biggest apparel industry with, employees, followed by Honduras(, garment workers), Guatemala (,

workers), and El Salvador (, workers).Apparel is the main manufacturing industryin each of these economies. Especially strik-ing is the large size of the apparel plants inthese four Caribbean Basin economies, wherethe average factory employs to work-ers. This suggests that Caribbean Basin ap-parel exports are channeled through giant

assembly plants that are capable of filling thebig orders that come from U.S. apparel man-ufacturers, rather than through traditionalfamily firms or more flexible forms of net-worked production.

Mexico’s export-processing plants are knownas maquilas, and along with electronics andautos, apparel has been one of the most impor-tant industries in generating employment inthese in-bond factories. In , Mexico’s

.. U.S. Apparel Imports: Total and⁄ Trade by Mexico and CaribbeanBasin Initiative (CBI) Countries, ‒

Total 807/9802 apparel 807/9802 trade as a imports trade share of(U.S.$ (U.S.$ total imports

Year millions) millions) (percent)

World1994 36,878 5,707 151995 39,438 7,631 191996 41,679 8,719 211997 48,287 11,322 231998 53,874 12,791 241999 56,376 13,474 242000 64,181 12,953 20

Mexico1994 1,889 1,470 781995 2,876 2,282 791996 3,850 2,967 771997 5,349 4,096 771998 6,812 5,102 751999 7,845 5,417 692000 8,730 5,071 58

CBI Countries1994 4,539 3,617 801995 5,487 4,497 821996 6,076 4,999 821997 7,664 6,411 841998 8,349 6,929 831999 8,889 7,301 822000 9,702 7,181 74

Source: Compiled from official statistics of the U.S. Departmentof Commerce, International Trade Administration, Office ofTextiles and Apparel: U.S. imports for consumption, customsvalue.

maquiladora industry generated $ billion inexports and employed , Mexicans in, plants; by , the industry had grownby percent, with a total of , workersin , plants. Exports rose by percent overthe same period, to $ billion (USITC ).Expansion of the maquiladora sector continuedover the next five years. By April , ,

maquiladoras throughout the country wereregistered with the Mexican government, andthese in-bond factories provided employmentfor ,, workers (INEGI ).

Until the s, Mexico’s maquiladoraplants typified low-value-added assemblyoperations, with virtually no backward link-ages. (Local materials typically accounted foronly percent to percent of total inputs.) Inthe s a new wave of maquiladora plantsbegan to push beyond this enclave model to amore advanced type of production, makingcomponents for complex products such asautomobiles and computers (Gereffi ;

Carrillo ). Although debate continues overthe extent to which the maquiladora industrycontributes to Mexico’s overall development,the consensus is that it has been a criticalsource of employment creation and exportdynamism, especially since the implementa-

tion of NAFTA (Buitelaar and Padilla Pérez; Gereffi ).

The maquiladora sector benefited dramati-cally from Mexico’s opening to trade in themid-s. Although the maquiladora programbegan in the mid-s, over percent of thejobs that exist in today’s maquiladoras datefrom the later period of economic reform. Fourhundred thousand of these jobs were createdbetween and alone—the first fouryears after the implementation of NAFTA(Buitelaar and Padilla Pérez ). Post-NAFTA job growth has been particularlyimpressive in the maquiladoras that assembleapparel. In the year , , Mexicansworked in , apparel maquiladoras locatedthroughout Mexico. In , the year prior toNAFTA, there were apparel maquiladorasemploying sixty-six thousand workers. Thegrowth in exports of apparel products assem-bled in maquiladoras also points to NAFTA-era dynamism. Apparel exports to the UnitedStates from Mexican maquiladora plants morethan tripled between and , from justunder $. billion to $. billion (USITC ).

The assembly trade typical of the maqui-ladora industry still predominates in theNorth American garment sector, accounting

.. Apparel Plants in Mexico and the Caribbean Basin,

No. of Plant breakdowna (%) No. of Average Population apparel apparel employees/

Country (millions) plants Small Medium Large employees plant

Mexico 95.5 12,774 94 4 2 557,000 44Guatemala 11.1 267 28 34 38 77,107 289Dominican Republic 8 490 35 45 20 145,000 296Honduras 5.5 200 19 51 30 110,923 555El Salvador 6.5 230 56 29 15 60,000 261Nicaragua 4.4 31b 15 25 60 19,357 624Costa Rica 3.5 460 75 11 14 38,494 84Panama 2.7 117 15 35 50 8,000 68

Source: Apparel Industry Magazine, September .

aSize distribution of plants in El Salvador and Costa Rica based on data.

bPlants registered in free-trade zones.

in for percent of U.S. apparel importsfrom Mexico (down from percent in )and percent of those from the Caribbeanand Central America (down from percentin ) (Table .). However, the growth inMexico’s non-⁄ apparel exports to theUnited States is impressive, having nearlydoubled in percentage terms between

and from percent to percent.4 Invalue terms, these imports have increasednearly tenfold, from $ million to almost$. billion, in the ‒ period. Thesurge in Mexico’s non- exports can betaken as one indicator of a qualitative shift inthe Mexican apparel sector beyond apparelassembly to full-package programs that in-volve more value added through the provisionof textiles and other local inputs.5

Our analysis of trade and production sta-tistics in the apparel industry reveals twotrends related to the consolidation of a re-gional economy in North America. First, therelative decline in Asian exports to the U.S.market and the increase in ⁄ exportsfrom Mexico and the Caribbean suggest thatthe production-sharing program has increasedthe importance of low-cost apparel producersin North America. Second, the increase innon-⁄ exports from Mexico under-scores the impact of NAFTA in promoting thegrowth of full-package networks between U.S.buyers and Mexican manufacturers.6 The nextsection examines the emergence of full-pack-age networks in Mexico, focusing on how leadfirms in the U.S. apparel and textile industriesare reshaping their trade and production net-works to take advantage of the opportunitiesNAFTA creates for firms on both sides of theU.S.-Mexico border.

Lead Firms in the North AmericanApparel Commodity Chain

To understand the nature of full-packagenetworks and their implications for industrialupgrading in Mexico, it is useful to think ofthe different steps involved in the productionof apparel in terms of a commodity chain.The commodity chain for apparel extendsfrom the upstream sectors that supply thegarment industry with its raw materials andintermediate products—the fiber and textileindustries—to the downstream sectors thatmanage the distribution of finished apparel,including marketing and retail. Sectors atboth ends of the chain tend to be character-ized by more advanced technology andgreater capital intensity than are associatedwith the production of garments. For exam-ple, the fiber industry invests millions of dol-lars in research and development of high-performance materials such as Gore-Tex andLycra. Although for many years textile pro-duction was considered a labor-intensivemanufacturing process, massive investmentin technology and automation since the mid-s has made this an increasingly capital-intensive sector, at least in industrializedcountries. The retail segment of the apparelcommodity chain is also fairly capital inten-sive, due to computerized point-of-sale tech-nology that is becoming an essential tool formanaging inventory.

Several types of lead firms drive the apparelcommodity chain in North America: retailers,marketers, branded manufacturers, and textilecompanies. As apparel production has becomeglobally dispersed and the competition amongthese lead firms has intensified, each hasresponded with new strategies designed tostrengthen its position in the commoditychain. For example, retailers and marketershave developed extensive global sourcing capa-bilities; branded manufacturers are shifting outof production and fortifying their activities in

the high-value-added design and marketingsegments of the apparel chain; and some tex-tile companies are making their own apparelproducts in an effort to augment the compet-itiveness of their fabrics vis-à-vis Asian im-ports. NAFTA is an important factor influ-encing the development of these strategies,which are blurring the boundaries that tra-ditionally separated these firms and alteringtheir interests within the chain. A quick lookat the strategic position of each type of leadfirm in the apparel commodity chain is pro-vided below.

Retailers

In the past retailers were apparel manufactur-ers’ main customers, but now they are increas-ingly their competitors. As consumers demandbetter value, retailers have turned to imports.In only percent of the apparel sold byU.S. retailers was imported; by retailstores had doubled their use of imported gar-ments (AAMA ). In retailers ac-counted for percent of the total value ofimports among the top one hundred U.S.apparel importers (which collectively repre-sented about one-quarter of all apparel im-ports). U.S. apparel marketers, which performthe design and marketing functions but con-tract out the actual production of apparel toforeign or domestic sources, represented

percent of the value of these imports in ,

and domestic producers made up an additional percent of the total7 (Jones , ‒).

The s witnessed many mergers andacquisitions across the retail landscape, result-ing in a far more concentrated industry struc-ture. The strategies that apparel retailers areadopting to confront competitive pressuresinclude: () reducing inventory; () leveragingtheir bargaining power over apparel manufac-turers to “demand lower prices and to trans-fer to them part of the risk of sales slumps”;and () creating their own private labels or

store brands8 (Secretariat of the Commissionfor Labor Cooperation , ).

Marketers

These manufacturers without factories includecompanies such as Liz Claiborne, DonnaKaran, Ralph Lauren, Tommy Hilfiger, Nau-tica, and Nike that literally were “born global”because most of their sourcing has always beendone overseas. To deal with the influx of newcompetition, marketers have adopted severalstrategic responses that are altering the contentand scope of their global sourcing networks:shrinking their supply chains, using fewer butmore capable contractors; instructing contrac-tors where to obtain needed components, thusreducing their own purchase and redistribu-tion activities; discontinuing certain supportfunctions (such as making samples and pat-terns) and reassigning them to contractors;adopting more stringent vendor certificationsystems to improve performance; and shiftingthe geography of their sourcing networks fromAsia to the Western Hemisphere.

Branded Manufacturers

The decision facing many large manufacturersin developed countries is no longer whether toengage in foreign production but how to organ-ize and manage it. These firms often supplyintermediate inputs (cut fabric, thread, but-tons, and other trim) to extensive networks ofoffshore suppliers, which are typically locatedin neighboring countries that have reciprocaltrade agreements allowing goods assembledoffshore to be reimported with a tariff chargedonly on the value added by foreign labor. Froma global commodity chains perspective, themain significance of branded manufacturers isthat they generally coordinate internationalindustrial subcontracting networks, while re-tailers and marketers coordinate commercialsubcontracting networks.

Textile Manufacturers

As producers of the most important input forclothing, textile companies have traditionallysold fabrics to domestic apparel manufacturers.However, the dramatic growth in the amount ofapparel being sourced overseas since byU.S. retailers, marketers, and branded manu-facturers has led textile companies to worryabout the continued viability of their customerbase. In an effort to stem the tide of Asian tex-tiles entering the U.S. market in the form ofimported apparel, several textile companieshave begun to offer “full-package service,” bywhich they provide finished garments instead offabrics to customers such as retailers and mar-keters. This strategy, which one textile-com-pany executive described as “selling fabrics butdelivering garments,” is based on the expecta-tion that potential clients will choose competi-tively priced, high-quality fabrics made inNorth America if textile manufacturers canoffer the same kinds of subcontracting servicesthat are available in Asia. As the next sectionexplains, NAFTA allows textile companies topursue this strategy by expanding both textileand apparel production in Mexico.

The Evolution of U.S. CorporateStrategies in the NAFTA Era

The production-sharing program has beenimportant in stimulating apparel exports fromlow-wage countries in North America. Whilethe maquiladora program in Mexico and itscounterpart in the Caribbean Basin have cre-ated employment and generated needed exportearnings for these countries, they have beencriticized for trapping low-wage economies inthe dead-end role of providing cheap labor forassembly jobs without generating backwardand forward linkages to related industrial sec-tors (see Chapter in this book). As noted

earlier, the enclave nature of these programs isa direct result of U.S. trade policy, whichintends to take advantage of low-cost labor inMexico or the Caribbean Basin for the assem-bly portion of the production process whileproviding a degree of protection for other,related manufacturing jobs. For instance, com-panies that want to assemble garments underthe production-sharing or ⁄ programhave to cut in the United States the fabricsthey will send offshore for assembly. The

law was amended in to address the factthat some companies were importing Asianfabrics, cutting them in the United States, thensending them to Mexico or the Caribbean forassembly and eventual reimport to the U.S.market under the preferential terms of theproduction-sharing program. The new provi-sion of the trade law, called A, providedadditional benefits for companies assemblingfabrics offshore that were manufactured as wellas cut in the United States.

While these measures provided some pro-tection to the domestic U.S. textile industryand its workers, they also prevented backwardlinkages between the assembly plants andupstream segments of the commodity chainin Mexico and the Caribbean. NAFTA haschanged this scenario for Mexico, however, inways that are promoting growth in the Mexi-can textile and fiber industries. NAFTAreplaced the terms of the regime, whichwas designed to protect U.S.-made fabrics, withnew rules of origin that allow a garment to beimported into any one of the three NAFTAcountries duty-free, as long as it contains yarnsmanufactured in Mexico, the United States, orCanada.9 Effectively, this gives companies thatassemble garments in Mexico from Mexican-manufactured fabrics the same preferentialaccess to the U.S. market as companies thatassemble garments from U.S.-formed and -cutfabrics under the production-sharing program.This eliminates one of the major obstacles to

increasing backward linkages between theexport-oriented apparel sector and Mexicanfiber and textile manufacturers.

In addition to the protectionist nature of the regime, another factor that has limited thedevelopment of backward linkages to Mexicansuppliers is the shortage ofexport-quality fab-rics manufactured in Mexico. The few apparelexporters in Mexico that attempted to use do-mestically manufactured fabrics found they wereplagued by consistent problems with qualityand on-time delivery. However, new investmentsin textile production, particularly in denim, areincreasing both the quality and quantity of fab-rics available in Mexico. For example, industryexperts estimate that prior to NAFTA, Mexicoproduced about million square yards ofdenim annually. This amount increased to about million square yards by , largely as aresult of new investments in Mexico on the partof U.S. textile companies. Virtually all thisincrement is in export-quality denim.

The growth in Mexican denim productionunderscores the important role that U.S. firmsare playing in Mexico’s transition from assem-bly to full-package exports in apparel. Key tothis transition are networks organized and co-ordinated by U.S. firms that want to increasetheir security and enhance profits by coordi-nating the activities associated with full-pack-age supply in North America. Large firms indifferent segments of the apparel supply chain,mainly from the United States, are vying to be-come coordinating agents in new North Amer-ican networks that would strengthen Mexico’scapabilities to carry out full-package produc-tion (Gereffi ; Gereffi and Bair ):

• Synthetic fiber companies in the UnitedStates and Mexico have been lobbying withU.S. apparel manufacturers and retailers,trying to get the apparel firms to developproducts using their fibers and encouragingretailers to bring their orders to Mexico.

• Textile mills have been forging alliances withapparel suppliers that could allow for moreintegrated textile and apparel production indifferent regions of Mexico. In addition,some textile firms are exploring the possi-bility of creating their own product-devel-opment teams for select apparel categories,and a few have entered into joint ventureswith Mexican textile manufacturers for theproduction of fabrics in Mexico.

• U.S. branded apparel manufacturers are re-organizing their supply base in Mexico,looking for smaller numbers of more capa-ble suppliers, and reducing their domesticand offshore production operations by di-vesting themselves of manufacturing assetsin favor of building up the marketing sideof their business, with an emphasis onglobal brands.

• A handful of Mexican integrated apparelmanufacturers that own modern plants thatgo from spinning and weaving through ap-parel production and finishing are begin-ning to develop strong reputations withU.S. retailers and marketers that are lookingto place full-package orders in Mexico.

• U.S. and Latin American retailers are begin-ning to set up sourcing networks in Mexico,aided by government-supported vendor cer-tification programs.

• Mexican sourcing agents are emerging toserve as intermediaries for U.S. buyers andMexican factories, a pattern already wide-spread in East Asia.

Below we discuss a number of firms ingreater detail in order to show how each typeof lead company is responding to the opportu-nities that NAFTA presents. Our highlights ofthese firm strategies are based on two types ofdata: () information published in secondarysources, such as apparel and textile industrytrade publications, and () strategic interviewsconducted in the United States and Mexico

with firms at each segment of the apparel com-modity chain, including fiber and textile man-ufacturers, apparel companies, retailers, andtrading companies.10

Synthetic Fiber Companies

DuPont. U.S. chemical and fiber giant DuPonthas several initiatives in Mexico that mirror itsglobal efforts to play a role in connectingdifferent parts of the apparel commodity chain.In Mexico, DuPont has a joint venture withGrupo Alfa (one of Mexico’s leading fibermanufacturers) for the production of nylon,Lycra (or Likra, as it is called in Spanish), anddaycron staple fibers. Besides its importance asa manufacturer of fibers, DuPont is attemptingto work closely with its customers at the down-stream links of the apparel commodity chain tocoordinate full-package apparel productionusing DuPont materials. The company has aglobal sourcing division with offices in severalcountries, including Mexico, Spain, Germany,Hong Kong, Honduras, and Israel, as well asthe United States. The goal of DuPont’s sourc-ing program is to create demand for DuPontfibers at the retail and marketing end of thechain and then to develop relationships withtextile and apparel manufacturers in order tocarry that demand throughout the chain.DuPont’s “Lycra Assured” initiative thusattempts to convince retailers and marketers touse DuPont-brand Lycra, as opposed to less-expensive, Asian-made substitutes, in theirapparel. DuPont then works with these clientsto find manufacturers who can produce gar-ments containing Lycra.

For DuPont, the “Lycra Assured” initiativeis analogous to the full-package strategy thatis being adopted by the textile companies thatare offering garment services to their clients.Worried about the decline of their traditionalcustomer base—domestic apparel manufac-turers—these upstream suppliers are trying to

ensure the continued use of their inputs bycontrolling the critical downstream segment ofthe chain, apparel assembly, which is no longerviable in the United States. Both U.S. fiber andtextile companies realize that they need tocoordinate Mexican production networks forapparel if they hope to make a North Ameri-can alternative more attractive to their cus-tomers than importing Asian-made garmentsthat use foreign fibers and fabrics.

U.S. Textile Mills

Burlington Industries. Burlington Industriesrecently celebrated its seventy-fifth anniver-sary as one of the world’s largest textile man-ufacturers, with sales of $. billion in theyear . Burlington employs , peopleworldwide, with facilities in several U.S. statesas well as in Mexico and India. Production oftextiles for apparel accounts for percent ofBurlington Industries’ revenue. Burlingtonserves four major product categories in ap-parel: denim, synthetics, worsted wool, andcotton sportswear. Based in Greensboro, NorthCarolina, the relevance of Burlington Indus-tries for our analysis of the North Americanapparel commodity chain is twofold. First, itis a prime example of the textile industry trendtoward offshore production. Second, Burling-ton is diversifying into apparel. From being amanufacturer of textiles only, it has embarkedon a risky and ambitious strategy of forwardintegration by venturing into sewing and gar-ment assembly.

Mexico is a key growth area for Burlington.Although the manufacturer has been involvedin Mexico for more than forty years throughits subsidiary Textiles Morelos, these interestshad previously been limited to supplying hometextiles for the domestic market. In ,

Burlington had only three plants in Mexico,two of which were for the production of cot-ton and synthetic fabrics. Yet layoffs at U.S.

plants were an early indicator that the com-pany was looking south. Burlington claimedas late as that it would “keep core pro-duction based in the United States” (Krouse), but this strategy soon began to changerapidly. In the company announced thatit would invest $ million over the next threeyears in five garment-making facilities coordi-nated by its Garment Service Center in Mex-ico. The plants were expected to employ twothousand workers, and the garment businesswas expected at the time to add $ millionto Burlington’s annual sales. Although initialprojections about the size and scope ofBurlington’s Mexican apparel operationsproved inaccurate, the company’s interest inMexico as a production site for apparel andtextile production is underscored by the ap-proximately $ million it invested therebetween and (Hill a).

The expansion of apparel production inMexico is part of Burlington’s strategy to pro-vide garment services to its customers. OneBurlington executive described this move intoapparel production as “one-stop shopping”for the company’s clients: “The strategy is tooffer fabric in garment form as a service tobranded customers, many of whom have tooutsource production anyway” (Hill b,). Initially, two of Burlington’s divisionswere offering garment services. In thePerformance Wear division, which manufac-tures wool and synthetic fabrics for careerapparel such as men’s and women’s suits, ini-tiated cut-and-sew operations for worstedslacks in an industrial park located near Cuer-navaca, south of Mexico City. This facilitywas plagued with problems, however, includ-ing difficulties with its inexperienced laborforce, and Burlington announced its sale inSeptember , when it decided that the Per-formance Wear division of the companywould abandon the garment-making business(Rudie ).

The Casual Wear division of BurlingtonIndustries, in contrast, continues to pursue itsstrategy of integrated denim apparel pro-duction in Mexico. Burlington manufacturesdenim in Yecapixtla and assembles jeans in itsmanufacturing plant in the central Mexicanstate of Aguascalientes (which was acquiredfrom jeans manufacturer Lucky Star in March). These jeans are then sent to a laundryin northern Mexico for finishing. The laun-dry, located in the state of Chihuahua, is a jointventure between Burlington and a Texas-basedcompany, International Garment Processors.

Cone Mills Corporation. Cone Mills Corpo-ration, another North Carolina–based textilegiant, also tried to “virtually” integrate intogarment production in order to offer packageservices to its clients. Cone Mills planned topursue this strategy through a partnershipwith a Mexican apparel manufacturer based inPuebla. The company has since abandoned itsplans to provide garment services, althoughone executive notes that it is still committed tobuilding good relationships with sewing con-tractors in order “to link [Cone’s] fabrics intothe region’s supply chain” (Rudie , ).Like Burlington, Cone Mills has invested indenim production in Mexico. This investmenttook the form of a joint-venture operation withMexican textile manufacturer Parras. Togetherthe two companies built Parras-Cone de Mé-xico, a state-of-the-art denim mill in northernMexico, which began operations in .

Guilford Mills. Guilford Mills, under the lead-ership of chief executive officer (CEO) ChuckHayes, has been among the most daring ofU.S. textile companies in terms of envisioningthe possibilities that NAFTA creates for theindustry. Hayes believes that NAFTA providesan opportunity to strengthen the fiber-textile-apparel chain in North America, thereby repa-triating textile and apparel production that had

gone to Asia. In Hayes talked with Mex-ican government officials about his plan to cre-ate a large modern industrial park dedicated toapparel production in Mexico. The Zedillogovernment, at the time reeling from the De-cember peso crisis, was receptive to theidea, and it was agreed that the park would bedeveloped through a tripartite alliance of theMexican federal government, the state gov-ernment, and the private sector. Like Guil-ford, Alpek (the petrochemical division ofMexican conglomerate Grupo Alfa) providedfinancial support for the project, and eventu-ally DuPont and Burlington Industries came tobe involved in the initiative as well.

After the alliance considered several sitesfor the proposed park, it settled on the state ofMorelos. The complex, known as NuStart or“Apparel City” (Ciudad de la Confección), islocated in the municipality of Emiliano Za-pata, a rural area outside Cuernavaca in cen-tral Mexico.11 It was inaugurated in July

(with President Zedillo in attendance), and asof June , seven companies (mostly maqui-ladoras) from Canada, the United States, andMexico were operating in the park. The proj-ect’s developers encountered a number of un-expected obstacles, including problems sellingall the available production facilities. Other dif-ficulties arose in implementing the parkwiderecruitment, hiring, and training program,which NuStart’s founders had promoted asone of the park’s main benefits, believing itwould lure companies that had no experienceproducing in Mexico and that might otherwisebe reluctant to move south of the border. Dur-ing an interview in June , park repre-sentatives maintained that employment atNuStart was expected to increase from threethousand to seven thousand workers, but inSeptember of the same year the park receiveda major setback when Burlington announced itwas selling its apparel factory there. This

plant, Confecciones Burlmex, which was pro-ducing men’s and women’s pants for the com-pany’s Performance Wear division, was thelargest employer in the park.

Despite the problems that have plaguedNuStart, Guilford Mills is heading an initia-tive to create a second industrial park in theMexican state of Tamaulipas. Located in thecity of Altamira, this park will be an integratedapparel complex, and, unlike NuStart, it willinclude fiber, yarn, and fabric production, aswell as cut-and-sew apparel operations.

Branded Apparel Manufacturers

VF Corporation. VF Corporation, based inGreensboro, North Carolina, is an apparelmanufacturer whose sales reached $. billionin the year . The top-selling jeans makerin the United States, with . percent marketshare, VF owns the number-one brands formen’s and women’s jeans (Wrangler and Lee,respectively). VF’s group of brand names alsoincludes Vanity Fair and Vassarette (intimateapparel), Jansport (the top brand in backpacks),Jantzen (swimwear), and Healthtex (children’sapparel). During the s and s, VFmade a number of strategic acquisitions toserve its goal of growth in four areas: jeans,intimate apparel, work apparel, and day packs.

VF’s production strategy has been to main-tain a balance between U.S. production andcontracting in East Asia, Mexico, and the Ca-ribbean. The corporation is aiming to updatetechnology and skills in all its plants as part ofa global strategy to streamline operations inorder to better handle the rapid speed at whichapparel producers must run. In , VF un-derwent a restructuring that resulted in corpo-rate savings of $ million. It closed fourteenU.S. plants, moving more of its productionto Mexico and the Caribbean, and it laid offseventy-eight hundred workers. In it

formed a Global Sourcing Organization tostudy a variety of global sourcing options.

In , VF launched its new “consumer-ization” plan. As part of this intense consumerfocus, VF’s seventeen decentralized divisionswere consolidated into five product-basedcoalitions, and a $. billion brand-invest-ment program was announced. This consu-merization initiative marked a major point inVF’s plan to move into marketing and awayfrom domestic production (Hill a, b).It has been acquiring companies to boost itsbrand names (including the Gitano, Chic, andNorth Face brands, which it added in ),but increasingly these acquisitions either out-source production to other countries or ownfacilities offshore. For example, from to, Wrangler added three plants in CostaRica, two in Honduras, and one in Mexico.Whereas offshore production accounted for

percent of VF’s domestic product sales in, this percentage rose to percent in, and VF plans to increase it to percentin the near future. VF is now augmenting itsbrand-name appeal through licensing agree-ments with such big names as Tommy Hilfigerand Nike. These agreements allow VF to reapthe profits associated with already establishedbrands while sourcing production offshore.

Sara Lee Corporation. Sara Lee Corporation isa global food, apparel, and consumer-productsconglomerate that has operations in more thanforty countries, markets its branded productsin over nations, and employs , peo-ple. Sara Lee manufactures women’s intimates,men’s underwear, hosiery, and athletic apparelunder the Hanes, Hanes Her Way, Playtex,Bali, and L’eggs labels. In , Sara Lee helda percent share of the U.S. bra market, a

percent share of the U.S. women’s and girls’panties market, and a percent share of themen’s and boys’ underwear market. Sara Lee

reported $. billion in sales of its intimateand underwear products in .

Throughout the early to mid-s, SaraLee’s global strategy lay in acquisitions. In it announced plans to invest $ millionin acquisitions of hosiery, underwear, andother apparel concerns. Much of this occurredin Mexico. By December , Sara Lee hadpurchased the six-thousand-employee Rinbroscompany (annual sales of $ million), Mex-ico’s leading maker of men’s and boys’ under-wear, as well as Mallorca S.A. de C.V., the sec-ond-largest hosiery maker in Mexico. Theseacquisitions led analysts to conclude that SaraLee’s primary emphasis would be on growthoutside the United States. A restructuringof worldwide operations reinforced this notion.

Sara Lee shifted gears in . During theprevious five years, the company had focusedon building brand equity and improvingreturns. With the continuing goal of improv-ing shareholders’ equity, Sara Lee announcedits plan to “de-verticalize” operations throughthe divestiture of fixed assets, moving awayfrom involvement in every step of the manu-facturing process and concentrating on salesand marketing. Said John H. Bryan, the com-pany’s chairman and CEO, “The business ofSara Lee Corp. has been and will continue tobe the building of branded leadership posi-tions. This program will significantly reducethe capital demands on our company, enhanceour competitiveness and let us focus even moresharply on our mission of building brands”(Bobbin ). As part of this strategy, in ,

Sara Lee sold ten of its yarn and textile plantsto National Textile, a company formed in Jan-uary by former Sara Lee employees, andsigned a buying agreement with National Tex-tile. Sara Lee also announced plans to increaseoutsourcing, which in accounted for

percent of apparel sales. In February thecompany announced a projected investment of

$ million in Puerto Rico, where it alreadyowns twelve plants and is the commonwealth’slargest employer.

Levi Strauss and Company. Levi Strauss andCompany is one of the world’s largest pro-ducers of brand-name clothing and the sec-ond-largest maker of jeans, behind VF Cor-poration. Levi Strauss manufactures andmarkets jeans, dress pants, and casual sports-wear under the Levi’s, Dockers, and Slateslabels. Based in San Francisco, Levi’s postedsales of $. billion in , down from a peakof $. billion in . Over the course of thes, its share of the U.S. jeans marketplummeted from percent to percent.This drop is attributable to two factors: Levi’sfailure to pick up on consumer trends and thehigh prices of Levi’s jeans. The latter factorhas resulted from Levi’s long insistence onkeeping production in the United States, whileits competitors were moving offshore to takeadvantage of lower labor costs. Deciding thatU.S. production is no longer profitable, Levi’shas recently laid off many of its U.S. workersand closed a large number of its domestic man-ufacturing plants. Most production will bemoved to contract operations in Mexico andthe Caribbean (Emert ). Levi’s is nowfocusing on regaining market share andencouraging its brand-name appeal through astrategy of consumer-focused brand manage-ment. It is devoting resources to innovativemarketing and product design aimed at theyouth market, and it has opened an onlinestore on its Web page to promote Levi’s as hipand up-to-date (Hill c).

Mexican Integrated Apparel Manufacturers

Avante Textil. Avante Textil is a verticallyintegrated apparel manufacturer, located out-side Mexico City, that manufactures and sellsyarn, knit fabrics, and apparel. Employing a

total workforce of five thousand, Avante alsoowns about one hundred retail outlets thatmarket its apparel products. The company hasa monthly apparel production capacity of million pieces, of which percent is dedi-cated to full-package programs for U.S. clients.Full-package clients include JCPenney’s pri-vate-label Stafford line. The remaining per-cent of production consists of T-shirts, inti-mate wear, and underwear for Avante’s ownbrands and the foreign brands for which itholds licenses. The company is a licensee forDisney and Warner Brothers apparel and thesole North American licensee for the upscaleGerman underwear line Skiny, which is sold inhigh-end Mexican department stores. Avantealso offers two brands of its own: Optima Cot-ton Wear, and Tops and Bottoms.

Kaltex. While Avante is the largest verticallyintegrated manufacturer of knit fabrics inMexico, a company called Kaltex, which istwice the size of Avante, claims this distinc-tion for woven fabrics. Kaltex was founded in, and since that time Grupo Kaltex hasgrown to be one of the most significant tex-tile companies in the country. As recently asOctober , it was considered to be thelargest user of U.S.-grown cotton in Mexico(Daily News Record ). The company hasexpanded beyond its textile roots in yarn andfabric production to include garment making,initiating full-package apparel programs in. In , Kaltex inaugurated its firstdenim mill, and it is already considered one ofthe largest denim manufacturers in Mexico aswell as a major player in the full-packagejeans market. Kaltex’s denim arm, Denimex,exports virtually all its denim to the UnitedStates in the form of fabric or apparel. Den-imex has a close relationship with the Leejeans company, meaning that much of its pro-duction is sold to Lee’s parent company, VFCorporation.

U.S. and Latin American Retailers

JCPenney Corporation. The middle-tier U.S.retailer JCPenney opened its first departmentstore in Mexico in May , in Monterrey,Nuevo Leon. It has since opened other retailoutlets in Leon, Guanajuato, and Mexico City.JCPenney’s Mexican stores are upgraded ver-sions of their U.S. counterparts, focusing onhigher-quality, fashion-oriented apparel andincluding upper-end brands such as Liz Clai-borne and Nautica. About percent of themerchandise sold in the Mexican departmentstores is manufactured domestically, while theremaining percent is imported, much of itfrom the United States. The ratio of domes-tic-to-offshore production is about fifty-fiftyin JCPenney’s U.S. stores.

In , JCPenney established a buyingoffice in Mexico City with the goal of sourc-ing apparel from Mexican manufacturers forits private label lines. In it sourced $

million of apparel in Mexico, an amount thatincreased to about $ million by . Cur-rently, JCPenney sources from twenty-twoMexican companies, including the verticallyintegrated manufacturer Avante. T-shirts,underwear, and jeans are the principal prod-ucts. JCPenney is interested in building long-term relationships with its contractors andworks closely with its Mexican suppliers, pro-viding them with detailed specifications re-garding the inputs to be used for their full-package orders (such as specific fabrics andzippers for jeans). If the Mexican contractorwants to use an alternative fabric or trim, theproposed substitute has to be sent to a JCPen-ney brand manager, who will decide if it is anacceptable equivalent. Each manufacturer alsohas to undergo a rigorous evaluation processbefore being accepted as a JCPenney supplier,with inspectors visiting the plant to ensure thatit meets stringent requirements. Some of theapparel for JCPenney’s most successful private

label line, Arizona jeans wear, is manufacturedin the northern Mexican town of Gómez Pala-cio, Durango, by the Original Mexican JeanCompany, which is a joint venture between aU.S. manufacturer, Aalfs, and a Mexican part-ner, Gerardo Martín. (See Chapter in thisbook.) In addition to its own plants, Aalfs usescontractors in the Laguna area of northernMexico to fill its orders from JCPenney forArizona jeans.

JCPenney is only one of several retailersthat are increasing their purchases of Mexi-can-made apparel. Mexican manufacturers arealso selling to retailers in South America, par-ticularly from Chile, Colombia, and Venezuela.These sales are facilitated by Mexico’s BancoNacional de Comercio Exterior (Bancomext),which has been playing a “matchmaking” roleby bringing foreign buyers into contact withMexican apparel manufacturers. Bancomextpromotes Mexican apparel producers in sev-eral ways, including a vendor certification pro-gram that carries out plant-level evaluationsof Mexican suppliers, especially small andmedium-sized firms, and provides them withsome of the technical advice needed to becomesuccessful exporters; providing modest finan-cial assistance in terms of working capital tocredit-worthy Mexican enterprises; and spon-soring annual trade fairs designed to familiar-ize foreign buyers with the offerings of Mex-ican manufacturers (Gereffi and Bair ).

Mexican Sourcing Agents

Aztex Trading Company. Aztex Trading Com-pany represents a new breed of broker emerg-ing in Mexico in order to link U.S. companiesthat are looking to source full-package apparelin Mexico with Mexican manufacturers. Aztexworks with U.S. clients such as Liz Claiborneand DKNY that want to source apparel inMexico but do not have their own manufac-turing facilities or a developed network of

subcontractors. Its owners describe Aztex as “aservice company,” meaning it provides its cus-tomers with whatever services they require tofill their full-package orders in Mexico: find-ing fabrics or working with textile companiesto develop the desired fabrics, working onspecifications for the garments, locating anappropriate contractor, overseeing quality, andensuring on-time production. Based in Mex-ico City, with a staff of forty people through-out the country, Aztex serves as an interme-diary between its clients and the Mexicanmanufacturer. Historically, many of thesebranded manufacturers, retailers, and mar-keters have sourced large amounts of apparelfrom Asia, but the cost of buying from Asia asopposed to Latin America has increased withNAFTA, leading many of them to reevaluateMexico. The role Aztex plays in establishingand managing these foreign companies’ full-package networks makes it possible for a newset of buyers that do not want to take on thiscoordinating role to source apparel in Mexico.

These examples of firm strategies show thatcompanies all along the commodity chain areresponding to the opportunities NAFTA cre-ates for more integrated regional productionnetworks, and Mexico is figuring prominentlyin these companies’ plans. In the final sectionof this chapter, we briefly discuss the implica-tions of these changes for firms and workers inthe North American apparel industry beforeoffering some concluding thoughts aboutMexico’s transition from the assembly to thefull-package export role.12

NAFTA and Jobs

In addition to strategic interviews with firms,our study of NAFTA’s impact on the apparelcommodity chain in North America includedvisits to some of the Mexican cities and towns

that are export-oriented apparel manufactur-ing centers. Since Chapter in this book dis-cusses in detail the developmental implicationsof full-package networks for the most dynamicof these centers, the Torreón/Gómez Palaciocluster in northern Mexico (see Bair and Ger-effi ; also Bair ), this section offers amore general treatment of the issue.

The firm strategies outlined in the preced-ing section have two clear consequences interms of employment: a decline in apparelmanufacturing jobs in the United States and acorresponding expansion in both the numberand types of jobs being created in Mexico’sapparel-related industries. In terms of U.S. joblosses, the case of Levi Strauss and Companyis particularly notable. Levi’s announced inFebruary that it would close eleven U.S.plants and lay off fifty-nine hundred workers13

(Emert ). This move was the culminationof a series of layoffs throughout the s ands and left only eleven plants remaining inthe United States. Earlier layoffs reflected weaksales, but the announcement signaled anew conviction on the part of Levi’s that large-scale apparel production in the United Stateswas no longer feasible.

The same trends characterize the U.S. ap-parel sector as a whole. During ‒ alone,restructuring by U.S. apparel companiescaused an estimated loss of , jobs in thedomestic industry (Jones , ). Apparelemployment in stood at a little over, workers, and U.S. textile employmentwas at an all-time low of ,14 (U.S.Bureau of Labor Statistics ; AAFA ).Furthermore, the only types of jobs in theU.S. apparel sector that are expected to growfrom to are in professional specialtyoccupations, such as systems analysts, engi-neers, and programmers. While the quality ofthese positions in terms of conditions of workand pay may be considered superior to thesewing jobs that have been lost in recent

decades, professional specialty occupationsrepresent only . percent of total employ-ment in the U.S. textile industry (Mittel-hauser , ).

The local impact of these job losses is moremarked than the statistics indicate, given thegeographic concentration of apparel and textilemanufacturing employment. Employment inthe U.S. textile complex is geographically con-centrated in the Southeast, with . percent oftotal employment in the industry located in fivestates in the region in . These states, indescending order of textile employment, areNorth Carolina (which alone accounts for

percent of total U.S. textile employment),Georgia, Alabama, Virginia, and South Car-olina (ATMI ). Although apparel produc-tion is less geographically concentrated thantextile manufacturing, the five states with thelargest number of apparel jobs accounted foralmost percent of employment in theindustry: California, New York, Texas, NorthCarolina, and Alabama (in descending order).Textile and apparel employees are similar inthat workers in both sectors generally have rel-atively low levels of education, making theirsuccessful transition to alternative employmentparticularly difficult.

However, job declines in the United Stateshave been accompanied by two related and lesswell-recognized phenomena: improved pro-ductivity and higher U.S. wages. Since

the productivity of the average U.S. apparelworker has increased by about percentbecause of advances in technology, productionpractices, and inventory management. Thehourly earnings of the average U.S. apparelworker increased from $. in to $.

in , while the hourly wages of U.S. textileworkers rose from $. to $. in the sameperiod15 (AAFA ). Thus, contrary to pop-ular opinion, productivity and wage levels inthe U.S. textile and apparel industries appearto have improved since NAFTA went into

effect, despite an accelerated rate of job lossover this period.16

Although manufacturing jobs in high-wagecountries such as the United States will mostlikely continue to decline, the regionalizationof commodity chains means that other types ofU.S. jobs related to the management and coor-dination of increasingly complex cross-borderproduction networks are being created. As thecorporate strategies of the firms discussedabove suggest, most of the future growth inproduction jobs will occur in the low-wagecountries that are today’s preferred sites forapparel assembly.

How Has NAFTA Affected Mexico?

Despite impressive export growth sinceNAFTA, there is considerable debate abouthow most manufacturers in the Mexican ap-parel and textile industries are faring. Smalland medium-sized enterprises have faced sig-nificant difficulties in adjusting to the coun-try’s liberalized economic environment. In ashort time, Mexico went from being one of themost protected economies in the world to oneof the most open, a process initiated by thecountry’s accession to the General Agreementon Tariffs and Trade (GATT) in . Thepace of liberalization was accelerated duringthe administration of President Carlos Salinasde Gortari (‒). Economic policy underSalinas, who championed the NAFTA causein Mexico, marked the consolidation of neo-liberal economic reforms begun during theadministration of his predecessor, Miguel dela Madrid (‒). Mexico’s rapid entryinto the global economy from the mid-sthrough the mid-s signaled a clear breakwith the country’s history of import-substi-tuting industrialization.

The hardships caused by Mexico’s eco-nomic opening have been borne dispropor-

tionately by smaller manufacturing firms.These are often undercapitalized, family-owned enterprises that lack access to currenttechnology and modern manufacturing meth-ods, but they are overwhelmingly the kinds offirms that dominate the apparel and textileindustries in Mexico. This is particularly truefor the labor-intensive apparel industry, whichis made up of more than , mostly smallcompanies. However, micro- and small enter-prises (companies employing up to fifteen andone hundred workers, respectively) also dom-inate the more capital-intensive textile sector.The number of establishments in the Mexicantextile sector fell steadily between and, but the employment profile in the indus-try underscores the importance of growth inthe sector’s largest firms: While employmentfell in micro-, small, and medium-sized enter-prises between and , overall em-ployment in the Mexican textile industryincreased slightly, from , in to, in . This growth is even moreimpressive in light of the fact that employ-ment had declined significantly between

and (when it reached a low of ,

workers), before rebounding in and

(Knight ).The commodity-chains approach can help

shed light on these macro trends by revealingthe dynamics that account for shifts in employ-ment patterns. NAFTA has positively affectedthe Mexican apparel industry in terms of stim-ulating growth in both and non-

exports. To the extent that the latter exportsrepresent full-package production, NAFTAhas also had a positive effect on the Mexicantextile industry because full-package networksbetween U.S. buyers and Mexican manufac-turers are increasing the amount of Mexican-made fabric used in this apparel. Chapter inthis book discusses in detail how these net-works are generating growth in apparel andtextile employment, as well as upgrading

working conditions in many of the Torreónarea’s factories. However, we can make twobroad observations about the implications ofNAFTA for the North American apparelcommodity chain in general and for Mexicanfirms and workers in particular.

First, instead of having a uniform impacton the Mexican textile and apparel industries,NAFTA-era interfirm networks are changingthe geography of production in these sectors.The emergence of clusters, such as the one forjeans production in the Torreón/Gómez Pala-cio region, is creating growth in apparel andtextile employment in particular regions.Companies looking to place full-packageorders in Mexico are attracted to Torreónbecause of the area’s large apparel-manufac-turing capacity, as well as the availability oflocally produced denim and the presence oflocal trim suppliers. While NAFTA’s impacton subnational regions in Mexico is not evi-dent in the aggregate trade data presented inthe first section of this chapter, strategic inter-views with lead firms allowed us to identify theparticular locations favored by U.S. firms. Ourfindings indicate that in clusters that are con-nected to the U.S. market by means of net-works with U.S. lead firms, jobs are increasingin number (as a result of booming exports),expanding in type (as full-package networksgenerate growth in textile mills and launder-ing and finishing plants), and on averageimproving in quality (as manufacturers need tomeet the quality-control standards imposed byU.S. buyers such as JCPenney and the Gap).17

Second, companies lacking connections toforeign lead buyers face significant obstaclesin Mexico’s current economic environment.Although exports have increased since a majordevaluation of the peso at the end of ,

domestic demand has not recovered. Conse-quently, companies accustomed to serving theMexican consumer must compete against low-cost imports for a more open but stagnant

market. Many of these companies are smallerfirms. Furthermore, most of the U.S. compa-nies that are establishing full-package networksin Mexico are doing so through joint ventureswith large Mexican counterparts, such as tex-tile mills, and buyers placing full-packageorders are also looking to large manufacturers.Although these companies often rely on tiersof smaller subcontractors to assemble gar-ments for the full-package orders they receivefrom U.S. firms, small and medium-sizedenterprises are increasingly marginalized inMexico’s transition to the full-package exportrole. While smaller companies may benefitfrom these NAFTA-inspired networks, theyare incorporated at the lowest levels of the net-works, where the risks are highest, the wageslowest, and the work conditions poorest.

Conclusions

Our study of NAFTA’s impact on the NorthAmerican apparel commodity chain has yieldedthree main conclusions. First, the trade datareveal that regional production blocs based ondivisions of labor between high- and low-wagecountries are becoming more significant in theglobal apparel industry. NAFTA is promotingMexico as a privileged exporter to the U.S.market, and changes introduced by the NAFTAregime are allowing Mexico to move beyondthe limited export role of apparel assembly,associated with the maquiladora industry, to the new export role associated with full-package production.

Second, we have been able to show how thistransition is occurring by identifying the typesand consequences of interfirm networks thatU.S. enterprises establish in Mexico. U.S. com-panies, in alliance with Mexican partners, areplaying a critical role in reconfiguring andmore fully developing the North Americanapparel commodity chain in Mexico.

Third, growth in apparel and textile manu-facturing and employment is occurring in clus-ters where Mexican firms are linked to U.S.buyers. Since these export networks are criti-cal for firm performance and job growth inMexico, the challenge for policy makers is topromote institutional environments that createopportunities for Mexican enterprises toaccess networks that offer the greatest possi-bilities for local development and industrialupgrading.

Appendix: Companies Interviewed

Aalfs, Gómez Palacio, Mexico, July , ; July ,

.

Avante Textil, Toluca, Mexico, July , ; July, .

Aztex Trading Company, Mexico City, Mexico, Jan-uary , ; June , ; June , .

Banco Nacional de Comercio Exterior (Bancomext),Mexico City, Mexico, July , .

Burlington Industries, Greensboro, North Carolina,December , .

Cone Mills Corporation, Greensboro, North Car-olina, September , .

DuPont de México, Mexico City, Mexico, July ,

; July , ; July , .

JCPenney Comercializadora, Mexico City, Mexico,July , ; January , .

NuStart, Emiliano Zapata, Mexico, July , .

Notes

. West European apparel exporters are ex-cluded from Table . because the majority of theirexports involve intra-European trade. SeveralCaribbean Basin nations are missing from this listbecause of incomplete information regarding theirapparel trade.

. These dollar amounts are not adjusted forconstant dollars.

. Branded manufacturers have experience inproducing garments domestically or globally, making

it possible for them to supply assembly contractorsdirectly with the inputs needed to fill their orders.Retailers and marketers, in contrast, often relyentirely on an extensive network of contractors toproduce the garments they design and sell.

. Some caution needs to be exercised in inter-preting the trade data since NAFTA. BecauseNAFTA reduces the incentives for firms to regis-ter as maquiladoras, some of the apparent growthin non- exports likely represents apparel that isassembled in Mexico from U.S. fabrics but not offi-cially imported under the regime. Despite thisstatistical effect, our primary data have confirmedthat the growth in what we call “full-package”exports has been significant since NAFTA.

. In the Caribbean Basin countries the non-⁄ apparel trade is not an indicator of full-package production because their textiles tend tobe imported from Asia rather than produceddomestically.

. Although the Trade and Development Act of is often referred to as a version of “NAFTAparity” for the Caribbean Basin, this characteriza-tion is inaccurate because the act does not changethe rules of origin, which specify that only apparelexports assembled in the region from U.S.-madeinputs are eligible for preferential access to the U.S.market. Consequently, this region is not likely tofollow Mexico’s example in developing the full-package model of more locally integrated andhigher-value-added production. For more on therole of the Caribbean and Central Americaneconomies in the North American apparel complex,see Chapters and in this book.

. These figures do not include the production-sharing activities of U.S. apparel firms in Mexicoand the Caribbean Basin, which also have beenexpanding rapidly (USITC ).

. “Private-label apparel” refers to store-brandmerchandise that is made for specific retailers andsold exclusively in their stores. It constituted per-cent of the total U.S. apparel market in (Dick-erson , ).

. There are some exceptions to this so-calledyarn-forward rule. For example, sweaters made ofman-made fibers are subject to a fiber-forward rule,meaning that the fibers must originate in a NAFTAcountry in order to receive preferential access to the

NAFTA markets. Furthermore, apparel that ismade from fabrics that are not widely produced inany of the NAFTA countries, such as silk, linen,and velveteen, can be imported to any of theNAFTA countries without tariffs as long as theyundergo a “single transformation” in North Amer-ica, meaning they must be assembled in Canada, theUnited States, or Mexico (Knight ).

. These interviews were conducted betweenMay and July , with several firms inter-viewed on more than one occasion. Interviews typ-ically lasted from one to two-and-a-half hours.Interview sites in the United States were concen-trated in and around the North Carolina Piedmontregion, while Mexican sites included Mexico City,Morelos, Toluca, and Gómez Palacio. Rather thanadhering to a standard survey instrument, thesestrategic interviews took the form of extended con-versations with managers and owners of firms andrepresentatives of industry associations. Respon-dents were asked specific questions about their orga-nization’s global and North American operations,and they also were invited to reflect more generallyon the direction of the apparel and textile industriesin the era of NAFTA. A list of the firms interviewedis provided in an appendix to this chapter.

. The NuStart project is analyzed in greaterdetail in Bair ().

. Describing the development of full-packagenetworks in Mexico as a transition from the assem-bly to the full-package export role is not meant toimply that ⁄ production in Mexico will dis-appear. Although aspects of the maquiladora pro-gram will officially cease to exist with the full phas-ing in of NAFTA, the assembly networks betweenU.S. and Mexican companies under the production-sharing program remain strong. In fact, the ma-quiladora industry continues to grow, havingreceived a significant boost from a devaluation ofthe peso in late and the consequent decreasein the price of Mexican labor. From a developmen-tal perspective, however, the emergence of full-package networks is significant because it signalsthat Mexico has moved up in the export hierarchyto include the OEM role as its most advancedexport capability.

. CEO Robert Haas says that most productionwill be moved to contract operations in Mexico and

the Caribbean: “We can’t swim against the tide. . . .We have invested tens of millions of dollars to try[to] find a way to make our owned-and-operatedfactories enough of an asset [to offset wage differ-ences]. . . . [February’s] announcement is just facingthe realities” (Emert ).

. In relative terms, the plunge in U.S. textileand apparel employment mirrors what happened inHong Kong, one of the most successful Asianexporters to the U.S. market in the s and s.Employment in the Hong Kong textile industry fellfrom , in to , in —a drop of percent. Meanwhile, Hong Kong’s clothing jobsplummeted from , in to , in—a decrease of percent in a single decade(De Coster , ).

. These wages are not adjusted for constantdollars.

. Over three times as many apparel jobs werelost between and as during the preced-ing seven-year period. U.S. apparel employmentdeclined by , jobs during the first seven yearsof NAFTA, compared to , lost jobs between and (U.S. Bureau of Labor Statistics).

. Largely due to a number of well-publicizedcases in which U.S. companies were revealed to havesourced apparel from factories with “sweatshop”work conditions, an increasing number of U.S. buy-ers are inspecting their domestic and foreign con-tracting networks. These inspections are designedto ensure that suppliers meet a host of standardsthat apply not only to the quality of their productsbut also the quality of their workplaces. These stan-dards range from environmental regulations tosafety measures designed to reduce the risk ofworkplace injury (see Gereffi, Garcia-Johnson, andSasser ).

References

AAFA (American Apparel and Footwear Associa-tion). . Footwear and Apparel IndustryData. Arlington, Va.: AAFA.

AAMA (American Apparel Manufacturers Associ-ation). . Apparel Manufacturing Strategies.Arlington, Va.: AAMA.

ATMI (American Textile Manufacturers Institute).. Textile HiLights. Arlington, Va.: ATMI.

Bair, Jennifer. . “Successful Cases of Small andMedium Enterprises in Mexico: Lessons fromthe Aguascalientes Apparel Industry.” In Claro-scuros: Integración exitosa de las pequeñas y medi-anas empresas en México, ed. Enrique DusselPeters, pp. ‒. Mexico City: Editorial Jus.

———. . “Is Mexico Sewing Up Develop-ment? NAFTA and Mexico’s Changing Role inthe North American Apparel Industry.” Ph.D.diss., Department of Sociology, Duke University.

Bair, Jennifer, and Gary Gereffi. . “Local Clus-ters in Global Chains: The Causes and Conse-quences of Export Dynamism in Torreón’s BlueJeans Industry.” World Development , (No-vember): ‒.

Bobbin. . “Sara Lee Announces $. BillionRestructuring Program.” Bobbin , (Novem-ber): .

Buitelaar, Rudolf M., and Ramón Padilla Pérez.. “Maquila, Economic Reform, and Cor-porate Strategies.” World Development ,

(September): ‒.

Carrillo, Jorge. . “Third Generation Maqui-ladoras? The Delphi–General Motors Case.”Journal of Borderlands Studies , (Spring):‒.

Daily News Record. . “Hahn to Revamp KaltexAmerica.” Harrisonburg, Va., October .

De Coster, Jozef. . “Hong Kong and China:The Joining of Two Giants in Textiles andClothing.” Textile Outlook International (No-vember): ‒.

Dickerson, Kitty G. . Textiles and Apparel in theGlobal Economy. d ed. Englewood Cliffs, N.J.:Prentice-Hall.

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Gereffi, Gary. . “Global Production Systemsand Third World Development.” In GlobalChange, Regional Response: The New Interna-tional Context of Development, ed. Barbara Stal-lings, pp. ‒. New York: Cambridge Uni-versity Press.

———. . “Mexico’s ‘Old’ and ‘New’ Maqui-ladora Industries: Contrasting Approaches to

North American Integration.” In NeoliberalismRevisited: Economic Restructuring and Mexico’sPolitical Future, ed. Gerardo Otero, pp. ‒.

Boulder, Colo.: Westview Press.———. . “Global Shifts, Regional Response:

Can North America Meet the Full-PackageChallenge?” Bobbin , (November): ‒.

———. . “International Trade and IndustrialUpgrading in the Apparel Commodity Chain.”Journal of International Economics , (June):‒.

———. . “The Transformation of the NorthAmerican Apparel Industry: Is NAFTA a Curseor a Blessing?” Integration and Trade ,

(May–August): ‒.

Gereffi, Gary, and Jennifer Bair. . “U.S. Com-panies Eye NAFTA’s Prize.” Bobbin ,

(March): ‒.

Gereffi, Gary, Ronie Garcia-Johnson, and ErikaSasser. . “The NGO-Industrial Complex.”Foreign Policy (July–August): ‒.

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Hill, Suzette. a. “Fashion or Five-Pocket, VFJeanswear Values Basics.” Apparel Industry Mag-azine , : ‒.

———. b. “Brittania: Going to Extremes.”Apparel Industry Magazine , : ‒.

———. c. “Levi Strauss & Co.: Icon inRevolution.” Apparel Industry Magazine , :

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———. a. “Burlington Down, but ComingUp Swinging.” Apparel Industry Magazine ,

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———. b. “Burlington Adds Retail-Readywith Garment Services.” Apparel Industry Mag-azine , : ‒.

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Jones, Jackie. . “Forces behind Restructuring inU.S. Apparel Retailing and Its Effects on the U.S.Apparel Industry.” Industry, Trade, and Technol-ogy Review (March): ‒.

———. . “Apparel Sourcing Strategies forCompeting in the U.S. Market.” Industry, Trade,and Technology Review (December): ‒.

Khanna, Sri Ram. . “Structural Changes inAsian Textiles and Clothing Industries: The Sec-ond Migration of Production.” Textile OutlookInternational (September): ‒.

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Scheffer, Michael. . The Changing Map of Euro-pean Textiles: Production and Sourcing Strategies ofTextile and Clothing Firms. Brussels: OETH.

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Washington, D.C.: USITC.———. . Data Web. Data available at <http://

www.dataweb.usitc.gov>. Web site consulted inJuly.

Part IIThe Changing Face of theApparel Industry in theUnited States

Florence Palpacuer

Subcontracting Networks in the

New York City Garment Industry:

Changing Characteristics in a Global Era

Introduction

This chapter analyses how the structure of theNew York garment industry has evolved underthe impact of globalization. The focus is theindustry’s main industrial segment, the highlyfashion-oriented women’s wear industry, andthe subcontracting networks through whichproduction is organized in this segment. Glob-alization is here associated with two majortrends: () the development of internationalsubcontracting networks that link garmentfirms in New York City to foreign producerslocated in a variety of countries; and () theentry of Asian and Hispanic immigrants, whichhas contributed to a significant diversificationof the social and ethnic composition of theNew York garment industry.

Two analytical perspectives will be com-bined to study these evolutions: the industrial-district model, which captures many of thetraditional characteristics of the New Yorkgarment industry, and the global commodity-chain framework, which better accounts forthe integration of the local industry into trans-national production networks. The New York

garment industry traditionally matched thecharacteristics of an industrial district, includ-ing a geographical and sectoral concentrationof firms, the predominance of small firms,vertical disintegration, cooperative competi-tion, a common sociocultural identity that fa-cilitated trust, and local support institutions(Piore and Sabel ; Schmitz ). How-ever, global dynamics have substantially al-tered the industrial and social structure of thisdistrict since the s, as local firms becameintegrated into global production networksand new immigrant communities entered thelocal industry. To study such transformations,I highlight the specific organizational andsocial processes that underlie globalization inthis industry and assess their impact from theperspective of economic performance and so-cial cohesion.

New York remains a major pole in the U.S.apparel industry, despite a continuous erosionof employment since the s: the state rankssecond in terms of employment behind Cali-fornia, with , apparel jobs in , ofwhich percent are located in New York City.1

The local concentration of apparel activities is

linked to the dominance of New York City asa trade center, with important retailing andwholesaling activities; as a fashion center, withsignificant artistic and cultural activities; and asan immigration center, with a constant inflowof newcomers feeding both the labor force andthe entrepreneurial base of the local garmentindustry. Apparel firms located in New Yorkalso benefit from a concentration of relatedactivities, including the supply of fabrics,accessories, and specialized services (Waldinger). These characteristics are especially im-portant to the women’s wear segment of theapparel industry, which accounted for ,

jobs in , or percent of apparel employ-ment in New York City.2 Women’s wear tendsto be more fashion sensitive than other apparelsegments, such as men’s wear or undergar-ments, and being located in New York allowsfirms to quickly catch and respond to fashionchanges. Because products are varied and con-stantly changing, production activities do noteasily lend themselves to automation and re-main highly labor intensive, relying on the localpool of immigrant labor. In response to suchconstraints, the New York women’s wear in-dustry has long been organized on the basis ofa subcontracting system in which the so-calledjobbers or manufacturers specialize in designand marketing activities and contract out mostor all of their production activities to “con-tractors” specialized in cutting and assemblinggarments. Such a system allows manufacturersto limit their fixed costs and be more respon-sive to market changes, while making entry eas-ier in the subcontracting segment. Contractorsabsorb seasonal and cyclical fluctuations inoutput demand and rely on ethnic ties in im-migrant communities to mobilize labor (Wal-dinger ).

Cooperative competition among local firmswas historically promoted through the consti-tution of the International Ladies’ GarmentWorkers’ Union (ILGWU) at the beginning of

the twentieth century and the National Indus-trial Recovery Act (NRA) in . These insti-tutions provided the backbone of an industrial-relations system aimed at preventing excesscompetition in interfirm and intrafirm rela-tions. Collective agreements stipulate that man-ufacturers are to select a stable pool of con-tractors and distribute work equitably amongthem; that they should pay contract pricesallowing for the payment of union wageswithin contracting firms; and that these firmsshould, in turn, distribute work equitablyamong garment workers (Carpenter ;

Schlesinger ). This industrial-relationssystem extends the role of collective agree-ments beyond employment to the sphere ofinterfirm relations and industrial organization.An important precondition to its establishmentin the s was the bounded nature of thelocal immigrant communities, which were bothclosely knit from a social perspective and re-stricted in size due to changes in immigrationflows. From the mid-s up to the mid-s, immigration to the United States sloweddown considerably, limiting the flow of newfirms and workers entering the garment indus-try. The small New York manufacturers alsoused local or regional contractors, thus restrict-ing the geographical scope of their productionnetworks. The industrial-relations system thusembodied values rooted in a shared sociocul-tural background, thereby exerting communitypressure on both workers and employers toadhere to labor agreements (Piore ).

The share of New York’s employment inthe national apparel industry steadily declinedin the post–World War II period, when the de-velopment of a mass market boosted stan-dardized apparel production in southern states(Blumenberg and Ong ; Taplin ).Although the decline of employment contin-ued in New York City’s women’s wear indus-try until the end of the century, its relativeposition increased from percent of U.S.

women’s wear employment in to about percent in .3 Over the same period, anew growth pole emerged in California, whereemployment in the women’s wear industrynearly doubled from , to , em-ployees between and , before declin-ing to , in under the impact ofthe North American Free Trade Agreement(NAFTA).4 The relative stabilization of NewYork City and the growth of Los Angeles,where percent of California’s apparelemployment is concentrated, reflect a newdynamic of polarization of the women’s wearindustry in the country’s major urban centers.

What favored such stabilization of the NewYork garment industry? In the mid-s,Roger Waldinger () convincingly arguedthat the small, specialized firms making upthe New York garment industry were betterequipped than their large southern counter-parts to meet the more diversified and chang-ing needs of consumers. This argument mayalso apply to the Los Angeles garment indus-try, which is similarly organized in networks ofpredominantly small firms (see Chapter inthis book). It supports the thesis developed byMichael Piore and Charles Sabel (), whocontend that greater fragmentation and insta-bility in consumer markets favored a resur-gence of industrial districts based on craft pro-duction principles. This thesis explains at leastpart of the relative performance of the gar-ment industry in New York City, as well as theindustry’s growth in Los Angeles in the latetwentieth century. The two cities also bene-fited from the upsurge in immigration flowsthat followed the Immigration Act of andbrought a flexible and low-cost labor force totheir local garment industries.

Since the s, however, the New York gar-ment industry also has undergone a number ofstructural transformations that do not easily fitthe industrial-district model and that reveal theemergence of a more complex form of orga-

nization in this center of the U.S. women’swear industry. To analyze how this new modelhas emerged over time, the rest of this chapterfocuses on changes in the economic and socialcharacteristics of manufacturers and contrac-tors and on the relationships that developedbetween these two types of firms. This analy-sis shows how the New York garment industryevolved from a traditional industrial district toa central location in global production net-works, highlighting three major patterns ofchange: the rise of large firms among the pre-dominantly small concerns that make up theNew York garment industry, the developmentof transnational subcontracting networks thatlink local manufacturers to contractors in avariety of countries, and the entry of newimmigrant communities that are building upnew manufacturing capabilities and contractinglinkages with New York manufacturers.

The Rise of Large Manufacturers

During the s and s, small firms dom-inated the fashion-oriented women’s wear sec-tor. Associated with the small size of manu-facturers in New York City were a number oforganizational characteristics, including strongproduct specialization, high instability of sales,and limited product development and mana-gerial capabilities. High specialization meantthat firms designed and marketed one type ofproduct, such as dresses, coats, blouses, orsuits, in a particular price category, rangingfrom “popular,” “moderate,” and “better” to“design” and “couture” in the industry’s ter-minology.5 As a result, the task of combiningproducts into broad-ranging lines to meet thediversified clothing needs of consumers wasleft to retailers, who bought complementaryitems from a variety of manufacturers. Spe-cialization increased the vulnerability of man-ufacturers vis-à-vis demand fluctuations. As

explained by Roy Helfgott (, ), “Suc-cess for the apparel firm depends upon gettinga ‘hot number’ which will result in enough re-orders during the season to create a profit.”Luck and intuition, rather than sophisticatedproduct development and marketing tech-niques, played an important role in that suc-cess. Rudimentary management systems,limited capital, and high turnover were thedominant characteristics of manufacturers inthe local industry.

Some firms departed from this typical pro-file and were able to stabilize their sales bybecoming “established names” in the trade,particularly in the high-price segment, wheresome degree of product differentiation couldbe achieved among garment firms (Helfgott). But it was not until the s that suchstrategies were developed on a large scale, lead-ing to the emergence of large manufacturers inNew York’s women’s wear industry (Waldinger). Compared to traditional manufactur-ers, these firms developed broad lines of prod-ucts designed to meet the range of needs ofspecific consumer segments, and they appliedstrong brand-building and marketing strate-gies aimed at strengthening their market posi-tion. Liz Claiborne was the champion user ofthis growth strategy from the s to the endof the century: From a standing start in ,

the company became the largest American firmspecializing in women’s wear products, withsales growing to $. billion in the late s.6

Although its products are marketed as “de-signer” items, most are priced in the “better”category and targeted toward young to middle-aged working women.

In higher-price segments, a group of firmscreated in the late s successfully grew toannual sales over $ million in the earlys, a substantial size by local industry stan-dards.7 These designer firms, including CalvinKlein, Donna Karan, Ralph Lauren, and AnneKlein, boosted their sales in the s and

s by developing “bridge” lines that con-stitute cheaper derivatives of their “designer”lines and account for to percent ofannual sales. More recently, they have increas-ingly resorted to licensing agreements in orderto expand their brand and product coverage inforeign markets, while focusing their corecompetence on design and marketing activi-ties. Over the years they have acquired strongproduct-development capabilities by buildingdesign teams that support and extend the workof their lead designers. They have become in-creasingly involved in marketing and retailingby working in close cooperation with retailersto better control product sales. Such strategiesrely on advertising campaigns; store-in-storemanagement, where manufacturers are incharge of organizing sales space for their prod-ucts in department stores; and the creation oftheir own retail stores, used as marketing andimage-enhancing devices. These companiesalso distinguish themselves by their ability toattract and retain the best talent from theindustry’s local labor market, on the basis ofhigher-than-average wages as well as bettercareer development perspectives. While humanresources management remains underdevel-oped in most local firms, successful large man-ufacturers resort to formal and informal train-ing in order to enhance the capabilities of theirworkforce, and they maintain close links withindustry-specific training institutions such asthe Fashion Institute of Technology and theParsons School of Design.

These large firms essentially specialize in upper-price products, ranging from “bet-ter” for Liz Claiborne to “design” for CalvinKlein or Donna Karan. They simultaneouslyresponded to and stimulated a new market de-mand for greater variety in product mix and aclothing style known as “sportswear” in theapparel industry (Pashigian ). Their suc-cess built on major changes in the competitiveenvironment of U.S. apparel firms since the

s, marked by the end of regular growth,stable prices, and homogeneous consumptionpatterns together with a move toward fewerand bigger retailers. To reduce inventories andbuy closer to sales, retailers built new partner-ships with garment producers in the areas ofinventory management, merchandising, andproduct development (Abernathy et al. ).They are rationalizing and streamlining theirsupplier networks, focusing on those garmentfirms that are able to meet their requirementsin terms of price, quality, and flexibility.

Other New York–based firms, such asBernard Chauss, Leslie Fay, and the GitanoGroup, have reached significant sizes by tar-geting lower-price segments but have been fac-ing important financial difficulties since theearly s, with stagnating or declining salesas well as income losses. While sportsweardesigners have built strong partnerships withtheir main retailers, these lower-price manu-facturers have been affected by restructuringin the retail sector, losing market share as aresult of retail concentration, and bankrupt-cies. Their market position has also been weak-ened by the strong growth of private-labelproducts. If retailers cannot compete withprestigious designers in higher-price segmentsand actually need these products to enhancethe image of the stores, they can still advanta-geously develop their own product lines at theexpense of less-known brands in lower-pricecategories. Specialized private-label chainssuch as Ann Taylor and the Gap are also pen-etrating middle-to-upper-price segments, butthe bulk of private-label products are posi-tioned in lower-price categories (Women’s WearDaily ).

In the late s and early s, the devel-opment of private-label products fostered theemergence of a new niche for New York man-ufacturers, in which some firms, such as CygneDesigns, have become important players. Tra-ditional manufacturers typically responded to

retailers’ private-label demands by proposingderivatives of their own lines, often sellingboth types of products to a given retailer. Bycontrast, firms such as Cygne Designs havespecialized in private labels, working in closecooperation with retailers to define productlines that meet the needs of their consumerbase. Retailers take part in key decisions ateach stage of the production process, includ-ing product design, market testing, and man-ufacturing. They can also be linked to private-label manufacturers through equity ownerships.For example, the Limited owns about per-cent of Cygne Designs’ common stock, anduntil recently, this manufacturer worked forAnn Taylor under a joint-venture arrange-ment. Through such partnerships, retailers arebecoming increasingly involved in design andsourcing activities, mirroring sportswear de-signers’ involvement in retailing. In both cases,the objective is to achieve higher integrationwithin the value chain, in order to support thestrength and consistency of a firm’s productsand brand names.

These new combinations are blurring tradi-tional distinctions between manufacturers andretailers, and in the private-label segment it isstill difficult to assess which organizationalform will dominate. Indeed, retailers are alsodeveloping their own design and sourcingarms, such as Mast Industries and GryphonDevelopment, owned by the Limited, andFederated Product Development, a division ofFederated Department Stores. If retailers givepriority to internal private-label developmentcapabilities, manufacturers might not be ableto secure a stable position in this market niche.Cygne Designs’ persistent difficulties illustratethe dilemma facing private-label manufac-turers when retailers favor their own sourc-ing capacities over outside partners.8

The growth strategies of sportswear design-ers thus appear at this stage to be the mostconsistent path for achieving sustainable

competitive advantage. Smaller firms are suc-cessfully emulating these strategies by focus-ing on particular market niches: for instance,Nicole Miller, which adopted a designer strat-egy targeted to the bridge segment. Suchchoices are consistent with Kurt Salmon As-sociates’ () diagnosis identifying threesources of competitive advantage for NewYork manufacturers: “build a brand,” whichcorresponds to sportswear designers’ strategy;“offer superior service,” as is done by private-label manufacturers; and be a “niche supplier,”as is done by smaller firms in these two cate-gories. Some New York manufacturers applythese generic strategies, but many have beenunable to adapt to intensified competitive pres-sures in an essentially stagnant apparel market.Manufacturers who failed to target and under-stand a specific consumer base, to invest inproduct-development capabilities, to offer abroad range of products, and to build closelinks to retailers find themselves increasinglymarginalized within the local industry. Theirmanagement style is essentially reactive, andthey compete mainly on the basis of costs,which makes them extremely vulnerable tocyclical and seasonal fluctuations in marketdemand. The growth of large successful firmsamong New York’s women’s wear manufac-turers has thus translated into growing differ-entiation between powerful lead firms, nichefirms, and peripheral firms in this industry. AsI discuss in the next section, these variousmanufacturers’ profiles also present distinctcharacteristics in terms of sourcing strategy.

The Development of Global Production Networks

Until the s, apparel sourcing was essen-tially a local or regional activity for New Yorkmanufacturers, but the rise of large firmsfavored an important expansion in the geo-

graphical scope of subcontracting networks.Liz Claiborne was among the first New York–based manufacturers to develop what can becalled a global production network, involving acomplex coordination of complementary ac-tivities performed by contractors in a varietyof countries. Higher-price designers such asRalph Lauren and Anne Klein developed sim-ilar strategies in the s, arranging for theproduction of a major part of their bridge linesoverseas. Today most of New York’s largewomen’s wear manufacturers rely on foreignsourcing for a substantial portion of their prod-ucts, which can be estimated at to percentof annual sales.9 The bulk of production is per-formed in the Far East, where contractors havedeveloped specialized capabilities in the pro-duction of fashion-oriented women’s wear(Steele ), as well as in the Caribbean andCentral America, which offer the advantage ofgreater geographic proximity. Nevertheless,only the most successful large manufacturershave developed global production networksthat allow them to maintain a complex balanceof production quality, flexibility, and cost con-trol and to achieve sustainable performance intheir current market environment. Such sourc-ing capabilities are built on consistent strategicchoices involving both the location of produc-tion activities and the nature of relationshipsdeveloped with contractors.

Location strategies first involve the relativeimportance of local and foreign sourcing inglobal production networks. Delivery-timerequirements, fabric origin, and productionvolumes determine such choices. Even thoughthe time involved between production orderand delivery has substantially declined for off-shore sourcing, from about twelve months inthe early s down to eight to twelve weeksin the s, garments sourced in New YorkCity can still be shipped to customers withintwo to five weeks.10 In addition, garmentsmade from Asian fabrics, such as silk, will

preferably be manufactured there, whereaswool products might be manufactured in theUnited States. Finally, overseas sourcing is noteconomical for small-size orders, and Asianproducers often require minimum order sizes,so that small lots tend to be produced locally.Although large manufacturers derive most oftheir sales from a relatively limited number ofstyles, they still need to source small-volumeorders for market tests and reorders, as well ascollection lines in high-price segments. Con-sequently, the consistent management ofglobal production networks aims at maintain-ing a balance between local and foreign sourc-ing in which New York retains specific loca-tional advantages for small lot production.

More generally, the choice of location isbased on the particular advantages each mightoffer from the perspective of product quality,operational flexibility, and cost. As highlightedby Gary Gereffi (), these advantages areweighed against manufacturers’ requirementsin various price segments: Those specializingin higher-price garments source predomi-nantly from locations such as Hong Kong andSouth Korea, where producers offer higher-quality and higher-cost services; and produc-ers in lower-price segments concentrate theirorders in lower-cost countries such as China,Malaysia, or Bangladesh in Asia, as well asCentral America and the Caribbean.

For New York women’s wear manufactur-ers, selecting a particular location usuallymeans not owning a plant but building a rela-tionship with one or several local garment con-tractors. It is the nature of these relationships,and the way in which they are combinedwithin a global production network, that allowsmanufacturers to meet the simultaneous needsfor production quality, flexibility, and cost con-trol. From that perspective, the backbone ofglobal production networks is formed by long-term partnerships with a few “core” contrac-tors to whom manufacturers contract out a

substantial part of their production activitiesand for whom they, in turn, represent impor-tant customers. These relationships are basedon the development of specific skills, trust, andexchange stability.11 First, core contractorsacquire an idiosyncratic knowledge of manu-facturers’ products and expectations througha process of learning by doing based on infor-mation exchange and joint problem solvingwith manufacturers.

Second, relationships with core contractorsare based on mutual trust. Production man-agers in charge of supervising manufacturers’subcontracting activities develop friendshipties with core contractors. Trust is not blind,however. As emphasized by one productionmanager, “It’s like a marriage, but constantlyreviewed and justified. We have constant dis-cussions and negotiations about lead times,productivity, margins” (interview with theauthor). Trust brings considerable flexibilityin the subcontracting relationship. Manufac-turers do not have to exercise direct supervi-sion of contractors’ activities, and they inter-vene in the production process only to helpsolve problems at the contractor’s request.Likewise, prices are not strictly defined ex ante,but an agreement acceptable to each party isreached once production is completed. In thatperspective, trust allows for the exchange ofstrategic information on business activities.

Third, exchange stability is both a neces-sary condition for and an outcome of trust andspecific skills. Trust and specific skills requiretime to develop, and both involve an invest-ment yielding returns over a period of time. Along-term orientation is thus a key componentof the relationship, as is the regularity oforders provided by manufacturers to contrac-tors. Investing in the relationship is worth-while only if it represents or can become asignificant part of each firm’s activity. Thisis particularly true for contractors, who aremore dependent on manufacturers due to the

derived nature of their activity. As one manu-facturer puts it, “Close relationships comefrom giving a lot of business, or else it’s up forgrabs” (Uzzi , ). Consequently, man-ufacturers and their core contractors engagein joint planning of production activities. Be-cause of the unstable nature of market de-mand, such planning involves the overallamount rather than the detailed content ofproduction activities. Manufacturers reservein advance a portion of a contractor’s manu-facturing capacities, which they might use ina variety of ways depending on changes inmarket demand.

These cooperative arrangements presentmany advantages, but they also create someconstraints in manufacturers’ sourcing activi-ties. Accordingly, manufacturers do not workexclusively with core contractors and on ashort-term basis resort to the services of“peripheral” contractors. As analyzed by BrianUzzi (, ), price and quantity consti-tute the main parameters of these “market”relationships. They allow manufacturers toexert significant pressures on price and toquickly adjust production volumes to unex-pected changes in product demand. In ordernot to jeopardize product quality, speed, orcost competitiveness, manufacturers must finda balance between these two categories ofcontractors. Such complementarities betweencore and peripheral contractors are managedthrough the selection and training of corepartners. Manufacturers continually search fornew productive resources through their use ofperipheral contractors and select those withgood potential to engage in a training anddevelopment process. Over a period of one tothree years, they increase the amount of busi-ness done with selected contractors, account-ing for as much as percent of contractors’production capacities, and they provide tech-nical and managerial support in order to im-prove quality levels and speed capacities in the

factories. These contractors might eventuallyreach a core position in a manufacturer’s pro-duction network, diversify their clientele, andraise contract prices. Manufacturers are thusmotivated to continuously seek out and trainnew factories in order to lower average costs intheir production networks.

Successful large women’s wear manufactur-ers are thus developing three-tiered produc-tion networks involving well-trained contrac-tors, in-training contractors, and peripheralcontractors. Such network segmentation pat-terns can be found both within locations, as inNew York City, and between locations, withcore contractors being located in higher-costcountries such as the United States, HongKong, and South Korea, where producers havelong experience in garment making, andperipheral contractors, which account for thebulk of production, in lower-cost countriesthat have entered more recently into export-oriented production (Gereffi ). The rela-tive importance of core, peripheral, and inter-mediate contractors in global productionnetworks varies depending on price segmentsand managerial capabilities. In higher-pricesegments, manufacturers have more controlover their market position because of brand-building strategies as well as classic forms ofgarment construction that are less amenableto short-term changes in fashion. Productquality also has greater weight than cost con-siderations in sourcing decisions. As a result,manufacturers are better able to develop stablerelations with core contractors and have lessreason to resort to peripheral contractors. Bycontrast, their counterparts in lower-price seg-ments make greater use of peripheral con-tractors, thereby exerting stronger price pres-sure on core contractors and providing themwith a less consistent flow of work. Finally,managerial capabilities play a role in buildingand sustaining these tiered contracting net-works on a global scale. Relations based on

skills development, trust, and stability aremore difficult to manage than market relationsbased on price and quantity, so that less-skilledmanagers will lean toward the second option,especially for overseas subcontracting.

For this reason, smaller New York manu-facturers adopting a niche strategy prefer torely on local sourcing. Some have experi-mented with foreign sourcing but pulled pro-duction back to New York, where they can bet-ter control quality and flexibility (Friedman, ). Indeed, only the largest manu-facturers, with annual sales over $ million,can establish an in-depth presence in a num-ber of countries around the world by settingup overseas production management officesand by building partnerships with a diversearray of local contractors. These sourcing ar-rangements are an important component ofcompetitive strategies based on brand build-ing, flexible services, or niche specialization.However, many New York–based manufactur-ers do not carefully weigh quality, timing, andcost parameters in their sourcing decisions.

To conclude, major differences can be foundamong the sourcing patterns of New Yorkmanufacturers depending on their relativeposition in the industry. Powerful lead firmshave mastered the complex tasks of balancinglocal and foreign sourcing, as well as high-skilland low-skill contractors, in their global pro-duction networks. In this group, differences insourcing patterns depend on market-price seg-ments and managerial capabilities. Niche firmsapply similar sourcing strategies but focus onlocal production, while peripheral firms, bothlarge and small, have underdeveloped sourcingsystems that do not allow them to achieve asustainable competitive advantage.

The analysis shows how the emergence of large lead firms has transformed subcon-tracting networks in New York’s women’swear industry, integrating this industrial dis-trict into transnational production chains. As

emphasized by Gereffi (), New York–based manufacturers such as Donna Karanand Liz Claiborne are “drivers” of global sub-contracting networks. These firms still main-tain headquarters, product development, andmarketing functions in New York City, wherethey can tap a local pool of talented designers,marketers, and managers. Their strategy isconsistent with Saskia Sassen’s () thesisthat the geographic dispersal of productionactivities has increased the need for lead firmsto concentrate strategic functions in “globalcities,” which constitute centers of commandin the global economy. However, these firmsdo not resort exclusively to foreign sourcing,and New York contractors retain a niche intheir global production networks. Likewise,smaller manufacturers still subcontract pro-duction on a local basis. Such strategies aremade possible by the persistence of local pro-duction capabilities built by new immigrants,which helps explain “why garments are stillmade in New York” (Waldinger ). Thenext section highlights new patterns of seg-mentation that emerged among New Yorkcontractors under the combined impact ofmanufacturers’ sourcing practices and immi-grant firms’ development strategies.

New Patterns of Segmentationamong New York City Contractors

As shown in Tables . and ., the new immi-grants who have been entering New York’sgarment industry since the late s are pre-dominantly Asians and Hispanics. While bothgroups are well represented among productionworkers, Asians have reached a significantlyhigher penetration among managers. Wal-dinger () highlights managerial differencesbetween Chinese immigrants, who representthe largest group of Asian immigrants in NewYork City, and Dominicans, who predominate

among Hispanics: Chinese-owned enterprisestend to be larger and longer-lived, exhibithigher performance levels, and are managedwith a longer-term perspective than are theirDominican counterparts. Such differences inbusiness characteristics are related to differ-ences in the profile of owners in terms of edu-cation level, prior business experience, and set-tlement status in the United States, which tendto favor Chinese over Dominican immigrants.

These characteristics have translated intodistinct geographic patterns in productionactivities. On the one hand, during the san important production pole emerged in theChinatown area of southern Manhattan. In thes and s, other Chinese factories devel-oped in the Flushing area of Queens and inSunset Park in Brooklyn, and a growing num-ber settled in Manhattan’s traditional GarmentDistrict, but Chinatown remained a major hubof Chinese apparel production (Chin ;

Zhou ). On the other hand, Dominicanfirms did not form a dominant cluster and aredispersed in neighborhoods such as Coronain Queens, Washington Heights in northern

Manhattan, and Sunset Park in Brooklyn, aswell as certain buildings of the Garment Dis-trict (Waldinger ). In addition, a third typeof immigrant enterprise developed in the cen-tral Garment District during the s ands, characterized by Korean ownership anda Hispanic workforce (Chin ). Accordingto manufacturers interviewed, this Korean poleis of growing importance in New York’s pro-duction base. The rest of this section focuseson the development of Chinatown and therecent emergence of the Korean pole of gar-ment production, highlighting firms’ organi-zational characteristics and how they differfrom those of traditional contractors belongingto Jewish and Italian ethnic groups.

Growth, Upgrading, and Segmentation in the Production Pole of Chinatown

With the arrival of large numbers of Chineseimmigrants in New York City, Chinatown hasbecome a prominent production center inNew York’s women’s wear industry. Whereasthe traditional Garment District continued

.. Ethnic Distribution of Resident Labor Force, New York City Garment Industry,

Percentage Distribution of Ethnic Groups

Whites Blacks Asians Hispanics

Total NB FB NB FB NB FB NB FB

Managers and Administrators 7,960 66 18 2 0 1 5 5 4Professionals and Technicians 4,240 59 14 6 6 0 3 6 7Sales 4,540 79 11 2 1 0 2 3 3Clerical 16,980 48 8 15 6 0 2 11 9Craft 14,620 25 25 8 4 0 6 13 19Operatives 84,560 13 20 6 4 0 17 14 27Transportation Operatives 2,220 13 8 8 5 0 4 18 43Laborers 2,740 12 6 12 9 1 20 20 21Service workers 1,280 20 9 3 5 0 11 20 31

Total Resident Labor Force 139,140 25 18 7 4 0 13 13 20

Source: “ Percent Public Use Microdata Sample,” Census of Population, in Waldinger (, ).

Note: NB: native-born; FB: foreign-born. Percentages add up horizontally; due to rounding, they may not add up exactly to .

to lose jobs in women’s wear, from aboutforty thousand workers in to only abouttwenty-five thousand in , employmentnearly doubled in Chinatown over the sameperiod, from about eight thousand to morethan sixteen thousand workers. The numberof Chinese firms registered in the Chinatownarea increased from to between and and rose to in (Abeles et al.). Chinese contractors entered the wo-men’s wear industry by specializing in a par-ticular segment: the low-skilled, low-price endof sportswear production. They benefitedfrom an abundant workforce, with a majorityof immigrant women from their own ethnicgroup going to work in apparel production(Zhou ). Chinese contractors developedan informal system of employment by whichthey could respond in a very flexible mannerto manufacturers’ requirements. Small firmsize, family ownership, and kinship tiesallowed them to develop trust relationshipsbetween managers and workers based onmutual obligation and solidarity, following thepattern of “immigrant enterprise” conceptu-

alized by Waldinger () and Thomas Bai-ley ().

The growth of Chinatown’s garment pro-duction activities continued in the s ands, but the structure of the local industryevolved considerably during this period. Adominant group of large contractors upgradedtheir production activities and penetratedhigher-price segments, increasingly differen-tiating themselves from smaller immigrantfirms. These new strategic orientations gainedattention from the local business press in theearly s, as large Chinese contractors wereable to produce high-quality garments andcompete with technologically advanced pro-ducers in the Far East (Brookman ; Fur-man ; Struense ). These contractorsare typically organized in family groups inwhich various businesses are run by membersof the same family under the direction of acentral leader. Union officials estimate about adozen such groups in Chinatown, each includ-ing from five to twelve companies. Althoughsome of the companies are small, the mainones are of above-average size, with fifty to

.. Ethnic Distribution of Resident Labor Force, New York City Garment Industry,

Percentage Distribution of Ethnic Groups

Whites Blacks Asians Hispanics

Total NB FB NB FB NB FB NB FB

Managers and Administrators 9,252 50 18 4 4 0 15 1 8Professionals and Technicians 4,270 53 19 5 6 0 9 2 8Sales 5,379 65 10 6 4 0 7 2 6Clerical 11,008 39 15 15 10 1 9 1 11Craft 11,205 18 29 9 7 0 17 1 19Operatives 64,476 7 18 4 4 0 38 1 29Transportation Operatives 3,238 10 9 22 9 0 10 0 41Laborers 2,533 5 16 14 8 0 32 0 25Service workers 829 26 7 7 2 0 17 0 41

Total Resident Labor Force 112,190 19 18 6 5 0 27 1 23

Source: U.S. Census of Population, Public Use Microdata Sample, U.S. Bureau of the Census, Department of Commerce.

Note: NB: native-born; FB: foreign-born. Percentages add up horizontally; due to rounding, they may not add up exactly to .

one hundred workers and annual sales of$ million to $ million.12 Factories specializeby product, price segment, and activity, whichallows the group to offer manufacturers a vari-ety of services, such as pattern making, cut-ting, warehousing, and sewing, for a broadrange of sportswear products. Group leadershave over ten years of experience in the localindustry and have acquired in-depth knowl-edge of contracting activities as well as a favor-able reputation among New York manufac-turers. They have progressively penetratedhigher-price segments by building stable con-tracting relations with quality-conscious man-ufacturers, such as Liz Claiborne, Ralph Lau-ren, and Anne Klein. Such relationships arebased on trust and specific skills, as illustratedby this owner’s comments: “It’s important tounderstand a designer’s mind and its goal con-cerning a style. . . . Manufacturers count onthe contractor to recognize problems and makejudgment calls. A basic trust in quality is alsonecessary” (interview with the author).

Because of their reputation in the localindustry, large Chinese contractors can furtherlimit the impact of seasonality on sales bydiversifying their clientele during the slow sea-sons. As a result, variations in production lev-els during the year are below percent, whilethey can reach much higher levels in smallercontracting firms. These achievements arebased on continuous improvement of produc-tion capabilities through investments in newtechnologies as well as core workers’ skills.Owners emphasize the importance of work-ers’ behavior and motivation in maintaininga competitive advantage. Workers’ technicalskills are also developed through informal on-the-job training as well as occasional outsideformal training. “Multiskilling” is particularlyimportant to allow contractors to adjustquickly to qualitative changes in productdemand. These firms are able to attract skilledworkers by offering higher-than-average wages,

relative work stability over the year, and goodworking conditions in terms of health andsafety standards. Thus they retain a core ofregular employees, among whom turnover islow and who provide the foundation of a com-petitive strategy based on product quality. Toabsorb demand fluctuations, contractors resortto a variety of arrangements, including worksharing, temporary work, and subcontracting.Temporary workers and subcontractors aretypically less skilled than the core workforceand are assigned less-sophisticated productionactivities. Thus the workforce of large Chinesecontractors tends to be stratified according toskill levels, wage levels, and work stability,along principles similar to those guiding thesegmentation of manufacturers’ productionnetworks.

Through subcontracting, large contractorsare connected to smaller businesses, whichremain numerous among Chinatown’s firmsgiven the ease of entry into production activ-ities, continuous inflows of immigrants, andhigh-demand seasonality. This segmentationof Chinatown’s garment industry was alreadyobservable in the early s (Abeles et al.). Highly unstable work and employmentlevels characterize these smaller businesses.They typically maintain market-based rela-tions with manufacturers and are submitted tostrong price pressures. Such firms can befound in all price segments, although they arenumerically more important in low-price, low-quality production. Owners have limited man-agerial experience and the skill level of pro-duction workers is relatively low, most ofthem mastering only one sewing operation. Inaddition, the equipment is usually second-hand and obsolete, which prevents these firmsfrom reaping productivity gains as do theirlarger counterparts. Employment conditionsin terms of wages, stability, and health andsafety standards can be extremely poor inperipheral factories.

Ethnic Succession in the Garment District

While Chinatown’s garment industry grew tobecome the center of New York’s women’swear production, important changes occurredin contracting activities performed in the Gar-ment District, including the decline of tradi-tional ethnic groups as well as the rise ofKorean contractors. As their own ethnic groupsretreated from production activities and Chi-nese contractors penetrated higher-price seg-ments, Jewish and Italian contractors foundthemselves increasingly marginalized in thelocal industry. Today they typically specializein shrinking markets such as “evening couture”or occupy marginal positions in the contract-ing networks of large sportswear designers.These companies have organizational charac-teristics similar to those found by Waldinger() in the mid-s, including small sizeand aging human resources, with owners andemployees whose average age is over fifty. Theworkforce is specialized in craft production ofhigh-price garments requiring intricate handsewing, and it receives above-average weeklywages. Employees work intermittently in orderto get unemployment benefits during idletimes, as opposed to sharing work as is widelydone in Chinese firms. Together with the useof formal recruitment channels, these practicesindicate a more formal employment system bywhich contractors may not be able to competewith flexible Asian producers.

While a great variety of ethnic groups canbe found working in the Garment District, themost striking development of the s ands has been the fast growth of Korean-owned contracting shops, located predomi-nantly at the west end of the District. Thisgrowth is reflected in the membership statis-tics of the Korean Apparel Contractors Asso-ciation of Greater New York, which was cre-ated in with a dozen companies andincreased its membership to contractors

in , of whom are located in the Gar-ment District. The association estimates thatit covers about percent of Korean contrac-tors who operate in the Garment District.13

These contractors have bought factories fromtheir Jewish and Italian predecessors and builton ethnic ties to develop a new cluster of pro-duction activities (Chin ). Replicating thestrategy of Chinese immigrants in the earlys, Koreans have entered the industrythrough the production of low-price sports-wear. However, they do not rely on their ownethnic group to mobilize labor, and they chieflyemploy Hispanic workers. Korean women aremore educated and fewer in number than theirChinese counterparts and have found work inmore lucrative segments of the local econ-omy.14 By contrast, large numbers of Hispanicimmigrants, many of whom entered the coun-try illegally, provide a cheap and flexible work-force in this highly competitive segment of thelocal apparel industry.

The Korean production pole presents seg-mentation characteristics similar to those iden-tified among Chinatown producers in the earlys: A core of large factories organized infamily groups maintain regular contractingrelations with manufacturers, and they aresurrounded by a periphery of smaller firmsthat absorb cyclical fluctuations in productdemand. Interviews in two large Korean fac-tories reveal that they are subject to strongerprice pressures and experience more volatileseasonal fluctuations in production than largeChinatown contractors, which translate intolower wages as well as a greater use of tempo-rary workers. The factories are also less sophis-ticated in terms of technology and workerskills, although they try to retain a stable coreof multiskilled workers.

This overview of changes in the contractingsegment of New York’s women’s wear indus-try reveals a complex pattern of segmentationbased on ethnicity, market segment, and size,

the last of these being closely linked to thenature of contractors’ relations with manufac-turers. Small Jewish and Italian contractorsoperate in the shrinking couture segment,while Chinese and Korean contractors are posi-tioned in the fast-growing sportswear segment.The former occupy a marginal position in theindustry, whereas some large contractors haveemerged among Asian firms, in both higher-and lower-price segments, by building stablerelations with large New York–based manufac-turers. Hispanics appear to be involved in pro-duction activities mainly as employees, andHispanic-owned firms seem to play a marginalrole in the local industry. This contrasts withthe experience of other ethnic groups, whichhave improved their position by moving eitherfrom contracting to manufacturing activities,as did the Jews and Italians, or from low-valueto high-value production, as did the Chineseand as Koreans may do soon.

The core-periphery pattern identified amongcontractors is consistent with Uzzi’s ()statistical analysis of contracting linkages inthe New York “better” dress segment. Study-ing subcontracting flows between fifty-fourmanufacturers and contractors, Uzzifound that the failure rate of contractors waslower for those producers that () had con-centrated exchange ties with manufacturers,meaning that they derived a substantial part oftheir activities from working with a few man-ufacturers; and () were part of a contractingnetwork including both concentrated and dis-persed ties, meaning that other contractorsworking for the same manufacturers did notdevelop similarly concentrated exchange ties.One can infer from these results that contrac-tors increase their chance of survival whenthey occupy a core position in contracting net-works that include both core and peripheralcontractors.

While the emergence of core contractors isa sign of economic performance and vitality,

the growing range of peripheral contractorsalso points to high vulnerability and precari-ousness in New York’s garment productionactivities. From the perspective of employ-ment, the most favorable conditions can befound in core firms operating in higher-pricesegments, as well as smaller firms belongingto traditional ethnic groups. In the low-skilledsegment, labor oversupply resulting fromimmigration flows is exerting intense compet-itive pressures, raising concerns over a returnof “sweatshops” in New York’s garment in-dustry (GAO , ).

Conclusion: Assessing the Future ofthe New York Garment Industry

The transformations reviewed in the precedingsections have deeply affected the social andinstitutional regulation of competition thatcharacterized the New York garment industryas an industrial district. On the one hand, eth-nic fragmentation appears to limit both socialsolidarity and social mobility within the localindustry. Although some forms of cooperationexist between firms belonging to different eth-nic groups, for instance, between sportsweardesigners and their core contractors, manufac-turers do not have a sense of moral commit-ment or responsibility toward the Asian andHispanic communities in which productionactivities are performed. Upward mobility alsoseems to occur predominantly within ratherthan across ethnic groups, as indicated by thediverse paths the various communities follow.In addition, continuous immigration flows gen-erate an oversupply of labor that eliminates animportant condition for local solidarity, namely,the bounded nature of local industrial-districtcommunities (Piore and Sabel ). Thesetransformations have resulted from one facet ofglobalization, the arrival of new Asian and His-panic immigrants in the local industry, but they

are also reinforced by its second facet, thedevelopment of global production networks.When considering the foreign ramifications ofthe local industry, both ethnic diversity andlabor oversupply reach impressive dimensionsand further limit social cohesion and solidaritywithin the industry.

On the other hand, changes in market con-ditions and industrial organization have con-tributed to intensify competitive pressuresamong local apparel firms. Stagnant demandand declining real prices for apparel products,greater market uncertainty, and retailers’growing power as a result of larger size andconcentration have combined to enhance pres-sures to cut costs and increase speed and flex-ibility. New York apparel firms have respondeddifferently to this changing environment, lead-ing to the emergence of distinct competitiveprofiles based on market specialization, size,and networking strategies, as well as internalskills and capabilities. These new patterns ofsegmentation among both manufacturers andcontractors are further dividing interestswithin the local industry.

In this context, competitive pressures aredisproportionately exercised on productionactivities, which constitute the most vulnera-ble segment of the local industry, and on thesmallest contracting firms and less-skilled pro-duction workers in that segment. Due to theweakening of its social and economic founda-tions, the local system of industrial relations isno longer able to stabilize contracting andemployment relations. Competition is suchthat neither collective agreements nor laborlaws provide a consensual framework for theoperation of local garment firms.

Will New York nevertheless remain a keylocation in the global apparel industry on thebasis of its specialization in the fashion-orientedwomen’s wear sector? From an American per-spective, Los Angeles appears to be New York’smost immediate competitor, and the substan-

tial growth of the former’s women’s wear in-dustry in the s and s has already off-set New York’s traditional dominance in termsof employment. Los Angeles has become animportant site for the design, marketing, andproduction of sportswear, capitalizing on thedistinctive “California style” of casual andactive wear (Institute for the Future ; Pit-man ). Los Angeles also presents the ad-vantages of a nonunion environment (althoughanti-sweatshop campaigns and governmentpressures have been particularly strong inrecent years in California) as well as greaterproximity to producers located in the Far East,Central America, and Mexico. New York, how-ever, retains an edge in arts and fashion thatgives the city a distinct advantage in higher-priced, more-sophisticated sportswear. For thisreason, sportswear designers such as CalvinKlein and Donna Karan will presumably re-mained anchored in Manhattan, and the cityshould retain a strong position in this segment.

The future of New York’s private-label seg-ment is more uncertain. The importance ofthe regional market will probably keep retail-ers attached to the city, and with them at leastsome of their design and sourcing activities.Whether these activities will be performed byretailers, by specialized private-label manufac-turers, or by both types of firms remains to beseen. Overall, the three competitive strategiesof brand building, service flexibility, and nichefocus identified by Kurt Salmon Associates() should provide a basis for sustainablecompetitive advantage to those New Yorkmanufacturers that are able to implementthem. Traditional manufacturers are increas-ingly marginalized in this new competitiveenvironment, but the ease of entry into thissegment might also continue to attract entre-preneurs, despite the fact that firms’ perform-ance might be short-lived.

Local contractors essentially work for NewYork manufacturers, so their development will

derive from the need for local sourcing. Theanalysis of subcontracting relations in NewYork City shows that large manufacturersimplementing global sourcing strategies doretain a local production base and that nichemanufacturers rely entirely on it. Local con-tractors should thus continue to grow, pro-vided they can meet the quality, flexibility, andcost requirements of these manufacturers. Tothis end, the efforts toward upgrading andrationalization that large Chinese contractorshave implemented need to continue and ex-tend to other ethnic groups involved in pro-duction activities. Future trends in immigra-tion also will influence the evolution of thelocal production base: On the one hand, con-tinuous immigration creates strong competi-tive pressures that undermine the stabilizationand rationalization of the local garment indus-try; on the other hand, local producers rely onan immigrant workforce and might suffer froma labor shortage if immigration flows wereto slow down significantly. Finally, the needamong both manufacturers and contractors todevelop firms’ skills and capabilities highlightsthe importance of local training institutions,such as the Garment Industry DevelopmentCorporation, and the linkages they are build-ing to local firms. These training initiatives arepart of a broader range of policies by whichnew forms of cooperative competition mightbe fostered in the local industry, in line withthe industrial-district argument.

The profile of the New York apparel indus-try has changed markedly since the s, withthe emergence of global manufacturers andtheir core contractors in new immigrant com-munities. The industry accommodates muchgreater diversity in terms of firm size andethnicity than it did up to the s, and itappears today as a miniaturized version of thevery global industry it helped develop. Thiscomplex pattern fits well with Sassen’s ()image of a “global city”: Globalization rein-

forces the role of key locations, such as NewYork City, but also produces new forms ofsegmentation within these urban centers. Bydoing so, it generates new growth opportuni-ties as well as new tensions in the social andinstitutional architecture of local industries.

Appendix: Methodology forCollecting and Analyzing Firm-Level Data in New York’sWomen’s Wear Industry

The collection and analysis of firm-level datain New York’s women’s wear industry aims atdeveloping an understanding of its industrialand social structure by identifying typical pro-files that could summarize the diversity offirms’ characteristics in this particular setting.The study was designed to identify possiblerelationships among: () firms’ economic char-acteristics in terms of product, market segment,size, age, and performance; () social charac-teristics, such as union status and ethnicity; and() characteristics of interfirm and intrafirmrelations, defined in terms of stability, skill lev-els and development, cooperation versus adver-sarial orientation, and geographic scope.

The method used was what Matthew Milesand A. Michael Huberman () refer to asmultiple-case studies, which allows us to formtypes or families based on similarities and dif-ferences between cases. Firms were selectedfrom the dress (Standard Industrial Classifica-tion, or SIC, ) and sportswear (SIC )sectors, which respectively accounted for

percent and percent of employment in NewYork’s women’s wear industry in , andfrom within the borough of Manhattan, where percent of the city’s employment in wo-men’s wear was located during (NewYork State Department of Labor, unpublisheddata). Firms’ addresses and the names of chiefexecutive officers (CEOs) were identified

through a variety of sources, including a list-ing of union firms maintained by the ILGWU,the records of public firms, and referrals fromother firms. This selection method tends tobias the sample toward large firms as well asunionized firms, as shown in Table .. Field

.. Characteristics of FirmsInterviewed in New York City’s Women’sWear Industry

Manufac- Con-turers tractors Total

(n�16) (n�24) (n�40)

Industry SectorsDresses (SIC 2335) 8 6 14Sportswear (SIC 2339) 8 18 26

Number of Employees�20 4 5 9�20 to 40 2 6 8�40 to 100 5 9 14�100 5 4 9

Annual Sales (U.S.$ millions)

�1 0 11 11�1 to 10 6 12 18�10 to 50 4 1 5�50 to 100 1 0 1�100 5 0 5

Date of ConstitutionBefore 1960 5 0 51960–69 4 0 41970–79 2 5 71980–89 4 9 131990–94 1 10 11

LocationGarment District 16 13 29Chinatown 0 11 11

Ethnic Group (CEOs)Jewish 13 1 14Italian 1 3 4Asian 0 19 19Other 2 1 3

Union StatusUnion 14 20 34Nonunion 2 4 6

.. Interview Guidelines

Economic CharacteristicsPrice segmentOwn/private label (manufacturers)Retail channel (manufacturers)Sales concentration and seasonalityAverage number of styles per year (manufacturers)Average number of garments per order (contractors)Product diversificationPerceived importance of design/quality/speed/costRange of functions performed/externalizedYear of establishment of the companyYears of CEO’s experience in the industry

(contractors)Number and location of companies/establishmentsNumber of employeesSales amount and profit levelsTrend in sales and profits (last three years)Use of new technologies (CAD, EDI, computerized

costing)

Social and Institutional CharacteristicsUnion status of production workersUnion status of trading partnersEthnicity of production workersEthnicity of CEO (contractors)

Contracting CharacteristicsStructure of contracting network (location, number,

size of manufacturers/contractors, concentration)Variation in number of contractors/manufacturers

over the yearFrequency and nature of interactionsTechnical/financial involvement of manufacturersContractor selection criteria (manufacturers)% of relationships older than 3 yearsEase in finding new orders (contractors)

Employment CharacteristicsEmployment seasonalityEmployee turnoverEmployment security policyCompensation level and system for production

workersHiring network and criteriaFormal and informal trainingWork organization% of multiskilled production workers (contractors)Human resource development policyAverage age of production workers (contractors)

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interviews were conducted during the summerand fall of with forty CEOs, includingsixteen manufacturers and twenty-four con-tractors, as well as five production managerswho supervised manufacturers subcontractingactivities.

To allow for cross-case comparisons, a sim-ilar interview guideline was used in all firmsstudied and adapted to the specificities ofmanufacturers and contractors. As summa-rized in Table ., the main topics coveredinclude firms’ economic and social character-istics, contracting relations between manufac-turers and contractors, and intrafirm relations.On that basis, firms were grouped according tosimilarities among their economic, social,employment, and contracting characteristics.The resulting classification distinguishes threemain categories of manufacturers and four maincategories of contractors. A detailed presenta-tion of the various firms’ profiles can be foundin Table . (also see Palpacuer , ).

To highlight the dominant patterns ofchange occurring in the New York women’swear industry since the s, these static,cross-sectional results were combined withsecondary data providing a historical perspec-tive on the local industry. In particular, inter-views were conducted from to withabout forty industry experts and representa-tives of industry institutions such as laborunions, employers’ associations, state agencies,training centers, and nonprofit organizations.Of an open-ended nature, these discussionsaimed at collecting background informationon changes in local industry structure, char-acteristics of local firms, and their relations tolocal institutions. They also allowed me to testand validate the typology identified on thebasis of firm-level interviews.

Notes

. U.S. Department of Labor, Bureau of LaborStatistics (BLS), Current Employment Statistics(SIC ), annual survey. Available at <http://www.bls.gov/bls/employment.htm>.

. Ibid. (SIC ).. Ibid. This source provides the most recent

data on employment in New York City, whereas theCensus of Manufactures provides data for years priorto . Differences in data collection proceduresaccount for variations in reported employment fig-ures, and hence in the relative share of New YorkCity, between the two sources.

. Although employment subsequently declinedunder the impact of NAFTA, California remainsthe primary American site of women’s wear pro-duction, with ninety-three thousand workers in (BLS, Current Employment Statistics, SIC ).

. The price classification of women’s wearproducts corresponds approximately to the follow-ing scale of unit retail prices: below $ (popular),$ to $ (moderate), $ to $ (better), $

to $ (bridge), $ to $, (design), over$, (couture).

. Information on business characteristics andfinancial performance of publicly traded companiesis based on -K annual reports from the U.S. Secu-rities and Exchange Commission. Information onprivately owned companies is based on interviewswith CEOs conducted in the summer and fall of (see Appendix).

. According to Dun and Bradstreet data for, firms with annual sales over $ million rep-resent only percent of women’s wear manufac-turers located in New York City but account formore than percent of local sales.

. On this topic, see the special issue of Women’sWear Daily ().

. This estimate is based on interviews with largeNew York manufacturers, as well as information pro-vided in -K annual reports of public companies.

. Based on Waldinger (, ) for earlys lead time and CEO interviews for early slead times.

. This definition is adapted from Uzzi’s(, ) conceptualization of close, or embed-ded, subcontracting relationships in the New York

City women’s wear industry, distinguishing thethree main dimensions of trust, fine-grained infor-mation exchange, and joint problem solving. WhileUzzi () considers exchange concentration anindicator of embeddedness, the relative amountand stability of contract work are here consideredas a distinct, conceptually significant parameter inthe subcontracting relationship. The two dimen-sions of information exchange and joint problemsolving are also subsumed into the specific-skilldevelopment dimension.

. These estimates are based on interviewswith twenty-four contractors, including three largeChinese groups, as well as industry experts (seeAppendix).

. From an interview with the general managerof the Korean Apparel Contractors Association ofGreater New York in July .

. Ibid.

References

Abeles, Schwartz, Haeckel and Silverblatt, Inc.. The Chinatown Industry Study. Preparedfor Local ‒, International Ladies’ GarmentWorkers’ Union and the New York Skirt andSportswear Association. New York: Abeles,Schwartz, Haeckel and Silverblatt.

Abernathy, Frederick, John Dunlop, Janice Ham-mond, and David Weil. . A Stitch in Time:Lean Retailing and the Transformation of Manu-facturing: Lessons from the Apparel and TextileIndustries. New York: Oxford University Press.

Apparel Industry Magazine. . “The Quick Re-sponse Handbook.” Supplement to the Marchissue of Apparel Industry Magazine. Atlanta: Ap-parel Industry Magazine.

Bailey, Thomas. . Immigrant and Native Work-ers. Boulder, Colo.: Westview Press.

Blumenberg, Evelyn, and Paul Ong. . “LaborSqueeze and Ethnic/Racial Recomposition inthe U.S. Apparel Industry.” In Global Produc-tion: The Apparel Industry in the Pacific Rim, ed.Edna Bonacich, Lucie Cheng, Norma Chin-chilla, Nora Hamilton, and Paul Ong, pp. ‒

. Philadelphia: Temple University Press.

Brookman, Faye. . “Chinese Firms ShedSweatshop Image.” Crain’s New York Business(March ): .

Carpenter, Jesse T. . Competition and CollectiveBargaining in the Needle Trades, –.

Ithaca, N.Y.: Cornell University Press.Chin, Margaret. . “Working in the City: Chi-

nese and Latino Garment Workers.” Paper pre-sented at the Eighty-ninth American Sociologi-cal Association (ASA) Conference, Los Angeles.

Friedman, Arthur. . “They’re Still Making It inNew York.” Women’s Wear Daily, August , .

———. . “New York Manufacturing: Speed’sthe Thing.” Women’s Wear Daily, August , .

Furman, Phyllis. . “Leslie Fay Rocking Chi-natown Jobbers.” Crain’s New York Business(April ‒): .

General Accounting Office (GAO). . Sweat-shops in New York City: A Local Example of aNation Wide Problem. GAO/HDR--BR.Washington, D.C.: U.S. General AccountingOffice.

———. . Garment Industry: Efforts to Addressthe Prevalence and Conditions of Sweatshops.GAO/HEHS--. Washington, D.C.: U.S.General Accounting Office.

Gereffi, Gary. . “The Organization of Buyer-Driven Global Commodity Chains: How U.S.Retailers Shape Overseas Production Networks.”In Commodity Chains and Global Capitalism, ed.Gary Gereffi and Miguel Korzeniewicz, pp. ‒

. Westport, Conn.: Praeger.Helfgott, Roy B. . “Women’s and Children’s

Apparel.” In Made in New York, ed. M. Hall,pp. ‒. Cambridge, Mass.: Harvard Univer-sity Press.

Institute for the Future. . The Apparel Indus-try: The Other California. Report R-. Preparedfor the California Department of Commerce byInstitute for the Future, Menlo Park.

Kurt Salmon Associates. . Keeping New Yorkin Fashion. Report prepared for the GarmentIndustry Development Corporation. New York:Kurt Salmon Associates.

Miles, Matthew B., and A. Michael Huberman.. Qualitative Data Analysis. d ed. Thou-sand Oaks, Calif.: Sage Publications.

Palpacuer, Florence. . “Stratégies compétitives,gestion des compétences et organisations enréseaux: Etude du cas de l’industrie New-Yorkaise de l’habillement.” Unpublished Ph.D.diss., University of Montpellier, Department ofEnterprise Law and Management, Montpellier,France.

———. . “The Development of Core-Periph-ery Forms of Organizations: Some Lessons fromthe New York Garment Industry.” DiscussionPaper, DP/⁄. Geneva: International Insti-tute for Labour Studies.

Pashigian, Peter. . “Demand Uncertainty andSales: A Study of Fashion and Markdown Pric-ing.” American Economic Review , : ‒.

Piore, Michael J. . “United States of Amer-ica.” In The Re-emergence of Small Enterprises:Industrial Restructuring in Industrialized Coun-tries, ed. Werner Sengenberger, Gary W. Love-man, and Michael Piore, pp. ‒. Geneva:International Institute for Labour Studies.

Piore, Michael J., and Charles F. Sabel. . TheSecond Industrial Divide. New York: Basic Books.

Pitman, Beverley A. . Enforcing Labor Laws inthe California Garment Industry. Report preparedfor the International Ladies’ Garment Workers’Union. Los Angeles: Graduate School of Archi-tecture and Urban Planning, University of Cal-ifornia at Los Angeles.

Sassen, Saskia. . The Global City: New York,London, Tokyo. Princeton, N.J.: Princeton Uni-versity Press.

Schlesinger, Emil. . The Outside System of Pro-duction in the Women’s Garment Industry in the

New York Market. New York: International La-dies’ Garment Workers’ Union.

Schmitz, Hubert. . “Small Shoemakers andFordist Giants: Tale of a Supercluster.” WorldDevelopment , : ‒.

Steele, Peter. . Hong Kong Clothing. Specialreport . London: Economist IntelligenceUnit.

Struense, Chuck. . “A New Contract for Chi-natown: A Cleaner Image.” Women’s Wear Daily,July , .

Taplin, Ian. . “Struggling to Compete: PostWar Changes in the U.S. Clothing Industry.”Textile History , : ‒.

Uzzi, Brian. . “The Sources and Consequencesof Embeddedness for the Economic Performanceof Organizations: The Network Effect.” Ameri-can Sociological Review (August): ‒.

———. . “Social Structure and Competitionin Interfirm Networks: The Paradox of Embed-dedness.” Administrative Science Quarterly

(March): ‒.

Waldinger, Roger D. . Through the Eye of theNeedle: Immigrants and Enterprise in New York’sGarment Trades. New York: New York Univer-sity Press.

Women’s Wear Daily. . “What’s in a Name? IsIt a Brand, a Private Label or a Store?” Info-track, a supplement to Women’s Wear Daily,November.

Zhou, Min. . Chinatown: The Socio-EconomicPotential of an Urban Enclave. Philadelphia:Temple University Press.

Judi A. Kessler

The Impact of North American

Economic Integration on the

Los Angeles Apparel Industry

Introduction

Since the s the Southern California ap-parel industry has defined a look that hasevolved into a lexicon of cutting-edge contem-porary casual wear, primarily for women andgirls. This includes a strong emerging nicheof active wear: men’s and women’s fashionsgeared to a variety of outdoor and indoor activ-ities from snowboarding to skateboarding. LosAngeles County is the largest apparel produc-tion center in the United States. Its garment-manufacturing base has continued to grow, interms of both employment and company start-ups, while most other U.S. garment produc-tion centers have experienced steady, pro-nounced declines. The distinctive demands ofthe industry—including rapid turn time1 andmultiple fashion cycles—have created, on thebacks of waves of immigrant workers, a strong,geographically concentrated industrial district.

At the turn of the century, the Los Angelesfashion and apparel production industry—thelargest in the nation—finds itself in a periodof significant transition. This chapter focuseson the evolution of Southern California as a

major center of garment production and thechanges that occurred there during the s,particularly since . Although a number ofcontributory factors can be identified, arguablythe single most important development affect-ing the industry at the turn of the century isthe decade-long process of North Americaneconomic integration, culminating with thepassage of the North American Free TradeAgreement (NAFTA) in December .

The results of two surveys of Los AngelesCounty apparel manufacturers2 conducted in and (Kessler) and (Kessler andWong) provide micro-level insights into andstatistical data on how North American eco-nomic integration and NAFTA have shapedthe production strategies, relocation decisions,and hiring practices of Los Angeles manufac-turers and, ultimately, the face of the largestapparel production center in the UnitedStates. Post-NAFTA production arrange-ments represent a variety of dynamic cross-border production alliances not possible before (Kessler a, b). These alliances,in turn, are transforming garment productioncenters on both sides of the border, transna-

tional networks, and the larger North Ameri-can apparel commodity chain in which theyare embedded.

The Evolution of SouthernCalifornia’s Garment Industry

Garment production in California can betraced back to the s. Before World War Ithe industry was centered in San Francisco,but Los Angeles replaced the Bay Area as thedominant center of production after the war,when “the burgeoning of the motion pictureindustry . . . produced a nation-wide interestin Hollywood styles which was quickly andexpertly capitalized upon by the state’s ap-parel industry” (Goodman , in Bonacichand Appelbaum , ). Through the suc-cessful promotion of Hollywood-style linesof clothing—the “California look”—and theavailability of a large pool of immigrant labor-ers, Los Angeles became the fourth largestgarment center in the country by (Louckyet al. ). Currently, over percent of theCalifornia apparel industry is located inSouthern California (LAEDC , ). Interms of employment, Los Angeles County,whose apparel employment in repre-sented almost percent of total manufactur-ing jobs in Los Angeles (LAEDC , ), isranked the largest garment district in theUnited States.

In the early years, garment making inSouthern California was dominated by theproduction of men’s wear, and most manufac-turing was done in-house rather than con-tracted out. However, the industry ultimatelyfound its niche in casual yet fashionable, mod-erately priced sportswear, especially for youngwomen (although almost every type of gar-ment is produced in Los Angeles). Most pro-duction is now contracted out, either offshoreor to local garment contractors, many of whom

are Asian immigrants and who employ mostlyLatino and some Asian immigrant workers.Gradually, the Los Angeles fashion district3

grew to embrace the larger Southern Califor-nia region, although downtown Los Angelesalone boasts a high concentration of apparelfirms, contracting factories, supporting infra-structure, and specialized labor markets, all thehallmarks of a vibrant industrial district.4

Although traditionally defined by its hugemanufacturing base, the Los Angeles apparelindustry thrives in large part because LosAngeles is a major style center, owing to itstraditionally close ties to the entertainmentindustry and its image as a mecca for casual,outdoor, active living. In addition, as a majormetropolitan area Los Angeles is home to awide variety of fashion-related business serv-ices and educational institutes. These includefinancial consultants and legal firms spe-cializing in the apparel sector, cross-borderproduction consultants, apparel design andmarketing schools and programs, technicalcolleges, advertising agencies, compliance andmonitoring consultants, and buyer-targetedseasonal apparel shows. Finally, Southern Cal-ifornia is home to an enormous population ofimmigrants, the majority of whom emigratedfrom Mexico and Central America. Close to percent of apparel production-line opera-tors are of Mexican origin. The plentiful sup-ply of low-cost garment workers has sustaineda large sewn-products manufacturing base,while the industry’s ongoing labor needs have,in turn, served to attract large numbers ofimmigrant workers to Los Angeles.

Nevertheless, the clustering effects andcentripetal forces of industrial geography arematched by the opposing centrifugal forces ofglobalization and economic regionalization.Although NAFTA has generated a wave ofnew Southern California–based services geared tothe industry, its effect also has been to pullsegments of the apparel commodity chain

..

from Los Angeles to Mexico. This trend willincrease as Mexico hones its capabilities andincreases its capacity for full-package produc-tion.5 Gary Gereffi suggests that the govern-ing agents in the North American apparel sup-ply chain are likely to be “coordinating hubs ofdesign, marketing, distribution and other ser-vices headquartered in several regional nervecenters of the United States (such as Los An-geles)” (, ‒). By all indications, theLos Angeles apparel district is transforminginto an industry that will one day be definedby its knowledge-intensive activities ratherthan by labor-intensive manufacturing. Sewingoperators are losing hours, pay, and jobs, andcontractors are rapidly downsizing as produc-tion leaves the region, while more jobs arebeing created in the upstream and downstreamactivities of product development and mar-keting. One Los Angeles journalist who fre-quently reports on the industry predicts that“in another decade . . . the Southern Califor-nia apparel industry will be vastly changed,with greater opportunities for designers, man-agers and sophisticated production workersbut little room for basic sewing machine oper-ators” (Cleeland , A).

South of the border, Gereffi envisions “theemergence of ‘network clusters’ composed offiber, textile, apparel and perhaps even retailcompanies, each cluster with production baseslocated in different parts of Mexico” (,

). My findings support Gereffi’s predictions:Industrial clusters are rapidly developing innetworks that comprise Southern Californiaand garment-specific production regions inMexico. Because some NAFTA provisionshave yet to be phased in, we can expect to seechanges in the structure and function of thesenetworks. Players from both sides of the bor-der will seek alliances that best suit their pro-duction needs in the context of NAFTA, thecapacities of firms, and their positions in theapparel commodity chain.

Embedded in the North American apparelcommodity chain, U.S.-Mexican productionnetworks ultimately will assume a variety ofspatial and organizational characteristics, de-pending on the role coordinating agents—U.S.-based textilers, large retailers, brand-name manufacturers, and so on—play and thedegree to which they dominate productionclusters. This, in turn, has much to do withhow NAFTA provisions differentially benefitmills, manufacturers, retailers, and other typesof suppliers.

The Transnationalization ofLos Angeles–Based ApparelProduction

Well before NAFTA’s implementation, gar-ment manufacturing in Southern Californiahad become an externalized production activ-ity. Small independent contractors handled thelow-value-added activities of cutting, sewing,and trimming (more commonly known asCMT, or “cut, make, and trim”), while thehigher-value-added work of pre- and post-production remained in-house. As low-wageproduction was contracted out, so were theemployer risks associated with factory work,including employee turnover, layoffs associ-ated with seasonal production, and workforceunionization. As a result, contract manufac-turing became the hallmark of Los Angelesfashion and apparel production. As recentlyas , however, most Southern Californiaapparel manufacturers continued to resist thelure and problems associated with offshoresourcing and contracted their CMT work closeto home, usually within the Los Angeles gar-ment district.

In , Edna Bonacich and Richard Appel-baum conducted interviews with of thelargest Los Angeles apparel manufacturers.6

They found that about percent reported

.

doing some offshore production; of those, percent reported sourcing in Mexico (Bo-nacich and Appelbaum , ). Sixty per-cent of the firms surveyed were still sourcingall production in the Southern California area.When both domestic and offshore producerswere asked if they planned to shift productionto Mexico should NAFTA be approved, per-cent had definite plans to do so; percentreported that they had no such plans; and therest thought they might do so eventually.Between and , anecdotal evidence,along with a few small surveys,7 suggestedsome shift in production from Los Angeles toMexico since NAFTA.

From July to March , three andone-half years after NAFTA was enacted, Isurveyed a random sample of eighty manufac-turers, sixty-seven of which were from thegroup of firms that participated in Bona-cich and Appelbaum’s survey. My sampleincluded about half of the firms still inoperation in and closely resembles theoriginal data set of firms. In , withLinda Wong (of the Los Angeles–based Com-munity Development and Technologies Cen-ter), I conducted another survey of Los Ange-les apparel manufacturers from the same yearlyrevenue category ($ million or greater) asthose of and , along with a smallersample of firms with sales of $ to $ millionper year (Kessler and Wong ). (The

survey, which focused primarily on productionrelocation since NAFTA, was part of a largerresearch project that examined NAFTA-drivenchanges in the geography of apparel produc-tion and cross-border production alliances.)The survey reassessed sourcing patternsand also examined post-NAFTA changes inLos Angeles apparel employment across oc-cupational categories. (See the Appendix fordetails of both surveys’ methodologies.) Unlessotherwise indicated, the findings discussedbelow are from the survey.

Figure . reveals a significant surge in off-shore sourcing by Los Angeles–based apparelfirms. In , percent of large manufac-turers were sourcing at least some productionoffshore, up from percent in ; the fig-ure increased to percent by .8 In ,

percent reported sending production toMexico, up from percent in . Firmsthat source production in Asia increased from percent of total respondents in to

percent in .9 As Figure . indicates, theproportion of firms sourcing all productionlocally declined dramatically, from percentin to percent in . Of the re-spondents who indicated whether the moverepresented relocation or expansion of pro-duction (about one-half of the sample), theoverwhelming majority viewed the productionshift as a relocation. In terms of the labor-intensive segment of the production chain,this suggests a zero-sum outcome: rising em-ployment in Mexico and job loss in SouthernCalifornia.

In sum, between and , SouthernCalifornia’s apparel production became moreglobalized, with Mexico taking the lead as theprimary site for offshore production.10 Sourc-ing in Asia also increased significantly duringthe same period. Findings from both and suggest that companies which sourcedmost or all production locally tended to bethose in the higher-price-point categories (suchas “designer”) and those without the resourcesto establish production alliances with Mex-ico.11 However, Mexico has become the majoroffshore sourcing site for firms that producethe budget to moderately priced clothing thatdefines the Los Angeles industry. Figure .

summarizes these trends.According to the California Employment

Development Department (EDD) Los Ange-les County payroll data, apparel employmentincreased steadily in the s and peaked in at ,, after which it declined by

..

, between and (see Table .).As seen in Figure ., however, employmentduring Los Angeles’ peak apparel productionmonths of February through June began todecline a year earlier, in , three years afterNAFTA’s inception. This typical seasonal risein employment all but disappeared by .

Information gleaned from the EDD’s classifiedemployment ads in local trade publications, aswell as from informal interviews with industryexperts, points to significant changes in bothaggregate unemployment and the types ofoccupations in which job loss has been con-centrated. Although aggregate apparel employ-ment continues its steady decline, most of the

loss has been in the low-value-added occupa-tions of cutters, trimmers, warehouse work-ers, and, especially, sewing operators. Table .

summarizes a two-year EDD survey of apparelworkers, which found that between and (the most recent year for which disag-gregate employment figures are available) theindustry lost more than thirteen thousandsewing-operator jobs.

The decline in low-end jobs may be evenmore pronounced than these figures suggest.First, the EDD survey was conducted beforethe industry experienced its most pronouncedemployment decline, between and .

Second, official figures do not include undoc-

.

.. Los Angeles County Apparel Firms Sourcing ProfileSource: data: Bonacich and Appelbaum ; ‒ data: Kessler ; data:Kessler and Wong .

umented sewing operators who lost jobs orhours of work. Third, the EDD also foundthat in and the apparel industryadded more than seventeen thousand non-sewing-operator jobs (see Table .), whichoffsets the aggregate decline in overall employ-ment. As shown in Table ., while sewingoperators accounted for percent of totalapparel employment in , they representedonly percent in .

The Los Angeles garment district facesother problems. Los Angeles lags behind otherU.S. apparel centers in terms of technologicalupgrading, even in basic communications tech-nology such as electronic mail. Internationalexporting of finished goods produced by (butnot necessarily in) Southern California firms,while slowly increasing, remains at low levels,

despite recent efforts by industry lobbyinggroups to promote a global presence of the“Made in California” look. The highly toutedgovernment-industry partnership spearheadedby the Los Angeles Mayor’s Office and theSouthern California Edison Company (South-ern California Edison Company ) to up-grade the district is yet to be realized. LosAngeles’ textile industry is floundering in theface of competition from Asia’s textile firmsand, more recently, the crippling natural-gasprices generated by California’s energy crisis.12

Finally, sweatshops continue to proliferatewhile legitimate contractors struggle to keeptheir heads above water with less-frequent,smaller-volume, rapid-turnaround orders.

The region’s largest manufacturers anddesigners continue to consolidate through

..

.. Difference in February-to-May Apparel Employment, Los Angeles County,–

Source: California Employment Development Department, Labor Marker Information,Apparel (SIC ) Employment by Month.

.

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buyouts or licensing agreements, widening thegap between the giants and the smaller firms.Of the approximately fifteen hundred non-contractor apparel firms in Los AngelesCounty in (LAEDC , ), probablynot more than two hundred generate yearlysales revenues of $ million or greater. Thus,while small firms dominate the industrynumerically, it is estimated that the largest twohundred collectively account for close to two-thirds of the wholesale value generated by allfifteen hundred apparel companies (Bonacichand Appelbaum , ). Finally, while itonce was standard operating procedure forSouthern California firms to manufacture “in-house,” most apparel production in the regionis now sourced out, either to local contractorsor offshore. Most notably, the past five yearshave witnessed a steady, rapidly acceleratingproduction move to Mexico and, to a lesserdegree, the Asian region (Kessler ). Dur-ing this period, the average number of South-ern California contractors used per firm hasdeclined significantly, from sixteen in totwelve in (Kessler and Wong ).

Why Mexico?

Not surprisingly, factors related to companyprofit margins have figured most prominentlyin decisions to relocate production to Mexico.

Virtually all manufacturers sourcing in Mex-ico cited competition and rising productioncosts13 as major factors precipitating theirmove. Several companies maintained thatwhile labor costs were a major consideration,other factors were at least as important as thedifference in wages between Los Angeles andMexico. For example, according to one firm’sproduction and sales manager, the needleworkrequired for the company’s line of men’sknitwear is not done in Southern California;however, Mexico has qualified operators andequipment for this type of production. Simi-larly, a large manufacturer of swimwear saidthat while it had become increasingly difficultto find qualified swimwear operators in South-ern California, they were in plentiful supply inMexico, particularly in the region surroundingMexico City (Kessler and Wong ). Noneof the survey’s respondents cited union activ-ity as a factor in relocation.

The companies were asked if Mexico’s prox-imity to Los Angeles enhanced production interms of turn time. Approximately two-thirdsresponded affirmatively, while the rest said thatMexico’s geographic proximity was not a fac-tor for them. Interestingly, percent of themanufacturers who considered Mexico’s loca-tion an asset were not sending production there;similarly, about percent of the respondentswho reportedly saw no benefit in geographicproximity were producing in Mexico. While

..

.. Los Angeles County Apparel Industry Employment (SIC ): Sewing andNonsewing, Selected Years

1995 1997

% of Total % of Total Change 2001 ChangeEmployees SIC 23 Employees SIC 23 1995–97 Employees 1997–2001

Total SIC 23 106,500 100 111,000 100 4,500 97,800 (14,100)Sewing Operators 61,660 58 48,520 44 (13,140) nd ndAll Others 44,840 42 62,480 56 17,640 nd nd

Source: California Employment Development Department, , ‒, .

Note: Nd = no data.

Mexico’s closeness to Southern California isimportant to most manufacturers that are con-sidering offshore production, it is but one ofmany factors taken into account when strate-gizing production location. Proximity alone isnot reason enough to relocate production. Ofutmost importance to most manufacturers isthe quality and reliability of their supply chains.

Beyond In-Bond

One manufacturer in the survey cited theavailability of full-package production pro-grams, along with Mexican-manufacturedtextiles (a production arrangement typicallyfound in the newly industrializing economiesof East Asia), as the primary reason for havingrelocated to Mexico. In fact, this manufacturerplanned to shift “as much [Southern Califor-nia–based] production as possible, as quicklyas possible, to Mexico for full-package pro-duction.” Similarly, in the same survey a largemanufacturer of sportswear and swimwearreported plans to move rapidly from a plat-form of export assembly of precut fabric tofull-package production in Mexico:

I just returned from a meeting with Mexicancontractors around Textile City [in Cuer-navaca]. We talked about doing full-packagework, however it’s still in the talking stage.[But] once they are capable, then we will moveto full-package arrangements. . . . We have along way to go with Mexico, but it will hap-pen. . . . Some do well, some don’t . . . [how-ever] we have overcome the “time” problem—turnaround is now fine. But the problem is us,not them. If we provided the assistance theyneed, they would be fine. . . . Once they haveit, they have it.

Most industry experts agree that Mexico isdestined to shake off assembly of piece goodsand move steadily toward full-package pro-duction. Bruce Berton, with Stonefield Jo-

sephson (a leading accounting and consultingfirm for Los Angeles apparel manufacturers),envisions true full-package apparel produc-tion in Mexico developing over the next threeto five years. What many refer to as “almost-full-package”—more than just cutting andsewing but less than complete specificationcontracting—is becoming more common inLos Angeles–Mexico production alliances(Berton a, b).

Nevertheless, integrated production opera-tions in Mexico face a number of barriers thatare distinct to the country’s social, political,and economic infrastructure. Unlike East Asia,Mexico lacks the trading companies that bro-ker full-package production (see Appelbaumand Gereffi ). For example, in Hong Kongletters of credit are collateralized based on thereputation of the trading company and well-established business networks with banks andmanufacturers. Banks will most likely lend upto percent of the cost and charge a monthlyinterest rate on unpaid balances. By contrast,in Mexico collateral must be advanced eitherin real estate or dollars deposited as pesos in aprivate Mexico bank. The bank, in turn, takesabout percent off the top for handling,charging an additional percent devaluationfee if the collateral is presented in pesos. Thebank then advances about percent of pro-duction costs, at interest rates that reportedlyexceed percent per month, depending on thesize of the firm. The networks of trust thatoperate between Hong Kong and U.S. apparelfirms do not yet exist between Mexico and Cal-ifornia’s apparel manufacturers. Financing forfull-package production will most likely gothe route of factoring,14 which is beginning toexpand in Mexico. Also, revisions of Mexico’scomplicated banking laws should make creditmore accessible.

At least some Los Angeles manufacturersare ready to act on their belief that the Mex-

.

ican apparel industry is ultimately capable of“Asian-style” full-package production.15 Tar-rant Apparel Group, a large, publicly ownedLos Angeles–based private-label manufacturer,currently offers full-package services in Mex-ico through its enormous U.S.-Mexican net-work of textilers, manufacturers, finishers, anddistributors. Tarrant no longer produces gar-ments in the United States. Its Los Angelesheadquarters handle product development,design, and marketing, but all production activ-ities, including the acquisition of most rawmaterials, are carried out in Mexico and Asia.

Compared to the countries of East Asia,Mexico is a relative newcomer in the productionof world-class apparel for global companies.Most industry observers expect Mexico to con-tinue to manufacture in the foreseeable futurewhat the maquiladora system was known forbefore NAFTA: basic apparel, such as T-shirts,undergarments, and other items without muchfashion sensitivity. In the case of Los Angeles,it was assumed that firms carrying more fashion-sensitive lines would have them produced inEast Asia, if time allowed, or locally.

In , I found a significant correlationbetween production in Mexico and pricepoint. Manufacturers reporting “budget” and“moderate” price points (less fashion-sensi-tive clothing) sent more production to Mex-ico. In , by contrast, there was no signif-icant correlation between price point andMexican production. This suggests that Mex-ico is now manufacturing a wider variety ofapparel in terms of retail value. The

results should be interpreted with caution,however, since a firm producing at multipleprice points may be sending the basics toMexico and the fashion items elsewhere. Thesourcing profiles of firms in both and cannot be disaggregated for those com-panies with multiple price points or sourcingin multiple countries.

Where in Mexico? The Spatial Distribution of Networks

At the risk of oversimplifying the geographicdistribution of production in Mexico, I dividethe country into two general apparel produc-tion regions: the border and the interior. I fur-ther break down the interior of Mexico intofour subregions: central (the Federal District,the state of Mexico, and proximate regions),the west coast (which comprises part of thelarger Pacific Rim production region), thenorthern and northeastern states (excludingthe regions contiguous to the United States),and the south (including the Yucatán).16

There appears to be a significant shift inSouthern Californian sourcing, from thewestern border region to central Mexico. Thestates of Guanajuato, Puebla, Tlaxcala, and thegreater Mexico City area figure prominently asnew production sites. Also included is the westcoast state of Jalisco, located due west fromMexico City. In general, manufacturers whonow source in regions other than the border doso for two reasons: labor costs and quality. Iwas told that garment workers’ wages in theTijuana and Mexicali industrial districts arealmost on par with those of Southern Califor-nia (although, given the official wage statistics,this may be somewhat of an exaggeration).Nevertheless, labor costs have risen in theseareas much faster than in Mexico’s interior. Itwas also reported by the majority of firms withcontracts in Mexico that quality of productionis superior in the central Mexico factories. Thefew manufacturers interviewed who were be-ginning to source a significant proportion oftheir production in the Yucatán claim theybenefit from both low labor costs and high-quality finished products.

While it would seem that garment produc-tion will ultimately shift from the border tothe interior, a significant minority of firms

..

surveyed prefer arrangements with bordercontractors. The primary reason they havecontinued to contract in border districts is pro-duction turn time and related problems withground transportation: Labor costs are higheralong the border, but turn time and the risksof ground transport shipment hijackings aresignificantly decreased.17 Although the major-ity of Southern California apparel manufac-turers’ lines comprise budget and moderatelypriced clothing, some do require particularlyrapid turnaround, depending on the lines andthe vendors. Some firms reported that theywere better able to monitor quality control byoffshore sourcing as close to Los Angeles aspossible. Additionally, if runs shipped by bor-der contractors were unacceptable for ship-ment to retailers, they had some “breathingspace” to correct the errors locally. Finally, afew respondents have established extraordi-narily successful production networks throughinteresting mixes of contracting and joint-venture arrangements along the border andthe northwestern coast of Mexico.

Garment Services International18 (GSI) is acase in point. In business as a private-labelmanufacturer for five years, GSI manufacturedbetter apparel for such notables as Nike, Adi-das, and Eddie Bauer and had plans to expandinto licensed apparel manufacturing and todevelop its own brand labels. GSI distributedits production strategically, sending longer-runfull-package programs to Asia (where labor ischeapest) and orders requiring a quicker turntime to its factories in Mexico, while retainingthe most rapid turnaround items in its LosAngeles factories. The company owned two“full-service” factories near its Los Angelesheadquarters and two CMT factories near theU.S.-Mexico border (Garment Services deMéxico), and it sourced full-package produc-tion in Asia. Recently the company was soldand renamed; however, it continues to produceapparel and to source manufacturing globally.

GSI’s first foray into Mexico’s interior wasless than successful. According to its presidentand co-owner, Jim Reach, “We didn’t have theproper procedures in line [and] we failed mis-erably at the gates” (Reach ). After care-ful planning and consultation with outside pro-fessionals who had expertise in U.S.-Mexicanproduction alliances, Reach and his partnermoved production south again in early —this time to the border region (where laborcosts are substantially higher) and into GSI-owned factories. In August , I visited theTijuana factory and found that its workersearned well above minimum wage and aboutdouble the weekly wages of their counterpartsin the interior. Reach was willing to pay morein exchange for the benefits of the border’sproximity to his Los Angeles headquarters.

In sum, the advantages to border contract-ing are quicker production turn time and theability to better monitor the Mexico contrac-tors. Nevertheless, the majority of manufac-turers who source in Mexico have managed toestablish adequate production networks (albeitnot overnight) that use contractors in the inte-rior, reaping lower labor costs and more con-sistent quality. Some manufacturers use a mixof border and interior production, spreadingtheir lines and runs across border and interiorcontractors, depending on their particular pro-duction needs. In addition, several manufac-turers who are currently contracting along theborder region report that they have plans even-tually to relocate all Mexican production to theinterior, primarily because of increasing laborcosts at the border and problems with productquality.

Gereffi () identifies the southern partof Mexico as the “loser” in the restructuringof the North American apparel commoditychains, “in relative, if not absolute, terms.” Hepoints out that in the Yucatán accountedfor less than percent of Mexico’s maquiladoraemployees. Between mid- and August

.

, however, the number of maquiladoras inthis region grew from (with , employ-ees) to (with , employees) (INEGI, inTwin Plant News , ). Four firms inter-viewed in were sourcing in the Yucatánpeninsula, primarily in the picturesque colo-nial city of Mérida. One company, specializingin lines of girls’, children’s, and infants’ outer-wear, sends percent of its total volume tocontractors in Yucatán, and several Los Ange-les apparel consultants speak of a growing full-package production district in Mérida. Whilesouthern Mexico’s contribution to total apparelexports remains relatively small, industrial dis-tricts in the region have been growing rapidlysince NAFTA.

The Importance of NAFTA in ShapingCorporate Relocation Decisions

A report generated by the North Amer-ican Integration and Development Center(NAID) at the University of California, LosAngeles, asserts among other things that “thelowering of tariffs through NAFTA has nothad a significant impact on the rate of growthof imports or exports between Mexico and theUnited States, or on the composition of tradebetween sectors recently liberalized by NAFTAand those sectors still awaiting liberalization”(Hinojosa et al. , ). Moreover, it con-cludes that the peso crisis of December

“had by far the single largest impact on Mex-ican trade trends in the last years” (Hino-josa et al. , ). The report does note thatthe more labor-intensive sectors (such as ap-parel) have not yet been fully liberalized vis-à-vis NAFTA. Consequently, many of theiradjustments will be felt in the future.

Although the NAID report offers importantinsights into the impact of NAFTA on localemployment patterns across industrial sectors,it is inconclusive on the issue of the relativeimpacts of the peso devaluation and NAFTA

on apparel-production relocation from South-ern California to Mexico. Left unanswered isthe degree to which NAFTA and the Mexicanpeso collapse served as an incentive for LosAngeles apparel manufacturers to relocate pro-duction to Mexico. I examined this issue byasking each manufacturer in the survey torate the relative importance of six factors intheir willingness to relocate to Mexico: () eco-nomic liberalization in Mexico over the pastten years; () the December peso devalu-ation and collapse; () NAFTA; () the stabil-ity of Mexico’s political system; () the cost oflabor; and () the quality of production. I thenposed the question “Which do you consider agreater incentive to relocate production toMexico—the peso devaluation or NAFTA—and why?” Of the seventy-two respondents tothis question, percent considered NAFTAa greater incentive to relocate to Mexico, per-cent considered the peso devaluation a greaterincentive, and percent were not sure. (Onerespondent thought both were equally impor-tant, and six thought that neither mattered.)

Of those manufacturers who cited NAFTAas the greater incentive, close to half elabo-rated on their response. Although the answersvaried, the general sentiment was that, despiteits implications, the December peso de-valuation was a one-time occurrence; majorproduction changes should not be based onsuch phenomena as currency fluctuations; andthe long-term benefits of NAFTA far out-weigh any short-term benefits to be gained byexploiting the impact of a currency devalua-tion on labor and other costs. In the words ofone large manufacturer of women’s, misses’,and juniors’ sportswear, “A peso devaluationcan happen at any time; NAFTA is more per-manent.” Similarly, a smaller manufacturer,whose company was founded in the earlys, said that “NAFTA offers more oppor-tunity [in the long run]. We didn’t budge whenthe peso crashed.” Others offered similar

..

comments: “NAFTA makes it all worksmoothly. . . . [It] will result in development[of the apparel industry]”; “NAFTA openedup the market, makes it easier to do produc-tion”; “NAFTA makes production moreaffordable. . . . [The peso devaluation] has noimportance whatsoever.” Several manufactur-ers seemed surprised that the interviewerwould pose such a question: “The peso deval-uation is ‘history’!”

One chief financial officer who had been inthe apparel business for forty-five years did notmince words in his response: “The peso crashis a stupid reason to relocate production. [Cur-rency fluctuations] are always a crap game. Itcould happen any time, and it could recoverany time. The exchange rate (peso to dollar)has been very stable at . for a while. You’dhave to be a moron to [relocate production]based on the peso crash!” In fact, this manu-facturer, who now sources percent of hisproduction in Mexico, relocated the majoritywell before the peso collapse. In late thefirm moved toward a more permanent pres-ence in Mexico by building two factories closeto the border, while continuing to source fromsix contractors located in the interior.

Of the five manufacturers who viewed thepeso devaluation as the greater incentive torelocate production to Mexico, four cited priceand profit as the reason. According to a rela-tively small manufacturer of misses’ and jun-iors’ sportswear and dresses, “If money is whatit’s all about, [then] the peso devaluation ismore important.” Another manufacturer saidshe could make a “bigger profit” as a result ofthe peso collapse. Ironically, the former had noproduction in Mexico, and the latter had pro-duced in Mexico at one time but had sincepulled back to Southern California. In fact, ofthe five firms that chose the peso devaluationas the greater incentive to relocate production,only three were sourcing production in Mex-ico at the time of their interviews. In sum,

while cost and profit are undoubtedly foremostin the sourcing strategies of Los Angelesapparel manufacturers, most perceive NAFTAas more likely than the peso collapse to gener-ate cost savings and profit in the long run. Thisalso modifies the stereotype of the wildly foot-loose garment maker, jumping from country tocountry with each currency fluctuation.

Bonacich and Appelbaum join Raúl Hino-josa Ojeda and his coauthors in questioningthe magnitude of NAFTA’s impact on the LosAngeles industry. They emphasize that U.S.apparel production relocation predates thepassage of NAFTA, as represented by a

percent annual growth rate of U.S. apparelimports from Mexico between and .

They further argue that although this figuredid reach percent per year in the three yearsafter NAFTA’s inception, it does not neces-sarily indicate that production is leaving LosAngeles for Mexico; some of the growth couldbe attributed to Los Angeles–based companies,already sourcing offshore in Asia or the Ca-ribbean, that decided to move production toMexico after NAFTA (Bonacich and Appel-baum , ).

In theory this could be true; but the authors’own data suggest otherwise. Their sur-vey, conducted two years before NAFTA tookeffect, found only a few Los Angeles firms ( percent) sourcing in Asia and even fewer inCentral America and the Caribbean (Bonacichand Appelbaum ). Since the numberof firms with production in Mexico and thenumber of firms with production in Asia (andfirms with production both in Mexico and inAsia) have increased significantly, suggestingthat the distinct characteristics of Mexico andAsia—geographic proximity, capabilities, capac-ities, and costs—have made both sites increas-ingly popular for offshore apparel production.

Moreover, the individual needs of the man-ufacturers determine whether and where tosource offshore. For example, production pro-

.

grams that require relatively quick turnaround(two to ten weeks) are more likely to be donein Southern California (if they are highly fash-ion-sensitive) or Mexico, while longer-turn-time production of any sort (thirteen to eight-een weeks) is more suited for Asia. In fact,most large Los Angeles manufacturers sourcestrategically—that is, they send production tomultiple offshore sites, depending on the pricepoint and fashion sensitivity of their line. TheBonacich-Appelbaum survey also found thatvery little Los Angeles production was sent toCentral America or other Caribbean nationsin ; this continues to be the case in .

So it is also unlikely that any significant pro-portion of NAFTA-era Mexican sourcing isdisplaced production, either from the Carib-bean or from Asia.

In sum, the data that support the directrelocation (or expansion) from Los Angeles toMexico seem more convincing than the cir-cuitous route posited by Bonacich and Appel-baum (although the authors do acknowledgethe growing importance of Mexico as a U.S.garment production site). More recent find-ings also indicate that Mexican sourcing is pre-dominantly NAFTA driven. Of the thirty-eight respondents in who reported theyear their firm began sourcing in Mexico,

percent (twenty-five firms) first relocated pro-duction at least one year after NAFTA’s incep-tion and percent (five firms) in , for atotal of percent relocating after NAFTA.Respondents to the survey who weresourcing in Mexico were also asked when theyhad begun sourcing in Mexico and whetherNAFTA had been an important factor in theirdecisions to do so. Of the thirty-five whoresponded, percent relocated production toMexico after NAFTA’s inception and per-cent reported that NAFTA was a principal fac-tor in the decision to relocate.

The most compelling and direct evidence ofNAFTA’s impact on the Los Angeles apparel

industry, however, is found in employmenttrends over the past fifteen years. From to, the pre-NAFTA time period cited byBonacich and Appelbaum, during which U.S.apparel imports from Mexico increased by percent, aggregate employment in LosAngeles’ apparel industry also increased by atleast two thousand workers per year (see Table.).19 Three and a half years after NAFTA’spassage, however, employment leveled off, thenbegan a decline. These trends were concen-trated in the area of production activities thatMexico was increasingly assuming: cutting,sewing, finishing, and warehousing.

Why Not Los Angeles? Monitoring, Liability, and the Cost of Compliance

Monitoring for workplace compliance wasspearheaded by the U.S. Department of Labor(DOL) in the early s to help manufactur-ers avoid the shipping of “hot goods.”20 Since the DOL’s Wage and Hours Division hasconducted a number of compliance-monitor-ing workshops and manufacturing training sem-inars in the Los Angeles area. Overall, the Wageand Hours Division’s enforcement strategy—called the “No Sweat Initiative”—is to focus onlow-wage industries; its primary targets havebeen garment manufacturers in New York andLos Angeles. An additional enforcement toolis the Garment Enforcement Report, whichprovides the industry and consumers withinformation about contractors that violate theminimum-wage and overtime laws and whichmanufacturers are doing business with them.

In concert with the DOL’s efforts, a jointfederal-state Targeted Industries PartnershipProgram (TIPP) aims to bring the full weightof their combined laws on serious violatorsthrough periodic joint “sweeps” of factories.The program has four lead agencies: the

..

California Division of Labor Standards En-forcement (DLSE), the California Division ofOccupational Safety and Health (Cal DOSH),the California EDD, and the DOL’s Wage andHours Division. Since , TIPP has main-tained a “garment hot line” for reporting sus-pected violations. According to a January

report by the Los Angeles Jewish Commissionon Sweatshops,21 about sixty of Los Angeles’largest manufacturers had signed a DOLagreement that required their contractors tosign a compliance-program agreement22 (LosAngeles Jewish Commission on Sweatshops, ‒).

Virtually all large manufacturers have mon-itoring programs,23 whether they engage inself-monitoring through in-house programs,use independent consultants or auditors, or aremembers of Compliance Alliance, an organi-zation with its own monitoring protocols. Notsurprisingly, a number of manufacturers in mysurveys held escalating contractor compliance-enforcement efforts by state and federal offi-cials responsible in part for their productionrelocation to Mexico. Four manufacturerscited increased enforcement as the primaryreason for shifting production. Many moreoffered unsolicited comments and opinions onwhat one manufacturer termed “the price ofmonitoring compliance.”24

A minority of those surveyed expressed anuncompromising position in the face of gov-ernment demands for monitoring. One pro-duction manager of a sportswear company in-terviewed in was very straightforwardregarding his take on the issue: “Listen, I cantell you where all of this is leading: if the U.S.[government] puts any pressure on me, I willhave absolutely no problem pulling out andmoving [everything] to Mexico.” His firm iscurrently sourcing some production in Mex-ico, but he declined to state how much.

More commonly, manufacturers inter-viewed in and acknowledged that a

problem exists (no one who brought up theissue denied the existence of sweatshops inLos Angeles) but felt strongly that they shouldnot be made to shoulder the sole responsibil-ity of monitoring contractors’ compliance withlaws regarding wages, hours, and workplacesafety. The controller of a large manufacturingfirm that uses about fifty contractors perceivedthe dilemma this way:

We can’t meet price point because of the[U.S.] Department of Labor. . . . They areasking too much of us. . . . We can’t take [on]the responsibility. . . . If we have to be so selec-tive with contractors, we [won’t be able to]find enough in California. [We are faced with]two options: curtail business or go to Mexicoand continue to expand. We want to expand.

A controller with another firm voiced similarsentiments:

We are relocating for price, but you need tounderstand, it is not just the price of labor; itis the price of monitoring compliance. We justcan’t afford it, and we just can’t keep track ofthe operations of contractors, hours aday—it’s impossible. . . . We have to monitorthe “bad guys” very closely—if we don’t, theywill end up costing us in fines and confiscatedgoods.

A chief financial officer at a firm sourcingabout percent production in Mexico de-scribed in detail the arrangement his companyhas with an independent auditing firm:

What we do here is we contract with one ofthe independent auditors. They work for us.They go in and grade contractors: A, B, or C.“A” is impossible to maintain; “B” is a good,acceptable contractor. Most are “C.” We onlycontract with the “Bs”—we can’t find any“As.” The bigger, better [contracting] shopsget more work, have higher standards, lessturnover, and better working conditions.Unfortunately, Los Angeles has small shopscompared to other garment districts. The food

.

chain is fierce in this business. California isnow a police state. Monitoring is essential butthey [the government] just need to back off abit, ease off a bit, to keep manufacturing inbusiness.

In August the DOL’s Wage and HoursDivision posted the findings of its latest South-ern California garment-industry survey. (Fed-eral and state agencies have been conductingcompliance surveys every two years since.)25 The survey, conducted in Februaryand March , found that the overall level ofcompliance with minimum-wage, overtime,and child-labor requirements was percent,down from approximately percent in .

Shops with “thorough monitoring programs”in place fared somewhat better, with per-cent in compliance; only percent of thosewithout monitoring were in compliance. Nev-ertheless, the overall quality of Los Angeles’monitoring programs is suspect because overhalf the shops with supposed comprehensiveprograms were found to be in violation of U.S.labor law. Of the ninety-three contractors andeight manufacturers inspected, thirty-five werefirms previously investigated and found to bein violation. The level of compliance for thisgroup was percent—only slightly higherthan the overall compliance level (CaliforniaDLSE ; U.S. Department of Labor ).

The issues of manufacturer compliance,retailer-manufacturer joint liability, and labor’sright to collective bargaining were brought tothe fore in great part by lobbying efforts andcampaigns by the Union of Needletrades,Industrial, and Textile Employees (UNITE),other unions, and advocacy groups such as theLos Angeles Jewish Commission on Sweat-shops. Activists at California institutions ofhigher education are part of the larger nation-wide Workers Rights Consortium (WRC), apilot project in which students and faculty fromup to one hundred colleges and universities arepressuring their administrations to end the use

of sweatshop labor in the production of col-lege apparel. The WRC has won some highlypublicized victories, mostly on the East Coastof the United States. However, given the struc-ture of apparel production—its propensity forglobalized and decentralized production, aworkforce consisting primarily of documentedand undocumented immigrant laborers, fiercemanagement resistance to organizing efforts,and tensions between garment workers andmajor unions—along with the more generaldecline in unionization and the shrinking wel-fare state, it is unlikely that Los Angeles gar-ment workers will achieve union representa-tion in the foreseeable future.26

A number of factors account for the highlevel of noncompliance as well as the failure ofthe “No Sweat” campaign and the TIPP tobring the industry into compliance. First, as of the U.S. Department of Labor had a lit-tle more than nine hundred investigators acrossthe country to cover million workers in .

million workplaces; to say that staff is stretchedthin would be an understatement. Similarly, arecent study by the California Works Founda-tion found that enforcement of laws coveringwages, hours, and health and safety at the statelevel was lower in than at the turn of eachof the previous three decades. Although morethan one hundred enforcement positions wereadded to the DOL’s Wage and Hours Divisionin and , staff-to-worker ratios are

percent lower than they were in (Cleeland, C).

Second, although most large manufacturersdo have monitoring programs in place (and areextending them to their Mexican contractors),it is difficult to monitor effectively the activi-ties of a shop that is determined to violatelabor and safety laws. A manufacturer wouldneed to place monitors in all of its contractors’facilities, twenty-four hours a day, seven daysa week, to assure that work was not beingsent out as “homework” or subcontracted to

..

noncompliant shops. For a large manufacturerwith contractors numbering in the doubledigits, the cost would be prohibitive. Addi-tionally, most manufacturers argue that if thecompany has implemented an approved mon-itoring program, it should not and cannot beresponsible for workplace violations that occurin independent contractors’ facilities.

Finally, the structure of the apparel indus-try lends itself to varying degrees of noncom-pliance, including true sweatshop conditions.The industry remains primarily labor inten-sive and buyer driven, with profits skewed inthe direction of retailers. This translates intopressure on hundreds of manufacturers by arelatively small number of major retailers to fillorders at highly competitive costs. Manufac-turers, in turn, farm out the production tothose contractors in a pool of thousands whoare willing to operate on a slim margin of prof-it. Often, in order to break even on operatingcosts, contractors must (or choose to) violatelabor laws and pay sewing operators belowminimum wage. Sewing operators, who con-stitute the largest occupational group in theindustry, are typically immigrants, poorly paid,and often not proficient in English. Moreover,a significant number of operators are undocu-mented, working with papeles chuecos (falsedocuments). “Rather than view the state in-spectors as allies . . . workers worr[y] that the[government] raids would cost them precioustime at their machines. With piece rates drop-ping fast, they [have] to work harder andlonger to match earnings of just a year ago”(Cleeland , ). UNITE is the recognizedLos Angeles garment workers union, yet it has,by its own admission, fewer than one thousandmembers in Southern California. Garmentworkers are unwilling to associate with theunion for a variety of reasons, not the least ofwhich is the fear of retaliation or terminationby their employers.

The Changing Face of Los Angeles’New Apparel Workforce

Much more attention has been given toNAFTA’s impact on socioeconomic develop-ment in Mexico than to its effect on regionaleconomies in the United States. To cite declin-ing manufacturing employment or even de-clining aggregate employment in NAFTA-vulnerable sectors as the universal outcome ofNorth American economic integration ignoresthe dynamic mix of high- and low-value-added activities embedded in America’s newglobal cities. Unlike the cities of the past, “atthe hearts of geographically bounded regionswhose economies they center, [global cities]connect remote points of production, con-sumption, and finance” (Appiah ).

As a global city, Los Angeles is fast becom-ing the center of control and management ofan expanding transnational apparel productionregion, a high-value link in the apparel com-modity chain, which, in turn, has fostered theproliferation of a variety of nonmanufacturingapparel-related jobs. At the same time, how-ever, the thousands of immigrant workersemployed in garment manufacturing have seentheir numbers, employment options, and realwages diminish dramatically.

As noted earlier in the chapter, sinceNAFTA’s inception the Los Angeles apparelindustry has witnessed a decline in aggregateapparel-related employment, a loss of thou-sands of sewing-operator jobs, and a shrinkingcontractor base. Accompanying these trends,however, has been an increase in apparel-related white-collar employment, suggestingretention and consolidation of high-value pro-duction activities that require a growing baseof knowledge-intensive workers. Anecdotalevidence gleaned from open-ended interviewsand employment ads in trade publicationssuggests that at least part of the increase inhigher-end employment has been generated,directly or indirectly, by NAFTA.

.

In the first six months of , Linda Wongand I interviewed eighty-one Los Angelesapparel firms. Our principal aim was to explorethe effects of NAFTA on production sourcing,employment, and occupational distribution inthe Southern California apparel industry. Afull account and analysis of our findings isbeyond the scope of this chapter. However, theprincipal findings discussed below suggest thatLos Angeles is beginning to shed, in significantnumbers, its lowest-value-added productionactivities, which are now located in Mexico andelsewhere. At the same time, although theindustry retains a relatively large apparel-man-ufacturing base, it is increasingly identifiedwith knowledge-intensive activities on theapparel commodity chain, such as preproduc-tion product development and design andpostproduction marketing and merchandising.

As indicated in Table ., Los AngelesCounty lost at least thirteen thousand sewing-operator jobs during the post-NAFTA period,when sewing activities moved to Mexico andLos Angeles contractor utilization declined. Assuch, it is reasonable to attribute the loss ofsewing-operator jobs to NAFTA-related pro-duction shifts. Non-sewing-operator employ-ment, both in absolute numbers and as a pro-portion of total apparel-related employment,increased (see Table .). We found that halfthe firms currently sourcing in Mexico haveadvertised for or hired personnel in SouthernCalifornia who have NAFTA- and Mexico-related knowledge or expertise. While twenty-eight companies ( percent) attributed gen-eral increases in hires to company growth orincreased sales, twenty-two firms ( percent)reported increased personnel in occupationssuch as production management, quality con-trol, import-export expedition, and data entryas a result of production relocation to Mexico.By contrast, sixteen firms ( percent) reporteddecreased hiring or layoffs as a result of off-shore sourcing in Mexico and elsewhere. Ofthe sixteen, half reported job reductions in the

blue-collar occupational categories of sewing,shipping and receiving, and warehouse work.27

Tables . and . detail these findings.Findings suggest that NAFTA-driven re-

distribution of production activities and theconcomitant emergence of transnational stra-tegic production alliances have resulted in boththe creation of Southern California–basedknowledge-intensive jobs in the industry anda significant loss of labor-intensive sewing-operator and other blue-collar jobs. It shouldbe emphasized that the newly created knowl-edge-intensive jobs are, for the most part,structurally inaccessible to the majority of dis-placed production workers because of theseworkers’ lack of English proficiency, low lev-els of education, and insufficient skills andtraining. Nonunionized and with little politi-cal muscle, low-wage apparel manufacturingworkers are the least likely to benefit and themost likely to be marginalized by NAFTA-related industry transformations.

Under NAFTA’s provisions, U.S. workersmay apply for compensation if they are able toprove that they lost their jobs as a result of thetrade agreement. The UCLA NAIDreport found that neither apparel firms norgarment workers in Los Angeles had filedclaims with the government for jobs lost as aresult of NAFTA’s implementation, despitethe fact that apparel firms nationwide are over-represented in terms of filing such complaints.Thus, on the surface, NAFTA does not yetappear to have had a significant impact on theregion. However, the authors of the reportconvincingly argue that characteristics distinctto the Los Angeles garment district accountfor the lack of complaints. Los Angeles apparelfactories are too small to have the resources tomonitor and document NAFTA effects; fur-thermore, less than percent of Los Angelesapparel workers are unionized and thus with-out an advocate to voice their need for assis-tance (Hinojosa et al. , ‒).28 Add tothis the evidence that employment appears to

..

be increasing in the higher-value-added occu-pations, and we may reasonably conclude thatSouthern California has more displaced gar-ment workers than current complaints andofficial aggregate employment figures suggest.

Conclusion

Since the Los Angeles garment industryhas experienced significant changes in thesourcing patterns of its manufacturers and atransformation of its workforce. Findings from

surveys conducted in , , and

indicate that manufacturers’ sourcing patternshave become globalized, with garment-specificindustrial clusters in the interior of Mexicoemerging as principal sites of offshore produc-tion. Large, resource-rich manufacturers rep-resent the lion’s share of production relocation.The small number of designers and manufac-turers that constitute the fashion-sensitive sec-tor of the industry must, due to rapid turn timeand upscale lines, continue to outsource locally.However, greater profit margin per unit offsetsSouthern California’s higher costs of produc-

.

.. Factors Contributing to Increased Hiring, by Occupation and Number of FirmsReporting ()

Auto- Mexico/Company Increased mation/ NAFTA Offshore Growth Sales Acquisition Technology Production Sourcing Other

All Occupations 15 12 1 3 0 0 0

White-Collar 11 17 0 14 22 1 0

Retail 1 2 0 0 0 0 0

Sales/Mktg./Cust. Srv. 1 6 0 0 2 0 1

Accounts 0 0 0 1 0 0 0

E-Com./Info. Tech./Mgmt. Info. Sys. 0 0 0 5 0 0 0

Import/Export 0 0 0 0 3 0 0

Office/Data Entry 2 2 0 6 4 0 1

Nonprod. Adm./Mgmt. 1 0 0 0 2 0 0

Non-CMT Prod./Prod. Asst./Mgmt. 1 2 0 1 6 1 1

Design/Design Asst. 2 3 0 1 0 0 3

Specifications/Piece Goods 1 0 0 0 0 0 0

Quality Control 2 2 0 0 5 0 1

Skilled Blue-Collar 4 1 0 0 0 0 0

Pattern/Sample Maker 4 1 0 0 0 0 0

Blue-Collar 5 5 0 0 1 0 0

Ship./Rec./Warehse. 2 2 0 0 0 0 0

CMTa 3 3 0 0 1 0 0

All Unskilled Labor 0 0 0 0 0 0 0

Source: Kessler and Wong .

aCut, Make (sewing); Trim: Most manufacturers do not employ CMT; CMT work is done by contractors, which were not includedin this survey.

tion. The large number of small manufactur-ers producing lower-price-point lines lack theresources to develop production alliances withMexico and are, for the most part, captive toSouthern California.

While employment in apparel-related sec-tors decreased steadily on the national level,the Southern California region experienced anet gain in apparel jobs for at least fifteen years.Between and , every state exceptCalifornia posted a decline in apparel employ-ment. New York, New Jersey, Pennsylvania,

and Massachusetts lost over half their appareljobs. An exception to this pattern was Califor-nia, which added about fifty-thousand jobs,most of which were concentrated in Los An-geles. From to officially recordedemployment grew steadily, from an average ofroughly , workers in to , in—a percent increase.29 Beginning inmid-, however, aggregate apparel employ-ment leveled off and began a downward trend.

The Los Angeles apparel industry isemblematic of the uneven distribution of

..

.. Factors Contributing to Decreased Hiring, by Occupation and Number of FirmsReporting ()

Sales Auto- Mexico/Company Decline/ mation/ NAFTA Offshore

Contraction Fluctuation Technology Production Production Other

All Occupations 4 2 0 1 1 1

White-Collar 11 21 6 1 4 2

Retail 0 1 0 0 0 0

Sales/Mktg./Cust. Srv. 2 5 0 0 0 1

Accounts 0 0 0 0 0 0

E-Com./Info.Tech./Mgmt. Info. Sys. 0 1 0 0 0 0

Import/Export 0 0 0 0 0 0

Office/Data Entry 2 5 4 0 0 0

Nonprod. Adm./Mgmt. 0 0 2 0 1 0

Product Development 1 0 0 0 1 0

Non-CMT Prod./Prod. Asst./Mgt. 2 6 0 1 0 1

Design/Design Asst. 3 2 0 0 2 0

Specifications/Piece Goods 1 1 0 0 0 0

Quality Control 0 0 0 0 0 0

Skilled Blue-Collar 1 1 0 0 0 0

Pattern/Sample Maker 1 1 0 0 0 0

Blue-Collar 6 11 5 5 4 4

Ship./Rec./Warehse. 2 7 4 4 2 3

CMTa 4 4 0 0 2 1

All Unskilled Labor 0 0 1 1 0 0

Source: Kessler and Wong .

aCut, Make (sewing); Trim: Most manufacturers do not employ CMT; CMT work is done by contractors, which were not includedin this survey.

NAFTA’s benefits and the way in which theglobal economy recreates hierarchy and in-equality at the local level. The clear winnersare the large, resource-rich manufacturers andretailers that have capitalized on expandedopportunities for international sourcing. Thefuture is less certain for the plethora of smallapparel firms without the resources or infra-structure to establish profitable transnationalproduction alliances. While NAFTA bodeswell for the industry from a macroeconomicperspective, those least likely to benefit are thehundreds of small manufacturers, thousandsof contractors, and many thousands of blue-collar workers who watch without recourse astheir orders and their jobs move south. In hercase study of the New York garment industry,Florence Palpacuer (Chapter in this book)points out that the smaller garment firms—“second-tier manufacturers”—have neitherthe resources nor “the sophistication neces-sary to manage global production networksand focus on local production and its ‘quickturn’ advantage.” The result is a growingnumber of “peripheral contractors” charac-terized by low technology, lack of industryexperience, and high employee and companyturnover. Jamie Peck (, ) refers to thisas “in situ restructuring strategy,” as opposedto “spatial restructuring strategy,” which isbuilt around offshore sourcing.

Several projects are in the works to helpapparel contractors upgrade and develop thecapacity for private-label manufacturing. Mostof these programs have failed, however, prin-cipally because they lacked the capital andknow-how required to move from garmentcontracting to manufacturing. Aside from thestart-up costs, which are formidable, contrac-tors must develop infrastructures for productdevelopment, design, and other pre- and post-production activities. In a similar vein, therehas been much talk recently among industryplayers about upgrading the skills of Los

Angeles garment workers. In fact, most train-ing programs currently in operation are gearedeither to produce more sewing operators inorder to maintain a healthy supply of low-wageworkers or to offer training in higher-skilledpositions, with entry prerequisites far abovethe skills and education of most sewing oper-ators. Few programs exist, in either the pri-vate or the public sector, that adequatelyaddress the needs of the thousands of immi-grant workers who have been occupationallydisplaced as a result of NAFTA.

Finally, stepped-up monitoring for compli-ance and liability has undoubtedly figured indecisions to relocate production offshore.Increased efforts on the part of state and localgovernments to compel retailer and manufac-turer responsibility for wage and safety viola-tions roughly coincided with both the imple-mentation of NAFTA and increases in federaland state minimum wages. Those respondentsin my surveys who offered comments on theunionization of apparel workers did not con-sider union organizing efforts a threat to localproduction. However, many did cite escalat-ing pressure by the government to hold themresponsible for their contractors’ work envi-ronments as contributing to their decision torelocate production offshore.

As firms increasingly source their produc-tion in Mexico, what will be left in Los Ange-les? No one can say for certain whether theindustry will go into decline or experienceresurgence in higher-value, more fashion-sen-sitive production. Its strength lies in its flexi-bility, innovativeness, distinct image, anddesign. Nevertheless, NAFTA is drawing thetop end of production (in terms of firm sizeand resources) to Mexico. Left behind are fash-ion-sensitive firms that must keep productionclose at hand (and can afford to do so, based ontheir price point) and a growing number ofsmall manufacturers that have no recourse butto rely on local, often sweatshop, production.

.

As the transnational regional apparel econ-omy continues to restructure in the wake ofNAFTA, its future on both sides of the bor-der remains unclear. From an industry per-spective, the Los Angeles garment center andits hinterlands must let go of what it hasalready lost and move quickly and strategi-cally to exploit its competitive advantages. Itis likely that the Southern California apparelindustry will reemerge as a design, informa-tion, and high-technology center, efficientlynetworked to growing apparel productioncenters in Mexico.

In this scenario, the winners are found atthe highest-value-added segments of the ap-parel commodity chain: retailers, manufactur-ers, and skilled white-collar workers. The los-ers occupy the least-remunerated links in thechain: thousands of contractors, sewing oper-ators, and other low-paid blue-collar laborers.As economic integration creates new knowl-edge-intensive jobs, the fate of thousands ofsmall manufacturers, contractors, and displacedimmigrant garment workers challenges theintegrity and resources of a region in transi-tion from garment making to fashion creation,and from a site of local garment makers to acoordinating hub of global apparel production.

Appendix: Methodology

The research reported in this chapter was pri-marily obtained through two surveys, therebyproviding the only longitudinal study of lead-ing Los Angeles apparel manufacturers. Thefirst survey was conducted by Edna Bonacichand Richard Appelbaum in and included Los Angeles County manufacturers withannual sales in excess of roughly $ million(out of a population of approximately

apparel firms), accounting for an estimatedtwo-thirds of the dollar value of wholesale pro-duction (for details, see Bonacich and Appel-

baum ). The follow-up survey was carriedout by Judi Kessler from August to March. The ‒ survey represents the firstphase of a larger study that examines Mexico’srole in global apparel production as part of theSouthern California–Mexico transnational ap-parel production region.

The ‒ sample represents about halfof the firms surveyed in that werestill in operation (including eleven companiesnot surveyed in ). Of the firms sur-veyed in , have since relocated theirheadquarters outside Los Angeles County;

are no longer manufacturing or have closeddown; and have changed ownership. Of the remaining firms, was actually headquar-tered in Northern California at the time of the survey. Since this firm had a large distri-bution center in Los Angeles and was surveyedin , it was included in the populationof firms. The ‒ sample closely resem-bles the profile of the firms surveyed in ,

at least in terms of sales volume. We thereforeconclude that it is a fairly representativesample of our original data set. The firms’‒ yearly sales volume ranged from $.

million to $ million. Five percent of thesample had yearly sales under $ million;

percent, between $ million and $ million; percent, from $ to $ million; percent,from $ to $ million. Two percent fellbetween $ and $ million, and percenthad yearly sales volumes of $ million orgreater.

Finally, I conducted in-depth interviewswith apparel accountants, labor officials, con-tractors, apparel and textile manufacturers,representatives of government agencies, andleading figures in the industry in both South-ern California and Mexico to obtain a moredetailed understanding of the changes that hadoccurred since NAFTA.

In , Linda Wong of the CommunityDevelopment and Technologies Center and I

..

conducted eighty-one structured and semi-structured interviews with Los Angeles Countyapparel manufacturers. This sample differedfrom that of ‒ in that it included agroup of smaller manufacturers, with $ mil-lion to $. million in yearly revenues. Other-wise it closely resembled the earlier survey.The sample was derived from an updated ver-sion of the ‒ database of manufactur-ers, as well as lists provided by the FashionInstitute of Design and Merchandising, whichproduced a population of approximately threehundred Los Angeles apparel manufacturerswith yearly revenues of $ million or greater.In addition to gathering current data on man-ufacturers’ sourcing patterns, we asked ques-tions about the relationship between offshoreproduction and NAFTA and the firms’ hiringpatterns, practices, personnel demographics,and trends in the size of blue-collar and white-collar employee cohorts.

Notes

. “Turn time” refers to the time it takes to turnapparel specifications into a finished product.

. A manufacturer is defined as the designer,brand-name company, or producer of private-labelgarments. Manufacturers do little actual manufac-turing per se; instead, they coordinate production,as opposed to garment contractors, who are respon-sible for cutting, sewing, and finishing. Most South-ern California manufacturers outsource most or allproduction; their primary activities include productdevelopment, design, coordination of productionnetworks, and marketing and image creation.

. Recently the city, prodded by industry lead-ers, changed “garment district” to the more trendy“fashion district” in order to emphasize the indus-try’s higher-value-added activities.

. For an in-depth analysis of the constituentsand politics of the Los Angeles garment industry,see Bonacich and Appelbaum ().

. Full-package production (also called originalequipment manufacture, or OEM) represents a step

forward from garment assembly. In the latter, thecontractor is responsible for the assembly of precutfabric. In the former, the contractor coordinates the“full package,” from the acquisition of fabric, trim,and other materials to the production of a finishedproduct.

. These firms have yearly sales of $ millionor greater. This population accounts for approxi-mately percent of all Southern California man-ufacturers. The larger manufacturers, however, rep-resent an estimated two-thirds of the dollar value ofwholesale apparel production in the region (fordetails, see Bonacich and Appelbaum ).

. See, for example, Hinojosa Ojeda et al. ().. These are respondents in the $ million or

greater yearly sales category, which matches the and samples.

. Note that total sourcing percentages oftenexceed . This is because some firms have multi-ple sourcing sites.

. Trade enhancements granted to the Ca-ribbean Basin Initiative (CBI) countries under thenew Trade and Development Act of haveopened up Southern California to yet another off-shore production region. Future research will revealwhether Los Angeles manufacturers continue toshift production further south and how productionprocesses are apportioned among Southern Cali-fornia, Mexico, and Central America.

. We were surprised to find that firms onceconsidered too small to source offshore now have asignificant production presence outside the UnitedStates. Of the subset of twenty-four Los Angelesapparel firms interviewed in with yearly rev-enues of $ to $. million, almost half were sourc-ing at least some production outside the UnitedStates.

. Once home to an estimated ten thousandknitting machines, Southern California has lost anestimated one thousand machines as mills have beenunable to survive the recent skyrocketing natural-gas prices (Dickerson ).

. California state legislation mandated a min-imum-wage increase to $., effective March

(see DesMarteau , ).. In the textile and apparel industry, factors

advance funds to the manufacturer, based on col-lateral, previous-account credit approval, and a

.

commission. The factor, in effect, is actually buy-ing a percentage of the receivables from the manu-facturer and assuming full responsibility for theircollection (as well as the risk of default).

. See Gereffi () for a detailed account ofEast Asian production networks.

. The author’s fieldwork from to

was conducted in the city of Tijuana (border); Mex-ico City and the states of Mexico, Puebla, Morelos,and Guanajuato (central); and the state of Nayarit(west coast).

. According to Bruce Berton (a) of Stone-field Josephson, reliable freight transport servicesprovide full insurance coverage of transportedgoods. However, transportation of goods to theUnited States remains one of the highest costs ofdoing business in Mexico. Consequently, manufac-turers often try to cut corners by contracting withless-than-reliable ground transport services. Thereare some indications that recent anti-crime mea-sures implemented in Mexico seem to be payingoff: Truck robberies dropped from twenty-one aday in to sixteen in early , and hijackingswere down percent in the first four months of (Malkin , ).

. The name is not a pseudonym.. The exception was , a time of recession

in Los Angeles’ garment industry. The next yearsaw an increase of almost six thousand apparelworkers.

. The Fair Labor Standards Act prohibits theshipment of goods into commerce that have been(a) made in violation of minimum-wage or over-time provisions or (b) produced in an establishmentat which prohibited child labor is used. This lawaffects both the contractor and the manufacturer(who owns the goods). Hot-goods garments may beconfiscated by federal officials.

. The Los Angeles Jewish Commission onSweatshops was a coalition of Jewish educators,religious leaders, and activists. The commission’sprimary goal was to eradicate sweatshops and affordgarment workers the freedom to unionize withoutrecriminations. In general, its strategy was to forcethe larger Los Angeles manufacturers and contrac-tors into compliance by confronting them with theJewish religious perspective on labor rights. Most ofthe chief executive officers and owners of large

apparel firms self-identify as Jews and are active ina variety of Jewish charity organizations. The com-mission, created in , is no longer in existence.

. In an attempt to extend wage violations toretailers, the California legislature passed AssemblyBill (AB) , “The Garment Workers ProtectionAct,” in . The law’s original intent was to holdboth manufacturers and retailers responsible forminimum-wage and overtime violations by Califor-nia contractors. Proposed regulations for AB

were not issued until July . As of the fall of, the regulations had not yet been finalized foradoption, due to challenges by manufacturers andretailers over interpretations of AB ’s allegedlyambiguous wording. Most industry insiders expectthe law to be interpreted in favor of retailers, leav-ing them once again out of the liability loop.

. While most of the smaller manufacturersmonitor for compliance, some respondents to the survey indicated that they did not regularlymonitor their contractors, and two claimed they hadnever heard of monitoring.

. See Gereffi, Garcia-Johnson, and Sasser() for a discussion of apparel monitoring ini-tiatives in the United States, Mexico, and CentralAmerica.

. The U.S. Department of Labor’s Wage andHours Division, California’s Division of LaborStandards Enforcement (DLSE), and the Divisionof Occupational Safety and Health (DOSH) of theDepartment of Industrial Relations participated inthis survey. Civil penalties and Notice to Discon-tinue labor-law violations were issued to violators bythe DLSE. A total of eighty-three civil penalties inthe amount of $, were issued to employ-ers out of the inspected; failure to pay the min-imum wage accounted for twenty-two of the eighty-three penalties (California DLSE , ).

. Having seen the writing on the wall, UNITEhas increasingly turned its attention from the rap-idly declining U.S. textile and apparel workforce tounorganized workers in the service sectors, whosejobs are less vulnerable to the centrifugal forces ofglobalization (see Friedman , ).

. Most firms cited multiple factors responsi-ble for decreased or increased hiring.

. Despite the fact that over percent ofNAFTA-TAA (Trade Adjustment Assistance)

..

certified workers nationwide are in the apparelindustry and percent of U.S. apparel industryemployment is located in Los Angeles County, as ofMay there had been no apparel-sector TAAapplications, let alone certifications, in Los Angeles.

. These figures are for officially recordedworkers and employees only. Taking into accountthe underground economy, total apparel employ-ment at its peak was probably at least percenthigher than state data indicate.

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Los Angeles Economic Development Corporation(LAEDC). . The Los Angeles Area ApparelIndustry Profile. Los Angeles: LAEDC. May.

Los Angeles Jewish Commission on Sweatshops.. Los Angeles Jewish Commission on Sweat-shops. Self-published report, January.

Loucky, James, Maria Soldatenko, Gregory Scott,and Edna Bonacich. . “Immigrant Enter-prise and Labor in the Los Angeles GarmentIndustry.” In Global Production: The ApparelIndustry in the Pacific Rim, ed. Edna Bonacich,Lucie Cheng, Norma Chinchilla, Nora Hamil-ton, and Paul Ong, pp. ‒. Philadelphia:Temple University Press.

Malkin, Elizabeth. . “Sounding the Alarm inMexico.” Business Week, June .

Peck, Jamie. . Work-Place: The Social Regula-tion of Labor Markets. New York and London:Guilford Press.

Reach, Jim. . Interview with author, Los Ange-les, California, August.

Southern California Edison Company. . South-ern California’s Apparel Industry: Building a Pathto Prosperity. Self-published report, February.

Twin Plant News. . “Maquila Scoreboard.”Twin Plant News, February.

———. . “Maquila Scoreboard.” Twin PlantNews, February.

U.S. Department of Labor. . “Only One-third ofSouthern California Garment Shops in Compli-ance with Federal Labor Laws.” Press release, U.S.Department of Labor Employment Standards Ad-ministration, Wage and Hours Division, August. Available at <http://www.dol.gov/dol/esa/public/media/press/whd/sfwh.htm>.

..

Robert J. S. Ross

The New Sweatshops in the

United States: How New, How Real,

How Many, and Why?

Introduction

Starting in the late s, investigative jour-nalists noticed what they understood as thereemergence of extreme exploitation of labor-ers in the domestic United States apparelindustry (e.g., Buck ). Academic studies ofthe issue began to appear in the early s(Ross and Trachte ). But two challengesconfront the idea that sweatshops are reemerg-ing. One challenge contends that, like the poor,whom “always ye have with you” (John :),sweatshops were always with us, never reallygoing away (Proper a; Alman ; Ross). At the other extreme, one of the mostknowledgeable of all sociologists studying theapparel industry has argued in a highly tech-nical paper that sweatshops do not exist (Wal-dinger and Lapp ). He and his colleaguehave not been refuted in print. The task ofdetermining whether the new sweatshops arenew—indeed, whether they exist at all—is nota trivial exercise.

Assuming for the moment that sweatshopsdo exist, if they are new, then, logically, theymust have disappeared or become quantita-tively insignificant at some point. Causal expla-

nation would require isolating the conditionsthat changed.

The first task of this chapter is to showthe extent of sweatshop exploitation in theapparel industry in the current period. Thispart of the chapter meets Roger Waldinger’schallenge: The answer to “How real?” is sub-sumed in the answer to “How many?” Thenext challenge is to show that the type ofsuperexploitation of labor termed “sweat-shop” became quantitatively insignificant forsome period of time before the late s.This constitutes a response to the question“How new?”

I answer the question of why the new sweat-shops emerged by discussing changes in indus-trial structure, world trade, and state regula-tory capacity. The theoretical framework in thebackground is that of Global Capitalism (Rossand Trachte ). While Robert Ross andKent Trachte used the concept of “the dis-aggregation of the production process overspace,” the term global commodity chains (Ge-reffi and Korzeniewicz ) is both moreeuphonious and in wider usage among sociol-ogists, and I employ it here. I also touch brieflyon the concept “informal economy.”

Method and Definition

This research adopts a restrictive but objectivedefinition of a sweatshop: a business that regu-larly violates both wage or child-labor and safetyor health laws (U.S. GAO ). The definitiondepends on the Fair Labor Standards Act,which establishes a minimum wage and alsorequires premium pay for hours exceedingforty in one week. In addition, the Fair LaborStandards Act prohibits child labor and indus-trial homework in large branches of apparelmaking. Violations of state and federal work-place safety laws—for example, the regulationsenforced by the Occupational Safety and HealthAdministration (OSHA)—are also included inthe definition. The Wage and Hours Divisionof the U.S. Department of Labor is responsi-ble for enforcing the Fair Labor Standards Act.Local authorities (e.g., fire departments) arealso responsible for enforcing some safety laws.The U.S. Department of Labor and the apparelworkers union (Union of Needletrades, Indus-trial, and Textile Employees, or UNITE) oftensummarize the definition as “multiple labor-law violator” or “chronic labor-law violator.”By emphasizing persistent violations, the defi-nition includes nontrivial behavior and excludesoccasional lapses.

A clear logic led the General AccountingOffice (GAO) of the U.S. Congress to inventthis definition. Asked by a congressman toinvestigate the prevalence of sweatshops in thelate s, the GAO first had to define the con-dition for which it was looking. The GAOarrived at a definition that depends on the legalframework of minimum standards that hasevolved in the U.S. context over a period offifty years. This definition has the same virtuefor researchers as it has for the GAO: One canobjectively define a violator and thus count (orestimate) the number of violators. It is muchharder to study the prevalence of a conditionif each of its defining characteristics is sub-jective and totally contextual. The term sweat-

shop is a vivid metaphor for a “lousy” job (seebelow); the challenge for research is to turnmetaphor into something measurable.

There is a cost to the clarity thus gained.Even if an employer does pay the minimumwage and does pay an overtime premium forlonger hours, the ordinary moral sensibility ofour culture might still judge the wage too low.For example, the minimum wage will not lifta family of three out of poverty. By removingthe word sweatshop from the realm of meta-phor and subjective moralism to that of a legaltest, the GAO definition leaves many low-paying jobs with “lousy” conditions unsulliedby the label. Principally for this reason, theGAO definition is not consensual (Rothstein; Ross b; S. Green ; Waldingerand Lapp ; A. Ross , ).

The most common criticism of the legalis-tic definition is that it is arbitrary, and it con-fers moral dignity to bad pay. Yet, besides thefact that the GAO definition is most useful forresearch purposes, it may be defended on othergrounds. The framework of social protectionsembodied in labor and public health law de-fines what Karl Marx would have called the“historical and moral element,” which is partof the determination of the value of laborpower (Marx ). By reserving the termsweatshop for those workplaces that do notmeet even the low standards of public law, thedefinition denotes “superexploitation,” that is,something even more extreme than “low pay.”

In practice, shops in the apparel industrythat violate the wage or overtime laws almostalways violate both, which are known collec-tively as the “monetary provisions” of the FairLabor Standards Act. An even higher propor-tion violates OSHA safety regulations. Thus,in the ordinary discourse of enforcement—forexample, when the U.S. Department of Laborreleases quarterly enforcement reports as partof its “No Sweat” program—chronic and non-trivial minimum-wage violations are taken asindicators of sweatshop conditions.

. .

Looking for Covert Sweatshops

In an important article, Waldinger and Mi-chael Lapp () use an indirect and, indeed,ingenious method to claim there is little sweat-shop labor in the New York region’s apparelindustry. A discussion of their method andfindings illustrates the ambiguity of the idea of“informal economy” and the dangers inherentin its literal use.

Waldinger and Lapp argue that the con-sensus estimating technique that suggested asmany as fifty thousand sweatshop workers inNew York in the s is based on erroneousguesses. They point out that over the sa series of scholars (including myself) havegenerated estimates by citing each other’sguesses.

They then proceed to examine whetherindirect measures of sweatshops indicate amarked increase in “covert” workers.1 Theyargue that a marked decrease in manufactur-ing wages as a ratio of value added in manu-facturing would indicate an increase in covertproduction workers. The proportion of pro-duction workers to all workers should alsodecrease if a substantial fraction of produc-tion workers are working “off the books”—paid in cash by contractors. Waldinger andLapp demonstrate that wages as a proportionof value added declined by about percent inthe s and s in the nation overall, aswell as in New York and California. This de-cline indicates productivity gains but no dif-ferences between the nation as a whole and theareas likely to foster sweatshops. Further, theyfind no reduction in the number of productionworkers as a proportion of all workers in thegarment industry. They conclude that a low-wage immigrant garment industry exists butthat estimates of large increases in covert, orsweatshop, employment are overstated.

While there is reason for skepticism aboutestimates based on anecdote and even oninformed opinion, Waldinger and Lapp’s ap-

proach demonstrates severe methodologicalproblems. The most important problem isembedded in their definition of shops that are“off the books” and thus in the “informal sec-tor.” The authors assume that the bulk ofsweatshop workers will not show up as work-ers on tax or other official payrolls. Yet inves-tigators from the Wage and Hours Division ofthe U.S. Department of Labor and from theNew York Labor Department often find thatshops that are multiple labor or health-and-safety law violators do show up in officialrecords (U.S. GAO ). Evidence that themajority of sweatshops may be “visible” tosome official records appears in the GAOstudy of tax compliance of sweatshops in NewYork and California (U.S. GAO )—pub-lished after Waldinger and Lapp’s article.In that study, composed of the violators knownto the departments of labor of the two states,the GAO found that in New York City, fifteenof twenty-one sweatshops filed state taxes atleast once between and ; in Califor-nia, thirty-eight of forty-four had done so. Ofthe ninety-four sites (including restaurants)studied in the two states, only eight had notfiled unemployment payroll taxes.2

The idea of an informal economy does notrequire total invisibility. In apparel shops, forexample, workers are often asked to start workbefore they punch in on the legally requiredtime clock. Manuel Castells and AlejandroPortes (, ) note “the systematic linkagebetween formal and informal sectors, follow-ing the requirements of profitability” (emphasisadded). The informal sector, they say, “is un-regulated by the institutions of society in alegal and social environment in which similaractivities are regulated.” Indeed, as we see inthe apparel industry, the subcontracting sys-tem allows for an elaborate and complex texturein which the formal and informal, the recordedand unrecorded, are woven among closelyrelated though fictively distinct entities. Asbetween manufacturers and contractors, some

contractor practices are closely inspected (e.g.,quality control), while others “escape” thenotice of the commissioning principal; and thecontractors and their subcontractors recordsome activities that are legal, while others thatmay be illicit are “cash only.”3

The last point is especially significant forWaldinger and Lapp’s method because it sub-verts the statistical underpinning of their con-clusion. Indeed, their conclusion results inlarge part from their definition of sweatshopsas referring only to firms that are totallycovert. They write, “While Chinatown’s gar-ment contractors may include many firms thatcheat on hours and wage laws . . . they areclearly not underground” (Waldinger andLapp , ). Violations among New York’sChinatown contractors are difficult to find. YetMin Zhou () surveyed more than fourhundred of Chinatown’s women workers andfound their average wage was below the legalminimum. The Department of Labor foundthat percent of New York City’s Chinatownshops were labor-law violators (U.S. DOL). According to Waldinger and Lapp, how-ever, such employers are not sweatshops be-cause they are not “underground.”

Waldinger and Lapp used a very technicalinput-output technique and found no evidencefor a completely off-the-books apparel sector.Their conclusion should have been that theconcept of an informal sector is relative, notabsolute, instead of the conclusion at whichthey arrived: that there is no significant sweat-shop sector in the apparel industry.

The New Sweatshops: Prevalence

The evidence of sweatshop prevalence derivesfrom reports of state and federal departmentsof labor and GAO surveys, which, unlikeWaldinger and Lapp, examine compliancewith the Fair Labor Standards Act and OSHAregulations.

Los Angeles and Southern California,‒

Four times in the s the U.S. Departmentof Labor, the California State Labor Com-missioner’s Office, and California’s Occupa-tional Safety and Health Administration coop-erated in surveys of garment contractors inSouthern California and, in particular, in theLos Angeles region. The California Divisionof Labor Standards Enforcement (DLSE) ini-tiated a Targeted Industries Partnership Pro-gram (TIPP) in , and these surveys werea cooperative venture of TIPP (CaliforniaDLSE ). In and the firms sur-veyed were randomly selected from Califor-nia Employment Development Department(EDD) records of firms in SIC .4 Sincethe first survey () showed that percentof the firms were in the five-county area of theLos Angeles Basin, the survey focusedon this region. The data were then reanalyzedto make comparisons between them valid.

In , percent of the firms had eitherminimum-wage or overtime violations of thelaw; these are called the monetary provisionsof the Fair Labor Standards Act. Ninety-eightpercent had some general kind of violation,most frequently record keeping. The averagenumber of violations (out of ten categories)was four and one-half.5 By , percent ofseventy-six firms studied had monetary viola-tions. (The reduction was not statistically sig-nificant according to the California DLSE.)That year almost three-quarters of the firms( percent) had serious OSHA violations;

percent had minimum-wage violations; and

percent had overtime violations. The averageback pay owed due to minimum-wage viola-tions in was $, for each worker; theaverage back pay owed for overtime violationswas $,. At minimum wage ($. in ),the most a fully employed worker would havereceived annually for standard workweeks wasaround $,. The back pay due was almost

. .

percent of base pay; the overtime pay duewas just over percent. If a worker were sub-ject to both violations, she would have beenshort percent of potential base pay. None ofthese numbers is trivial for the working poor,although they were lower than the numbersfor (U.S. DOL ).

A voluntary program of compliance moni-toring, in which the “manufacturers” (i.e., job-bers who hire contractors) undertake to mon-itor the labor-law compliance of their agents,has been the primary enforcement innovationof the Department of Labor. Compliancemonitoring does, according to these surveys,reduce violations noticeably. The percentageof firms with wage liabilities was significantlyless for monitored firms ( percent) than forthose not monitored ( percent). A little lessthan half the firms studied ( percent) weremonitored.6

In the Department of Labor foundcompliance rates in Los Angeles had notappreciably increased (U.S. DOL ). InAugust the department and the cooper-ating California agencies released the results oftheir latest study to date: Only one-third ofgarment contractors examined complied withlabor law, and only percent of a randomsample of previously cited violators compliedwith the law (U.S. DOL ).

In sum, considerably over one-half of a ran-dom sample of firms engaged in apparel man-ufacturing in Southern California had multiplelabor-law violations in the mid-s, in par-ticular monetary and environmental law of-fenses. Estimates of the number of apparelworkers in the region run between , and,. These data justify an estimate that, to , workers labor in sweatshopconditions in Southern California. The surveywas repeated in and again in . TheU.S. Department of Labor has reported thatthe level of monetary violations, that is, mini-mum wage or overtime violations, has remainedthe same as that in —over percent.

San Francisco, ‒

In the smaller labor market of the San Fran-cisco Bay Area, in surveys whose details havenot been released, the U.S. Department ofLabor found Fair Labor Standards Act (wagesand hours) violations at lower levels— per-cent in and only percent in

(Fraser ). No improvement was made inthat small (ten-thousand-worker) labor marketby : Seventy-four percent of “Bay Areagarment businesses comply with the minimumwage, overtime pay and other requirements ofthe Fair Labor Standards Act, not a significantchange from a similar survey, and up . . .from percent in ” (U.S. DOL a).

New York ,

A U.S. Department of Labor survey ofninety-four New York City garment shops wasintended, as was the Los Angeles study,to create a baseline for future findings:

The New York City survey consisted of a ran-dom sample of the latest available informa-tion regarding known garment contractors inall five boroughs. Among other purposes, thisand other investigation-based surveys helpestablish a statistically valid baseline of com-pliance in order to track industry complianceover the long term. (U.S. DOL )

In this study the Department of Labor foundthat percent of the firms violated the min-imum-wage and overtime provisions of theFair Labor Standards Act, and percent vio-lated the record-keeping requirements of thelaw. In Chinatown, percent of the firms vio-lated the monetary provisions of the law. Thatyear one hundred thousand garment produc-tion workers were estimated to be in the NewYork area, so percent of the total would beabout sixty-three thousand workers—well overthe fifty-thousand-worker estimate (Ross andTrachte ) that Waldinger and Lapp ()criticized so harshly.

Throughout the period under discussion(the s to the s) employment in theapparel industry declined drastically, particu-larly in New York City. Apparel employmentin New York City declined from , jobsin , to , in , to an estimated, in the mid-s (Ross and Trachte; Proper b). The fifty thousand sweat-shop-worker estimate of the early s con-stituted a much smaller fraction of the totalapparel labor force than the fifty to sixty thou-sand estimate for the late s. The numberof sweatshop workers thus increased both rel-atively and absolutely.7 In contractorviolations of the Fair Labor Standards Actin New York continued at an unchanged rate(U.S. DOL b).

Underestimation? Estimation!

Whereas Waldinger and Lapp () exagger-ated the invisibility of the sweatshop sector ofapparel manufacturing, the U.S. Departmentof Labor and California DLSE data almostcertainly underestimate the size of the sector.The official agencies’ violations data are basedexclusively on firms that have some legal visi-bility to authorities. Contractors who aretotally cash based and have no legal existencedo not appear in their data; more important,the labor force of contractors who illegally giveworkers bundles to sew at home is absent fromthese data. Large segments of the Dallas gar-ment industry are thus excluded, not to men-tion New York’s Chinatown and numerousMexican workers in Los Angeles.

On the basis of the data from the two lead-ing production centers of the industry, LosAngeles and New York, more than percentof contractor shops in the visible industry arefound to harbor sweatshop conditions. In thelate s more than eight hundred thousandapparel workers were on record in the UnitedStates (Fraser ); this number includedover , sewing-machine operators and

another , employees in job categorieslikely to be found in contractor shops, forexample, dry cleaning. There are, then, about, recorded workers in apparel jobs whoare vulnerable to sweatshop conditions. Inaddition, it is likely that another percent ofthe sewing-machine operators are home work-ers or unrecorded. Adding percent of therecorded base and all the unrecorded sewingoperators produces an estimate of more thanfour hundred thousand workers laboring insweatshop conditions in the United States in.8 Strikingly, employment declined in thecentral apparel production segment of theindustry (the above estimate includes a smallportion of knitted products) by a full one hun-dred thousand workers between and

(U.S. Bureau of Labor Statistics ). Thenumber of sweatshop workers may thereforehave declined; the rate of abuse has not.

How New Are the New Sweatshops?Evidence for the Decline ofSweatshops

The evidence for sweatshop decline fromapproximately to the late s includesthe following sources:

• statements from officials and documents ofthe International Ladies Garment WorkersUnion (ILGWU);

• studies done by independent scholars;• examination of the conditions of Puerto

Rican workers in New York City’s garmentindustry in the s.

Quantifiable surveys such as those con-ducted in the s by the Department ofLabor and cooperating state agencies are notavailable to compare the s to the currentperiod. Instead, with one exception, reasonableinferences drawn from the observations ofknowledgeable analysts and our own logical ret-rospect must suffice to approach the question.

The exception, based on a casually observedfact in a journalist’s account of Puerto Ricanareas of Harlem in Manhattan in the s,allows a sketchy quantitative estimate of sweat-shop conditions in New York in that decade.

The Union Perspective

Publications from and statements by theILGWU support the view that sweatshopsdeclined for roughly a thirty-year period. Asearly as , a historian closely associatedwith the apparel unions wrote in the past tense,“In the old sweatshop days the garmentworker lived in an environment, industrial andsocial, which was a major outrage to every ruleof public health” (Stolberg , ).

In a report prepared for the ILGWU in, Emil Schlesinger9 also spoke of thesweatshop and sweatshop-related conditionsin past tense. His emphasis was mostly on theunion’s success at countering the effects of the“outside system of production,” that is, thenonunion subcontracting firms that oncewere the sweatshops of the apparel industry.Schlesinger remarked on how, “in the past,” anemployer would pay his overhead expensesand “with what little there was left, he wouldpay his workers. If nothing was left, his work-ers were not paid” (Schlesinger , ). Moreclearly, Schlesinger states, “The sweatshopshave been wiped out; the days of their exis-tence are among the most shameful pages ofrecorded history” (Schlesinger , ).

Also in the s, union officials consideredthe problem behind them. Speaking at thegroundbreaking ceremony for a union-spon-sored housing project, ILGWU presidentDavid Dubinsky said, as reported in theunion’s newspaper, “Now years later, thegarment workers return to their place of ori-gin. We have wiped out the sweatshop. Now wereturn to wipe out the slum” (Dubinsky ,

). When Dubinsky referred to this cere-

mony again in , he wrote of its Lower EastSide site: “Only a few of the old structuresremain standing on this site. When their wallscome tumbling down the last sign of the slumand the sweatshop will disappear for ever fromthis corner of Manhattan” (Dubinsky ,

). He described the sweatshops of the pastin somber tones: “There were rooms in thesehouses where the sun never shone. There wererooms in these houses in which children slavedover bundles of garment work, breathing inthe foul air that made them tubercular beforethey were grown up. There were rooms inthese houses in which, in a not too distant past,men and women worked to the point wherethey dropped” (Dubinsky , ). In con-clusion, Dubinsky stated, “We cannot forgetthe poverty, the sickness, the homework shops,the child laborers of their neighborhood”(Dubinsky , ). These statements sug-gest that in the eyes of the union leadership,sweatshop conditions, as early as the s andcertainly by the early s, were no longercharacteristic of the apparel workers’ condi-tions in New York’s industry.

Such claims might be viewed skeptically bythose knowledgeable about union politics.Dubinsky had risen to political dominance inhis union through a bitter struggle with Com-munist rivals who had a political followingamong Jewish garment workers in particular.They had been militant in the s and bit-terly critical of him in the s. Some mightclaim that, now ascendant while the Red Scareharassed his erstwhile enemies, Dubinsky wasmerely self-congratulatory. Certainly, HerbertHill, the labor secretary of the National Asso-ciation for the Advancement of Colored Peo-ple (NAACP), thought Dubinsky and hisunion were puffed up and evasive, for he ac-cused them of tolerating and even endorsingsweatshops for Black and Puerto Rican work-ers (Hill ). I address Hill’s claims directlybelow. However skeptical we might be about

. .

Dubinsky’s political motives, others moreremoved from the ambit of his political careerhave come to similar conclusions about sweat-shop decline.

Documentary and Economic Evidence

In her extensive research on apparel workersin Paris and New York, historian Nancy Greensurveyed union records exhaustively. Herconclusion was that “the labor history of theindustry as constructed through union recordscontrasts the sweatshops of the s to thesubsequent amelioration of conditions, thanksto union efforts and especially the legendary‒ strikes” (N. Green , ).

Green found corroborative evidence forthe union’s view. Among this evidence is thedecline of homework. Briefly, industrial home-work in the context of the apparel industryentails taking home sewing from a contractor’sshop or being assigned sewing by a contractorwithout ever working in or going to the factoryor workshop. The worst abuses of physicalenvironment and low pay apparently occurredin the crowded tenements of immigrant neigh-borhoods such as the Lower East Side of NewYork at the beginning of the twentieth century.

While New York State, in the years directlyafter the Triangle Shirtwaist Factory fire of, attempted to regulate and partially abol-ish homework, these laws were apparentlyineffective in eliminating substandard condi-tions (N. Green ). Under the NationalIndustrial Recovery Act of homeworkwas prohibited, but that law was nullified bythe Supreme Court. The Fair Labor StandardsAct of began a period of effective federalregulation of this form of exploitation. Underthe authority of this act, in Secretary ofLabor Francis Perkins prohibited industrialhomework from most branches of the apparelindustry, except under permits, and these onlyunder special circumstances such as that of

a handicapped worker (Boris ). Greenreports that “it was estimated between

and the number of homeworkers in NewYork State had dropped from , (in allfields) to less than ,” (N. Green , ).Furthermore, “in , the New York StateDepartment of Labor abolished its specialhomework unit due to ‘apparent success’ inpolicing homework and enforcing sanctions”(N. Green , , citing New York StateDepartment of Labor ). It is fair to inferthat with unregulated home workers disap-pearing as a low-wage alternative to workshoplabor, conditions in the New York apparel in-dustry had improved by the s.

Given our definition of a sweatshop as aplace that violates the Fair Labor StandardsAct and other laws, we must consider somesources of data to be contaminated: for exam-ple, Department of Labor wage surveys takenfrom employer-submitted records, where weare not likely to find that employers suppliedmaterial to show hourly wages below the legalminimum. Typically, law violators simply re-quire employees to punch in their time cards(or equivalent records mandated by law) hoursafter the workers arrive for work or before theyleave. Thus, too, reports of union success inbargaining for contracts with higher wagesthan the minimum (Laslett and Tyler )and reports of high wages in New York or lowbut legal wages in places to which contractorsfled to escape the union cannot tell us whetherextensive illegal conditions were mitigated.

Uncontaminated by employer motives, cen-sus income data are collected from individuals.These retain ambiguity about the number ofhours workers had to put in to earn the re-ported wages. Nevertheless, reporting

census data on Puerto Rican women employedas apparel workers in New York City, CarolSmith indicates, “In , median earnings forPuerto Rican operatives were $,” (,

). For a standard workweek, this reported

median works out to be $. per hour, abovethe minimum wage ($.) for that year. Wo-men who worked longer than forty-hour weeksfor these wages may indeed have been work-ing in de facto sweatshop conditions, but we donot have information corroborating this claim.However, we do have both claims of sweatshopexploitation of Puerto Rican women in thes and s and some investigations rele-vant to those claims.

Puerto Rican Sewing Operators in New York:Sweatshop as Metaphor

The sweatshop is seared into cultural memory.“Sweated labor” was a specific nineteenth-century usage for industries with middlemenwho “sweated” direct homework producers. InGreek the usage tsekouzisma, “to squeeze thejuices out,” communicates the brutality ofwhat came to be seen as an older, transcendedmoment in capitalist development. In thecourse of mid-twentieth-century American(and, more broadly, Western) capitalist devel-opment, the word’s implications broadened.Now the word sweatshop, as Nancy Green(, ) points out, has become a metaphorfor bad conditions and below-standard pay.For example, in the New York Times of July ,

, Steven Greenhouse reported on a long-simmering labor dispute in a New Orleansshipyard. Pay there ranged from $ to over $

per hour—hardly illegal—but the shipyardhad a bad safety record, paid about $ per hourless than a comparable yard in Mississippi, andhad poor benefits. “It’s a sweatshop, with suchlow wages,” said Mike Boudreaux, a mechanic(Greenhouse ).

The use of the term sweatshop as a metaphorfor a “lousy” job complicates historical re-search. The case of Puerto Rican sewing oper-ators in New York City illustrates the problemand also the relevance of a clear definition. Thedetails of Puerto Rican insertion in New York’s

garment industry also provide some evidencefor sweatshop decline by the s.

Between and , New York’s PuertoRican population grew dramatically, from, to ,. With education below thatof resident New Yorkers and often with lan-guage barriers to high-paying employment,Puerto Ricans in New York in had higherpoverty rates than other New Yorkers. Theywere similar in many ways to today’s Latinoimmigrants in New York. Furthermore, aswith contemporary Dominicans (Pessar ),Puerto Rican women had a strong ethnic con-centration in the New York apparel industry ofthe s and s: Some economists haveasserted that their low-wage labor “saved” theindustry in a period when it was experiencingrapid geographic losses (Rodriguez ).

At the time of maximum migration flow, atleast two prominent observers used the termsweatshop to describe conditions of PuertoRican sewing operators in New York. One wasHerbert Hill, longtime labor secretary of theNAACP; the other was the distinguished jour-nalist Dan Wakefield.

In testimony before Congress (U.S. Con-gress ), Hill railed against the politicalexclusion of Puerto Ricans and Blacks fromthe leadership of the ILGWU. He discussedthe “callousness” with which union leaderstolerated low (but, according to our calcula-tions, lawful) wages in those branches of theindustry in which minority people were con-centrated. At one point in his testimony, Hillreferred to the ILGWU acceding to anotherunion’s sweetheart contract with a “sweat-shop” employer.10 (Hill’s main purpose in histestimony to Congress and in his provocativelytitled article “Guardians of the Sweat-shop: The Trade Unions, Racism and the Gar-ment Industry” was to condemn the ILGWUfor discrimination and political exclusion ofPuerto Ricans and Blacks, a matter we are nei-ther disputing nor discussing.) In a arti-

. .

cle, Hill cited low wages in those branches ofthe New York garment industry where pro-duction workers were predominantly PuertoRican or Black. He also cited a case history ofthe ILGWU, in the late s, opposing a NewYork City minimum-wage law that was higherthan the federal minimum. Yet Hill never indi-cated that the low wages he cited as exampleswere illegal. Indeed, by using the term sweat-shop in quotes, Hill indicated he was employ-ing the term as a metaphor for low wages and“lousy” conditions.

Another source for the claim that PuertoRican women faced sweatshop conditions inNew York’s garment industry in the s isjournalist Dan Wakefield’s reportage onNew York City’s Puerto Ricans—publishedtwo years later as Island in the City (). Thefifth chapter of Wakefield’s book is titled“Sweat without Profit” and tells of the newgarment contractors in Spanish Harlem em-ploying Puerto Rican women at low wages.Like Hill, Wakefield questions the motivationof the ILGWU in addressing these problems.

Yet Wakefield did not provide much infor-mation about the wages actually earned by thefemale sewing operators. One example he gavewas of a woman who was told she would earn$ per week (the minimum union scale)—slightly higher than the U.S. minimum wage($ per hour) at the time. Her take-home paywas only $. Her employer is quoted as mak-ing a vague reference to taxes, suggesting thathe was keeping the money that legally shouldhave been set aside as taxes withheld. Yet thenarrative does not demonstrate that the em-ployer was paying subminimum wages.

These two sources, fairly clearly in sweat-shop-as-metaphor mode, were used as corrob-oration for a more recent historical judgment.Professor Altagracia Ortiz (, ) hastracked the history of Puerto Rican women inNew York’s garment industry through muchof this century. Although her main interest is

in the politics of the women’s struggles in theILGWU, Ortiz cites Hill and Wakefield andalso oral history archives as evidence for sweat-shops in New York in the s. In the inter-views, workers told of hard work for little pay.Yet Ortiz’s report does not allow us to judgewhether these women were paid below theminimum wage of that era, denied overtimepayment, subjected to extensive health orsafety hazards, or employed at a place withchild-labor infractions. The interview mate-rial as cited in published work is too impreciseto allow a positive judgment about the exis-tence of sweatshops as we have defined them.

One fact revealed by Wakefield’s interviewsoffers the possibility of a very rough estimateof sweatshop incidence in New York in thes. He reports an interview with a businessagent of the ILGWU in East Harlem. Theinterviewee and Wakefield assume (in contrastto Hill) that a union shop is ipso facto not asweatshop. Given Wakefield’s willingness tocriticize the union, there is some reason toaccept this judgment. The union agent tells ofthirty-five steadily operating shops in EastHarlem (where the Puerto Rican populationwas then concentrated); a total of twenty-fivewere organized (Wakefield , ). Withthese slim facts, we can produce some esti-mates of sweatshop prevalence in s NewYork City.

If we assume that percent of the ten un-organized shops were substandard (i.e., sweat-shops), there were seven sweatshops in EastHarlem in . If, in Spanish Harlem of thelate s, there were about seven known sweat-shops, let us further assume that as many wereunknown as known, for a total of fourteen. Letus then assume seventeen employees per shop.(The GAO has estimated that in the sthere were three thousand shops and fifty thou-sand workers. Since this is larger than the anec-dotal reports of ten to twelve workers, we erronly in overestimation.) This calculation would

yield sweatshop workers in Manhattan,according to our definition. We assume for thisestimate that the almost wholly unionized Gar-ment District in Manhattan had no sweatshopsbut that the new immigrant Puerto Ricansemployed in peripheral areas may have beenvulnerable.

We omit Chinatown from these calculations.Its recent immigrant and total population werelower in the s and s than in the sand thereafter. Zhou () reports hardly anyapparel employment in Chinatown before thes. We also exclude Staten Island andQueens because neither borough had a signif-icant Puerto Rican population in the s. Ifwe assume equal numbers in the Bronx,Brooklyn, and Manhattan, the total number ofworkers in apparel sweatshops in New YorkCity in the late s would then be .

The estimated number of sweatshop em-ployees in the s in New York City rangedfrom thirty-three thousand to about fifty thou-sand (U.S. GAO ), so the estimated num-ber in the late s would be under . per-cent of the current number. Even if we morethan double the s estimate, to fifteen hun-dred, and use the low end of the GAO estimateas the denominator (fifteen hundred versusthirty-three thousand), the result is . per-cent of today’s number. If this estimate is any-where near correct, the problem was not quan-titatively significant.

Historical Conclusion: Sweatshops Were Marginal

The combination of union, documentary, andcontextual evidence in New York leads to aconfirmation of the conclusion reached in by Alan Howard, working for UNITE:“At various points over the past century thepower of the sweatshop to depress the wagesand living conditions of workers throughoutthe industry has been reduced and even neu-

tralized by the power of workers to defendthemselves and of government to regulate theindustry” (Howard , ). Although “thesweatshop was never eradicated,” it was“steadily pushed to the margins of the indus-try. . . . By the mid-’s, more than half ofthe . million workers in the apparel indus-try were organized and real wages had beenrising for decades. The sweatshop had beenrelegated to a minor nuisance, its very mar-ginality the symbol of an American successstory” (Howard , ).

Having established that sweatshops in theapparel industry are real, new, and encompassabout percent of the industry, involvingover four hundred thousand workers, we turnour attention to why they reappeared in thecourse of the s.

The New Sweatshops in America:Why?

The appearance of the new sweatshops can beexplained by four simple terms, only one ofwhich is widely understood. Deregulation, con-centration, imports, and immigration jointlydetermine the appearance of sweatshop ex-ploitation in the apparel industry since thes. Of these, immigration may be the leastimportant cause, despite being the most widelyrecognized.

Deregulation

Deregulation may be accomplished as anannounced policy by formally changing statepolicies. Alternatively, in similar fashion topermitting inflation to decrease social benefits,deregulation may be accomplished de facto byallowing the state’s regulatory capacity todecline relative to the economy. This hasoccurred in the enforcement of the Fair LaborStandards Act of . The data in Figure .,

. .

incomplete though they are, show that Wageand Hours Division investigators of the De-partment of Labor face increased numbers ofworkplaces (“establishments”) with a relativelysmaller staff. Each investigator was responsi-ble for fifty-seven hundred workplaces in ,

eighty-six hundred in , and seventy-fivehundred in .

Figure . also shows a long-range story byusing the ratio of investigators to employeesoutside government.11 From to ,

each investigator’s potential responsibilityincreased from about , workers to about, workers, an increase of percent,and then, after a drop, rose again, to ,.

As a result of sensational reports of slavelabor and celebrity involvement in sweatshops,

the number of investigators went up (to )in fiscal year , but not enough to deter lawbreaking–for example, in Los Angeles (seeabove)—as compared to . One way tosummarize the regulatory environment is tosay that de facto deregulation has created ahaven for scofflaws. Richard Appelbaum andEdna Bonacich () report bitter resentmentabout law enforcement among Los Angelesmanufacturers.

Concentration

The approximately twenty-five thousand con-tractors in the apparel industry are at the bot-tom of the industry’s food chain. During thes, s, and s, the men’s and women’s

.. De Facto Deregulation: Employees per Wage and Hours Investigator, SelectedYears, –

Sources: : , , ‒, ‒: U.S. Department of Labor (DOL)“Budget Estimates,” various years, U.S. Department of Labor library, Washington, D.C.‒: Personal communication from Acting Administrator John Fraser, Wage and HoursDivision, Employment Standards Administration, DOL, April , . ‒: InternalDepartment of Labor data via interview with Robert DeVore, Wages and Hours Division,U.S. Department of Labor, Budget and Finance Team Leader, May , .

: U.S. Bureau of Labor Statistics, Current Employment Statistics data extrac-tion, available at http://stats.bls.gov/webapps/legacy/cesbtab1.htm. Accessed June , .

clothing workers’ unions gradually developedthe ability to control the abuses of the con-tractor system by compelling the manufactur-ers (in New York in those days they were calledjobbers) to accept “joint liability” for unionstandards in contractor shops (Schlesinger). This was done through the collectivebargaining power of the unions at a time whenthey represented the majority of the workersin the industry.

Manufacturers’ liability for the labor-lawviolations of their contractors, however, wasnever part of American labor law. Under thelaw’s “hot goods” provisions, The Fair LaborStandards Act does give the Secretary of Laborthe power to prevent the sale of goods pro-duced in violation of the law. Rarely used, the“hot-goods” power has not proved a powerfuldeterrent. Since the high point of the unions’influence in the industry in the s a newpower factor has arisen: the dominant role ofretailers.

Both UNITE, the union that representsapparel workers, and a variety of advocacygroups—the National Labor Committee inthe United States and the Clean Clothes Cam-paign(s) in Western Europe, to name buttwo—have campaigned for legal and ethicalchange, calling for manufacturers or retailersto take responsibility for the labor conditionsunder which the goods they sell are made. The“Stop Sweatshops Act,” introduced in theU.S. Congress in the s by RepresentativeWilliam Clay and Senator Edward Kennedy,would have made manufacturers liable forlabor-law violations committed in the produc-tion of the goods they commission. (Actionon the bill awaits Democratic congressionalmajorities.) Campaigns to pressure retailers to“disclose” their contractor chain of supply areanother advocacy strategy aimed at piercingthe veil of secrecy and impunity that allowsjobbers and retailers to pretend to be separatefrom the labor abuses of their agents (National

Labor Committee a; Clean Clothes Cam-paign , ).

Here is how the Dutch Clean Clothes Cam-paign articulates their demand:

We stress that the retailers are responsible andshould be made to account for the conditionsunder which garments are produced at theirorders. This holds true for the entire subcon-tracting chain. They check quality, colour anddelivery speed. They can check on wage andworking conditions and pay extra for them, ifnecessary. If we know of a case where work-ers rights are violated we take this to theretailer they supply to and press them to takeaction. We ask people to be critical consumers,e.g. to ask for every garment they intend tobuy where it has been made and under whatconditions. (Clean Clothes Campaign )

There is little immediate prospect for eitherlegal change or behavioral change by retailers.Politically, the “Stop Sweatshops” bill wasanathema to the Republican majorities in bothhouses of the Congress (S. Green ). As ofmid-, the U.S. Senate had a new but nar-row Democratic majority, and it is possible thatwith Senator Kennedy as chair of the SenateLabor Committee the bill might come to theSenate floor. Whatever the likelihood of pas-sage in the U.S. Senate, it is not likely to suc-ceed in the House. The American retailers mil-itantly defend the principle of their separationfrom and freedom of responsibility for theproduction of garments they sell.

Despite their insistence of innocence, thebig retail chains dominate both clothing salesand clothing production in ways the manu-facturers never approached, and the concen-tration in clothing retail has been growingsteadily since the s. Table . uses the lat-est publicly available data from the U.S. Cen-sus of Manufactures to show that, by , thetop twenty department-store chains (includ-ing discounters) together with the top twentyspecialty-apparel chains controlled . per-

. .

cent of all clothing sales—about $ billion.These publicly available data almost certainlyunderstate the level of concentration and thusthe power in the hands of the top few retail-ers. Using proprietary data from the KurtSalmon market research firm, Jackie Jonesreported that the top five retail organizationsheld percent of the apparel market, or $

billion in sales, in (Jones ). The toptwelve chains, the same firm estimates, con-trolled percent of apparel sales in

(Apparel Industry Magazine, n.d.). What theU.S. Census data show, rather than the actuallevel of concentration (which is higher thanthat shown in the preceding data), is the trendover the last generation.

In addition to their sheer market power asbuyers and sellers of goods, the chains act asmanufacturers themselves when they contractfor the production of private-label goods—andabout percent of the clothing sold in the bigchains is under their own label. This concen-tration makes the retail chains the price mak-ers of the industry, the eight-hundred-poundgorillas of the rag trade. Wal-Mart stores alonesell about percent of all apparel at retailin the United States.12 Concentrated marketpower is also the source of labor-standards ero-sion. When retailers order goods and insiston a certain price, they initiate a competitiveprocess, one that may force U.S. contractors tomeet a price only obtainable under the laborconditions of poor countries. The demand forsuch a price is made credible by the fact that

most clothing sold in this country is made inpoorer countries; and that is the third deter-minant of sweatshop exploitation: imports.

Imports

The global commodity chain of the apparelindustry consists of fiber production, textilemanufacture, design, cutting, sewing, and mar-keting and retail (see, e.g., Gereffi ; Appel-baum and Gereffi ). These stages in theproduction process may be, and in apparel typ-ically are, disaggregated over space (Ross andTrachte ). While law enforcement in theUnited States is weak, the most powerfulactors in the global commodity chain of theapparel industry—the retailers—have usedtheir strategic power to capture the largestshare of profits (Gereffi ; Appelbaum andGereffi ). By sourcing clothing in low-wage areas of the global economy, the name-brand manufacturers and the big private-labelretailers are able to appropriate the lion’sshare of the markups; the direct producers,including their direct supervisors—the con-tractors—obtain but small shares of the con-sumer’s dollar.

The complex global contracting system pro-duces grimly humorous oddities: A pair ofBritannia Relaxed Fit boys’ jeans, selling for$. at Kmart and “produced”—that is, con-tracted for—by the giant VF Corporation, mayhave been made in Nicaragua or in the UnitedStates. The National Labor Committee (NLC)

.. Retail Concentration in the “Top ”: Apparel Sales in Top Specialty ApparelChains plus Top Retail Department Stores,a ‒

1972 1977 1982 1987 1992 1997

Retail Value (U.S.$ billions) 15.5 25.1 41.6 66.9 92.3 106.6Percent of Gross Apparel Sales 37.9 42.4 47.8 52.6 56.9 56.9

Source: Author’s calculations from U.S. Bureau of the Census, Economic Census, “Retail Trade,” “Merchandise Line Sales,” and“Establishment and Firm Size,” various years.

aIncludes discount chains.

estimates the (U.S. industry standard) laborcost as $. in the United States and $. inNicaragua. The committee purchased thesegarments at the same store. Levi Strauss andCompany, which sold Britannia to VF, hasrecently closed eight U.S. plants and three inEurope, laying off seventy-three hundred U.S.workers and seventeen hundred in France andBelgium (National Labor Committee b;Tomkins and Buckley ).

One measure of low-wage competition isthe level of import penetration. Table . re-ports the increase in clothing imports to theUnited States. Apparel imports, largely fromlow-wage producers, went from percent ofapparent consumption in to over per-cent in . These are very conservative esti-mates. The analysis does not correct, for exam-ple, for material cut and then exported to besewn and reimported (“⁄” in-bondassembly items under the U.S. tariff code). Inaddition, the data in Table . are by value ofshipments, not numbers of items. When theU.S. Census analyzes particular clothing linesrather than the whole industry, with all thedata aggregated, major product lines showmuch higher levels of import penetration. Forexample, percent of men’s sweaters ( per-cent by dollar value) were imported in , aswere percent of suits and percent ofsport coats. Ninety-two percent of women’ssuits, percent of skirts, and percent ofdresses were imported in (U.S. Bureauof the Census ). As many others and Ihave argued (Ross and Trachte ; Rossb; Appelbaum and Bonacich ), theavailability of a global pool of cheap labor hashad a powerful effect by weakening workers’bargaining power everywhere and subvertingthe higher standards of compensation andbenefits in the older industrial regions. Thishas an even more powerful effect in labor-intensive industries like apparel.

The power structure of the industry isheavily influenced by the fact that the majorretailers are also major importers. Among thetop one hundred importers of apparel, retailchains controlled percent of imports (Jones).

The power of retailers and the market shareof imports from countries where workers’ ma-terial levels of living are considerably lowerthan working-class standards in the older in-dustrial nations constitute the most importantstrategic differences between the new sweat-shops of the late twentieth century and the oldones of its early years. Among the similarities ofthe two eras is the fact that in each case themost exploited workers were immigrants. Pop-ular and journalistic accounts of contemporarysweatshops are well aware of, if not obsessed by,this parallel.13 To acknowledge the contribu-tion of a particular reserve of labor to overallworker vulnerability is not, however, to accedeto the proposition’s primacy.

Immigration

The last factor that contributes to the rise ofthe new sweatshops in the United States is theone most frequently cited by popular accountsand by many academic ones: immigration.The renewal of massive immigration after the reforms has duplicated, at the bottom ofthe labor market and in certain regions (e.g.,New York and Los Angeles), the industrialreserves of the early twentieth century. In‒, for example, net immigration wasexactly the same (. million) as it had beenin ‒. The inflow continued in thes. By , million U.S. residents hadentered the country since , compared to million people who had entered in the s(U.S. Bureau of the Census ). Poor peo-ple from the Western Hemisphere and middle-class and poor immigrants from Asia now face

. .

.. Import Penetration in U.S. Apparel Market, ‒

Domestic Import Import/Domestic Production Imports Exports Penetrationa Production

Year (U.S.$ millions) (U.S.$ millions) (U.S.$ millions) (%) (%)

1961 13,088 283 159 2.1 2.21962 13,948 374 152 2.6 2.71963 14,818 400 158 2.7 2.71964 15,514 481 196 3.0 3.11965 16,426 568 177 3.4 3.51966 17,308 637 188 3.6 3.71967 18,483 692 207 3.6 3.71968 19,628 900 220 4.4 4.61969 21,045 1,149 242 5.2 5.51970 20,394 1,286 250 6.0 6.31971 21,687 1,574 258 6.8 7.31972 23,914 1,967 300 7.7 8.21973 25,970 2,261 381 8.1 8.71974 26,855 2,465 593 8.6 9.21975 27,098 2,775 602 9.5 10.21976 30,019 3,912 740 11.8 13.01977 35,323 4,393 859 11.3 12.41978 37,845 5,722 1,035 13.5 15.11979 37,350 5,902 1,387 14.1 15.81980 40,293 6,543 1,604 14.5 16.21981 44,074 7,752 1,628 15.4 17.61982 46,681 8,516 1,236 15.8 18.21983 49,423 9,976 1,049 17.1 20.21984 50,672 14,002 1,026 22.0 27.61985 50,784 15,711 991 24.0 30.91986 53,323 18,171 1,178 25.8 34.11987 62,119 21,503 1,490 26.2 34.61988 62,750 22,363 1,988 26.9 35.61989 61,447 25,372 2,362 30.0 41.31990 61,962 26,602 2,864 31.0 42.91991 62,649 27,377 3,746 31.7 43.71992 68,844 32,644 4,659 33.7 47.41993 70,986 35,475 5,433 35.1 50.01994 73,258 38,561 6,009 36.4 52.61995 73,780 41,208 6,979 38.2 55.91996 73,319 43,075 7,836 39.7 58.81997 68,018 50,191 9,279 46.1 73.81998 64,932 55,838 9,474 50.2 86.01999 62,798 59,156 8,541 52.2 94.2

Source: U.S. Industrial Outlook, various years. ‒: U.S. Statistical Abstract, , . Production, ‒: U.S. Bureau of theCensus, Annual Survey of Manufactures: Statistics for Industry Groups and Industries M (AS)-, issued March .

aImports/(domestic production plus imports, minus exports).

one another as workers and entrepreneurs ina global apparel industry with branches in theUnited States.

Immigrants are often blocked in their abil-ity to claim well-paid jobs: by education (orlack of it), by language issues, and by unfamil-iarity with their new surroundings. Women,the traditional workforce of the apparel indus-try, have all these problems and others. Thegender-specific issues that make women morevulnerable than men to sweatshop conditionsmay include ethnic norms that constrain thejob search to certain neighborhoods or amongrelatives; the desire for workplaces that willbreak rules by allowing little children to betended on site; and gender norms about appro-priate women’s work. All these factors con-strain the choices women may have and thusheighten their vulnerability to unscrupulouslabor practices.

The fact that many contemporary immi-grants are illegal is a major aggravation to theirhandicaps in the labor market. Unwilling tocomplain to officials for fear of discovery anddeportation and afraid to join unions for thesame reason, undocumented workers are themost vulnerable. The immigration reform of, which instituted sanctions on employerswho hire undocumented workers, has had amajor impact on the apparel industry—someof it surprising. Not so surprising is the use ofthe Immigration and Naturalization Service(la migra) as a de facto union buster. Shouldworkers evince union sympathy, “dropping adime”—that is, telephoning immigration au-thorities—is a swift and anonymous way of fir-ing them. In fact, employer sanctions appearto be changing the gender division of labor inthe apparel business in Los Angeles.

Appelbaum and Bonacich () note, forexample, that despite the traditional domina-tion of women as sewing operators in the gar-ment industry in Los Angeles and elsewhere,Hispanic men now represent up to percent

of the sewing labor force. They attribute thisto the displacement of these men from indus-trial jobs in establishments large enough toattract Immigration and Naturalization Ser-vice (INS) attention and to the relative invisi-bility of the myriad small shops in the apparelinfrastructure.

Despite the obvious currency of immigra-tion as an explanation for sweatshops, restraintin using this as a master determinant is pru-dent. In the s, when import pressure waslow to nonexistent, when unions were strong,and when state regulation was more robust,poor Puerto Rican migrants to New York werenot subject to the kinds of abuses that today’sMexican and Dominicans face in New Yorkand Los Angeles (Ross a). And lest thesimple explanation of undocumented statussubstitute for the broader immigrant explana-tion, it should be noted that among today’ssweatshop workers many are legal immigrants,including Korean workers in Dallas (Um )and Chinese workers in various locations(Fishbein ).14

Overview and TheoreticalConsiderations

This chapter has reviewed the new sweatshopsin the United States, briefly answering fourquestions. I showed that sweatshops in theUnited States were “new” in that there isstrong evidence that between World War IIand the s regular abuse of low wages,long hours, and dangerous or noxious condi-tions in the apparel industry became marginalat worst and practically disappeared at best.By adopting the objective definition of “mul-tiple labor-law violations,” I have shown, con-trary to Waldinger and Lapp (), thatsweatshops are not invisible to the formaleconomy, despite their informal and illegalpractices. I reviewed the evidence for an esti-

. .

mate that half the industry and as many as percent of the contractor shops are majorlabor-law violators. Finally, I reviewed the fourcausal factors that allowed this form of laborexploitation to return so many years after itwas the object of widespread indignation: thedeclining capacity of the state to enforce laborlaw; the increasing market power of retailersthrough concentration of sales; the competi-tive pressure brought about by massive im-ports from low-wage export platforms; andthe availability of a large pool of vulnerableimmigrant labor.

The sweatshops of the era symbolicallymarked by the Triangle Shirtwaist Fac-tory fire (McClymer ) were made possibleby a lack of worker organization, the conse-quent absence of a legal infrastructure ofworker protection, a vast reserve of immigrantlabor, and a price-competitive industry whereno seller had the concentrated power to extracthigher prices in return for labor peace. Importsfrom societies and economies at very differentlevels of development were not relevant. Now,worker organization, having briefly been strong,again covers but a minority fraction of theindustry. The strong actors in the system havethus been able to maintain high profits andkeep the labor share of final price quite small.Imports and the threat of imports disciplinethe current generation of small entrepreneursand laborers in much the same way as unbri-dled price competition did earlier, producinga race to the bottom of the world’s industrialstandards. Vulnerable immigrants, sometimesgrateful for any foothold in the economy and

usually desperate for jobs, provide the handsthat sew and cut. The similarities and differ-ences between the two eras of sweatshop laborare summarized in Table ..

Nowadays recognition is widespread thatglobalization is a potent force in everyday life,and a rhetoric that asserts its importance isuniversal. Global hype is sometimes counteredby global debunking (“the importance of tradeto the U.S. economy is overstated”), but moreoften global optimism is challenged by work-ers’ views of the problem of “social dumping”and a “race to the bottom.” Rarely, however, isglobalization seen as the occasion for theoret-ical reflection.

Ross and Trachte first connected New Yorksweatshops to a theory of global capitalism in. They later asserted () that globalcapitalism was a specific and different form ofcapitalism from the monopoly capitalism or“Fordism” that preceded it. Yet, despite theuniversal empirical cognizance of global capi-talism and the commodity chains of its spatialstructure, there has been little theoreticaladvance. Perhaps the now widespread recog-nition that an old form of exploitation hasreappeared in the new sweatshops will occa-sion a new willingness to encounter global cap-italism as new form of capitalist political econ-omy. In particular, it is one in which workers’strategic resources are challenged by newadvantages for their employers. But as in eachprevious era of capitalism, these are not forcesto which it is necessary to acquiesce. Knowl-edge creates opportunity to act but responsi-bility as well.

.. Typology of Old and New Sweatshops in the United States

Old Sweatshops New Sweatshops Factor (circa 1900–1920) (circa 1978–present)

Immigrant Reserve of Labor Yes (mostly legal) Yes (many undocumented)Infrastructure of Labor Protection No Yes (weak enforcement)Global Scope of Commodity Chains in U.S. Production No Yes

Notes

Acknowledgments: This is a revised version of apaper given at the annual meeting of theAmerican Sociological Association. Lisa Grand-maison (Clark University, ) assisted in the col-lection and analysis of the data. The work dealt withherein is investigated at greater length and in moredepth in Hearts Starve: The New Sweatshops inGlobal Context, by Robert J. S. Ross (Ann Arbor:University of Michigan Press, forthcoming). Thequantitative material will be revised and updated inthat book.

. The authors’ implicit definition of a sweat-shop is one that is “covert” or in the “informalsector.”

. The GAO sample of violators was not repre-sentative because it was composed of the violatorsknown to the departments of labor in the two statesas a result of their investigations.

. “There is no theoretical reason to exclude fromthe informal economy the unrecorded practices oflarge corporations, particularly since they have closelinkages with the growth of other informal activi-ties” (Castells and Portes , , ). When sev-enty-one workers, lured into slavery from Thailand,were discovered in a slave factory in El Monte, Cal-ifornia, in , the list of retailers to which theclothing was bound was a who’s who of mainstream(and upscale) retailing in California, including Nei-man Marcus and the Mays chain (Su ).

. The EDD Tax Branch is one of the largesttax-collection agencies in the nation and handles allthe administrative and enforcement functions foraudit and collection of unemployment insurance,disability insurance, employment training tax (ETT),and personal income tax (PIT) withholding.

. The fact that there were so many violationsfor each violator firm makes it possible to use min-imum-wage violations as an indicator variable for“multiple labor-law” violations.” This is de factohow the U.S. Labor Department treats the matterin its press releases.

. Voluntary compliance monitoring is consid-ered a failure by labor rights advocates. Despiteapparently boosting compliance rates, almost half ofthe contractors allegedly monitored are still labor-

law violators. Notoriously, among the first firms toclaim it monitored its contractors was the infamousGuess? Jeans, which was later found to have repeatviolators in its contractor chain (Greenhouse ).

. It should be noted that the restaurant indus-try, when examined by the U.S. General Account-ing Office in , had as high a level of Fair LaborStandards Act violations as did the apparel indus-try. Generally the violations were of different types.Record-keeping violations were high and child-labor violations much more frequent in the restau-rant industry than in the apparel industry. Arguably,large fractions of these violations might be “tech-nical”: for example, when a teenager otherwiseworking legally works past a certain hour in theevening during the school week. In addition, restau-rants were sanitary-code violators. Among the moreserious violations, sweatshop conditions have beenreported when Chinese workers are smuggled intothe country and held under conditions of inden-ture, often working in restaurants (Kwong )There is no other known recent systematic study ofindustrial concentrations of major Fair Labor Stan-dards Act violations.

. These calculations are based on the Bureau ofLabor Statistics National Industry-OccupationEmployment Matrix, using data. Apparel (SIC) is combined with knitting mills (SIC ). Dataextraction is available at <http://STATS.BLS.GOV:80/oep/nioem>. Accessed on December ,

.

. Schlesinger was an attorney whose history ofthe apparel industry was written on behalf of theunion (ILGWU) of which his father had been anearly president.

. The use of quotation marks is Hill’s.. The number of investigators working for the

Wage and Hours Division of the Employment Stan-dards Administration of the U.S. Department ofLabor from to was given in congressionaltestimony by the acting administrator. The numberof establishments as defined by the U.S. CensusBureau series County Business Patterns is available inthat series for all these years. The number of inves-tigators before can be gleaned from documentsin the Department of Labor library in Washington,D.C., but only for the years in Table .. Prior to, the period for which I have located the num-

. .

ber of investigators, County Business Patterns re-ported not “establishments” but “reporting units,”which includes only one unit per county per cor-poration outside of manufacturing. Hence the onlyconsistent time series that matches all the years forwhich I have the number of investigators is theemployment time series of the Bureau of LaborStatistics, Current Employment Statistics, availableat <http://stats.bls.gov/ces/home.htm> (accessedon March , ).

. Here is the basis for that estimate:

a. About percent of Wal-Mart sales areapparel and domestics (source: Wal-MartStores Inc., SEC form -K, filed on April, ).

b. Wal-Mart FY (ending in January )sales were $. billion (form -K, exhibit).

c. Nineteen percent of those sales are $. bil-lion. Correcting for possible overstatementcaused by including domestics (i.e., towels andsheets), use percent, which yields an ap-parel sales estimate of $. billion.

d. National retail sales of apparel in were$. billion, indicating that Wal-Mart soldbetween . percent and . percent of allclothing.

e. Retail sales of apparel included $. billionin retail store locations. The Wal-Mart shareof $. billion to $. billion of these is be-tween . and . percent of in-store sales(see About.com at <http://retailindustry.about.com/industry/retailindustry/library/weekly/01/aa010319a.htm)>.

. I have found that about percent of newsstories about domestic sweatshops in the New YorkTimes and Los Angeles Times identify the immigrantstatus or ethnicity of the workers in either the head-line or the lead paragraph, and over percentmention these identifiers of the workers somewherein the article.

. Among the legal-immigrant sweatshop work-ers in New York is a sewing operator whose daugh-ter was one of my Harvard students, thus neatlyconfirming one immigrant stereotype (success offuture generations) while subverting another (ille-gal status as the prerequisite for exploitation).

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. .

Edna Bonacich

Labor’s Response to Global Production

Global and flexible production have had a dev-astating impact on U.S. garment workers andon the once-powerful U.S. garment industryunions. The apparel industry has lost thou-sands of jobs since its peak in , and everymonth brings reports of new job losses. Wageshave stagnated or fallen, and sweatshops havereturned to U.S. cities. For a time, especiallyfrom the New Deal through the s, as aproduct of government oversight and strongunions, sweatshops more or less disappearedfrom U.S. garment production. But now theyhave returned, as workers slave long hours forpiece rate (i.e., payment by the piece instead ofby the hour) without the basic protections ofminimum wage, overtime, the prevention ofindustrial homework or child labor, or benefitsof any kind (Ross ; Bonacich and Appel-baum ; also see Chapter 5 in this book).

The old apparel unions, the InternationalLadies’ Garment Workers’ Union (ILGWU)and the Amalgamated Clothing and TextileWorkers Union (ACTWU), have faced hugelosses in membership. They have lost mem-bers at an even faster rate than jobs havedeclined, as employers have turned increas-ingly to nonunion shops. Loss of membershiphas inevitably been accompanied by a loss ofpower, and the unions have had a hard timeprotecting those members who remain. In an

effort to recover some lost ground, theILGWU and ACTWU decided to merge in to form UNITE, the Union of Needle-trades, Industrial, and Textile Employees.Faced with what appears to be a dying indus-try, UNITE has expanded its organizing ef-forts to include industrial workers who arelinked somewhat or not at all to its old, corejurisdiction. It seems safe to say that the unionis barely holding on to its garment-workermembership and is continually losing groundin this industry, even as it is moving into otherareas.

This chapter addresses the following ques-tions:

. What are the forces that have weakenedgarment-worker unionizing?

. How has the union responded to these chal-lenges? What has been tried? What has suc-ceeded, what has failed, and why?

. What can or should be done under thesecircumstances?

These questions and their answers are impor-tant not only for the apparel industry but alsofor most manufacturing and some serviceindustries. The garment industry is moreadvanced than most in terms of outsourcingand offshore production, but others are mov-ing along a similar path. Apparel may prove to

be the industry where the most forward-look-ing experiments in organizing are tried out.

Global and Flexible Production: The Attack on Garment Workers and Unions

Since the late s, severe restructuring hasposed a continual challenge to the apparelindustry. This trend has taken a number offorms and has been shaped by a number ofpolicies.

Contracting Out

Apparel production has a long history of whatnow is politely called flexible production.From the earliest stages of mass production ofclothing in New York City, work was con-tracted out from “inside shops” to smaller con-tracting factories and to home workers. TheILGWU developed from protests against theresulting sweatshop conditions and was able,for a time, to stabilize relations in the industryby binding both manufacturers and their con-tractors to collective-bargaining agreements.

Since the s, contracting out has risen tonew heights. At least in the volatile women’swear industry, contracting out has taken overalmost completely, and hardly any inside shopsremain. Apparel manufacturers that specializein design and merchandising have externalizedthe sewing of garments and other labor-inten-sive activities.

The industry justifies the contracting sys-tem with claims that it is more efficient. Gar-ment contractors specialize in sewing, while themanufacturers are able to focus on their corecompetencies of design and merchandising.They are better able to deal with the uncer-tainties of fashion and season by not having tomaintain a stable workforce, instead employingcontractors on an as-needed basis. Moreover, if

one contractor does not live up to requiredstandards of quality, timeliness, or price, themanufacturer can readily switch to another.

All these justifications for increased con-tracting out may be accurate, but the industryoften fails to mention the chief reason behindthe practice: Contracting out lowers labor costsand avoids unionization. Labor costs go downfor a number of reasons. First, because con-tractors are employed only on a contingentbasis, downtime need not be covered by themanufacturer. The costs of downtime arefoisted upon the contractor, who in turn foiststhem upon the workers. “Piece rate” neces-sarily indicates contingent workers, becausecontractors pay their employees only for thework actually done. Regulations mandatingminimum-wage and overtime pay are anath-ema to most garment contractors, who, sincethey are paid only for the work done, losemoney if they have to pay anything extra. Insum, garment contractors are contingent firmsemploying contingent workers, leading to adouble whammy of instability and insecurityfor garment workers.

Contracting out also enables apparel manu-facturers to avoid responsibility for the regu-latory system. They benefit from the produc-tion of their garments under illegal, abusive,and cheap labor regimes while being able toturn a blind eye to these conditions. They canclaim they are the innocent victims of illegaloperators, whose fault it is that labor laws arebeing broken. This is a convenient fiction,since the manufacturers exercise considerablepower over the contractors and set prices suchthat the work cannot be done legally.

Garment contracting has become a ghettofor immigrant entrepreneurs and immigrantworkers in the United States. Widespreadracism, combined with the manipulation ofimmigration law to create an “illegal” work-force, allows for the comfortable acceptance ofan especially low-wage, sometimes abused gar-

ment-industry workforce. The undocumentedimmigrants are seen as either willingly accept-ing these conditions or deserving no better.That they are generally dark-skinned peoplefrom Latin America, the Caribbean, and Asiaonly adds to beliefs about their unworthinessto earn a decent wage and maintain a decentstandard of living.

Contracting out is almost synonymous withsweatshop production in this industry. Industryleaders typically refuse to acknowledge the con-nection. Either they deny that their contractorsrun sweatshops, claiming that a few “bad ap-ples” are giving the entire industry a bad name,or they blame sweatshops on the contractors.Meanwhile, they happily accept the lower laborcosts that improve their profit margins.

Contracting out also serves as a seriousinhibitor to union organization (Bonacich). Manufacturers can shift productionaway from union contractors or from shopsthat show any signs of “labor trouble.” Theirability to move around and select the cheapestcontractors severely hurts the capacity of theunion to win any improvements for the work-ers in a particular shop. Organizing drives gen-erally require some steadiness of employment,but in the world of contingent firms employ-ing contingent workers, such steadiness is rare.

On top of this, apparel manufacturers liketo keep their contractor lists a secret. Theyclaim that revealing their contractors wouldhurt their competitive situation, as other man-ufacturers would try to steal their better con-tractors. Whether this is true or not, secrecycertainly harms labor organizing. Workers donot know where their fellow workers (workingfor the same manufacturer) are employed, sojoining together becomes immensely difficult.

Mobility and secrecy are a deadly combi-nation for union organizing. Manufacturersmaintain a secret and constantly shifting sta-ble of contractors. Today’s workers’ victorycan be canceled out tomorrow by simply mov-

ing to another contractor, whose hidden char-acter inhibits the ability of workers and theunion to track down where the work has fled.Somewhat similar conditions prevailed in EastCoast cities at the beginning of the twentiethcentury, and they were overcome by massuprisings of exploited workers who receivedthe support of disgusted community members.Those workers were able to win agreementsthat protected against the worst violations. Butthe situation since the s has become worsebecause mobility has extended offshore, mak-ing the relationships even more hidden and thecompetition much more intense.

Global Production

Garment contracting began to move offshoreas early as the late s, but the trend grewslowly at first. By the s it had gained mas-sive momentum, and every year since has showna large growth in “imports” and a decline indomestic employment. Most of these importsare the product not of free trade by foreigncompanies but of U.S. apparel manufacturers,especially U.S. apparel retailers, arranging forthe production of their goods offshore.

Some U.S. apparel companies have overseassubsidiaries, but by far the most common formof offshore production entails arm’s-lengthrelationships. In other words, the manufactur-ers and retailers set up contracting and licens-ing arrangements abroad. As with domesticcontracting, offshore production relies onemploying contingent firms, allowing the U.S.companies to maximize flexibility and to moveproduction to wherever they can get the bestdeal. The system of mobility and secrecy isthus extended all over the globe, with world-wide effects on labor standards and unioniza-tion (Varley ; International Labour Office[ILO] ).

While there are exceptions, in general U.S.retailers and manufacturers seek out countries

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where labor laws are weakest and where work-ers are least able to defend themselves. Thishas resulted in the employment of many youngwomen from peasant populations that arebeing dispossessed of their lands and pushedinto wage labor. First-generation proletariansare typically less likely to know their rights asworkers and may be more desperately depen-dent on earning a wage. Employers claim theyprefer young women because of their hand-eye coordination, but gender subordination isa critical factor in this preference. Employershope they are getting workers who are shy andsoft-spoken, who have never heard the wordunion, and who respect male authority. Need-less to say, any worker can learn to stand upand defend herself, and many do. But employ-ers hope to postpone this development as longas possible by selecting the most vulnerable,least protected workers.

If secrecy of production location poses aproblem for unions and workers in the UnitedStates, the problem is amplified in global pro-duction. Tracking down the countries of pro-duction, let alone specific factory locations,becomes a formidable task. Furthermore, loca-tions keep changing, so any knowledge that isgained about supply chains is always almostimmediately out of date.

U.S. Policies

Global and flexible production are not solelythe creation of apparel manufacturers andretailers. The fragmentation of productionand its movement offshore have been sup-ported by a number of U.S. policies. On thedomestic front, the attack on the welfare stateand all its institutions, including labor law, hasgreatly hurt the garment unions. Sweatshopswere substantially reduced during the post–World War II period because of state supportfor decent labor standards (through the FairLabor Standards Act of and its subse-

quent revisions) and for the right of unions toengage in collective bargaining (through theNational Labor Relations Act, or NLRA, of and its revisions). Both types of labor lawhave been seriously eroded since (seeCompa ). The reasons for this attack arecomplex and not restricted to the UnitedStates, but they are beyond the scope of thischapter (see Ross ; Bonacich and Appel-baum ).

U.S. trade policy has also encouraged themovement of production offshore. Item

of the U.S. tariff code (passed in but usedextensively by the apparel industry only sincethe s) was one of the first regulations tofoster offshore garment contracting by cuttingtariffs on goods that had been assembledabroad and reimported. The tariff cut encour-aged companies to contract out the labor-intensive aspects of garment production, shipunassembled cut goods to countries wherelabor costs were a fraction of those in theUnited States, and bring the finished garmentsback for sale in the U.S. market. Barriers tosuch arrangements were further eased by theCaribbean Basin Initiative, the North Ameri-can Free Trade Agreement, policies of theWorld Trade Organization, and, now looming,the Free Trade Agreement of the Americas.These arrangements, supported by neoliberalideology, are not simply about “free trade” and“open markets” between equal partners butabout the right of U.S. capital to move freelyinto less-developed countries and to employ,either directly or indirectly, their lower-cost,less-protected labor.

On the U.S. side, immigration policy alsoplays a critical role in weakening labor’s posi-tion. The free market in capital is not mirroredwith a free market in labor: The border servesas a constraint on workers seeking out thehighest-paying, best job available to them. Bylimiting immigration while not addressing itsunderlying causes (which include the disloca-

tions created by foreign, often U.S., capital inthe countries of origin), a class of rightlessimmigrant workers is created in the UnitedStates. These workers are vulnerable to em-ployer threats of exposure and deportation.Again, any workers can organize, and undoc-umented workers have been known to wageeffective organizing drives. Nevertheless, a lackof the most fundamental rights of citizenshipmust count as a hindrance to worker organiz-ing. Unions face a special challenge in pro-tecting their undocumented members andpotential members.

Complicity of Southern Regimes

Many countries of the global South are tryingto industrialize. Frequently, leaders in thesecountries believe the only route to industrialdevelopment is to attract Northern capital andto gain access to Northern markets for theircountries’ exports. The conditions for bothgoals are fairly clear: Keep wages low and keepindependent, militant unions that push forimprovements in wages and working condi-tions out. “Labor trouble” is to be avoided atall costs, especially in a mobile industry suchas apparel, since it will cause the industry toshift its contracting relations to other coun-tries. Thus regimes bent on development, nomatter how progressive their intentions, areforced into a posture of repressing labor. Ofcourse, some individuals benefit directly fromthese arrangements, enriching themselves byskimming off part of the profits.

Repression of Southern garment workerscan take myriad forms. It can occur at the levelof the national government, regional govern-ments, or even export-processing zone man-agement. Governments and zones can pursuea “no unions” policy, either subtly, throughvarious forms of company or state-backedunions that must be displaced before an inde-pendent union can take power, or overtly,

where union leaders are openly fired—andsometimes murdered.

Garment factories in the South vary con-siderably, ranging from giant, well-lit plantsthat employ thousands of workers, throughsubcontracted smaller shops, to industrialhomework. Describing the big factories assweatshops may seem inappropriate; they cer-tainly appear considerably cleaner and in bet-ter shape than the garment factories of NewYork and Los Angeles. But beneath the veneerof industrial order lurk excessively low wages,such that workers cannot possibly supporttheir families. The factory may not look like asweatshop, but the workers live under condi-tions that only sweatshops can produce. A dis-junction has developed between appearanceand reality, in part to satisfy U.S. manufactur-ers and retailers who (in response to their crit-ics) insist that their contractors maintain cleanfacilities, even as they pay them too little toenable workers to support themselves in any-thing like decent conditions.

Government-supported employer efforts tocrush independent unions make it difficult forworkers to push for needed change. Moreover,over them hangs an implicit threat that if theydo manage to improve wages, their employerswill pick up and leave the country.

ILGWU and UNITE Responses

Contracting out and the runaway shop are notnew to the U.S. apparel industry. Indeed, alongwith the construction unions and the Team-sters, the garment unions have had to copewith a fragmented and unstable working situ-ation since the nineteenth century. In someways, it is amazing that these unions were ableto build such strength, given their industries’organizational structure.

The ILGWU was able to build itself into apowerful union by using the general strike

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across entire sectors and by signing “jobbers’agreements” that bound manufacturers whocontracted out to use only union contractors.The New Deal and the development of strong,supportive institutions that encouraged thedevelopment of unions bolstered these strate-gies. Even with the passage of the Taft-HartleyAct, which prohibited secondary boycotts (i.e.,boycotts against unrelated companies in a effortto pressure them to stop working with a directunion target), the garment unions had the mus-cle to get a special provision written into the law,the Garment Industry Proviso, which allowedthe entire contracting system of an apparel man-ufacturer to be considered an integrated systemof production. Thus much of the U.S. North-east was able to become unionized (Stein ).

The solutions that the ILGWU developedhad their own problems. Jobbers’ agreementstended to encourage top-down organizing.Contractors would join the union as a means ofensuring that they received work from the man-ufacturers, creating a strange dynamic betweenthe workers and their direct employers. Toooften, union representatives had closer workingrelations with the contractors than with theworkers. Workers still received important ben-efits from their union contract, including healthinsurance and a retirement plan. Nevertheless,it was easy for members to remain disconnectedfrom the union and any of the ideals it hadoriginally fought for. This became especiallyevident in New York’s Chinatown, where manyimmigrant workers came to see the unionstrictly as a system of health insurance.

The equilibrium established between thecompanies and the union, supported by thegovernment, managed to diminish the num-ber of sweatshops greatly, although they per-sisted at the fringes of the industry. The sys-tem was always vulnerable to attack, however,especially by movement not simply out of statebut out of the country.

Gradually, especially since the late s,government backing for unionization erodedand supportive institutions were weakened.Employers seized the opportunity to take theoffensive against the ILGWU and began touse nonunion companies with impunity. Somemoved production offshore, aided by a U.S.government that was eagerly pursuing a tradepolicy encouraging such movement. Theunion was faced with severe membership lossand declining power in dealing with the man-ufacturers.

The ILGWU Response before the Merger

In a state of crisis that had been brewing sincethe s, the ILGWU engaged in a numberof campaigns to try to salvage its position. In, Jeff Hermanson, a talented organizer andbrilliant strategist, became head of the Inter-national’s Organizing Department. During thes he made a number of serious attemptsto revive the union, including the Leslie Faystrike. Leslie Fay was a large union jobber (man-ufacturer) that tried to break its contract byshifting production to nonunion contractors,on the grounds that all their competition wasdoing it. The ILGWU decided to draw a linein the sand and fight the company. A strike wascalled, and the union won. Shortly thereafter,however, Leslie Fay declared bankruptcy.

Hermanson saw the need for the union todevelop an international strategy. It had tohelp workers in other countries organize them-selves so that the industry could not pit work-ers in different countries against each other.Hermanson helped organize the first union-ized factory in an export-processing zone inthe Dominican Republic and contributed to alegacy of militant unionism there. He also de-veloped the idea of Garment Worker JusticeCenters. These centers would serve as placeswhere workers could come to deal with griev-

ances concerning their jobs and could de-velop their capacity to fight back. Althoughthese workers were not covered by collective-bargaining agreements and did not becomefull-fledged union members, the hope was thatthey would develop union consciousness andcontribute to the struggle in their own facto-ries. Over the s justice centers were devel-oped in New York, Texas, and California (Her-manson ).

In the early s Guess? Inc., the largestapparel manufacturer in Los Angeles, becamethe target of a major ILGWU organizing drive.Since World War II a sizable portion of the gar-ment industry had gradually moved to South-ern California, which had managed to establishitself as an almost union-free alternative to theEast Coast. Employment had grown steadilythere, even as it had shrunk in the East. TheGuess? campaign was an effort to establish aunion foothold in Los Angeles. Hermansonworked closely with David Young, the localdirector of organizing, in the effort to organizethe entire production system of Guess? includ-ing its inside shop of cutters and warehouseworkers and its contracting network of aboutforty factories. Because of internal politicswithin the ILGWU, however, the Guess? cam-paign faced divided loyalties at the top of theunion. Moreover, the merger with ACTWUwas in full swing, distracting the union leadersand raising questions about the allocation ofresources (Milkman and Wong ).

The Impact of the Merger and the Creation of UNITE

The merger between the ILGWU andACTWU came about because both unionswere in deep trouble in the mid-s. TheILGWU still had a lot of money in the formof property and investments, even though itwas suffering major losses of membership

each year. ACTWU’s membership losses wereless severe, but it was broke. In general, theILGWU was viewed as a dinosaur, a fossilunable to move, while ACTWU was praisedfor its forward-looking organizing model. Thesejudgments were not fair, especially givenHermanson’s leadership, but the merger waswidely considered to be a joining of ACTWUtalent with ILGWU resources. The expecta-tion was that ACTWU’s leaders would takeover the union, allowing an acceptable periodof time for some of the old ILGWU leader-ship (especially International president JayMazur) to retire.

Whatever its faults, the ILGWU had longexperience in dealing with fragmented pro-duction systems. By contrast ACTWU, itselfthe product of a merger of the textile unionand the men’s wear apparel unions, had littleexperience with the world of sweatshops inthe women’s wear industry; it was used toorganizing in large, reasonably stable facto-ries. The union had taken on the incrediblydifficult task of organizing textile factories inthe South (and had often failed), but it knewnothing of the tiny, mobile, hidden world ofthe sweatshop.

Another difference between the two unionswas the ethnicity of their members. ACTWUwas mainly a white and Black union of native-born workers. The ILGWU was mainly a “yel-low” and “brown” union of immigrants fromAsia, Latin America, and the Caribbean. TheILGWU in Los Angeles, for example, hadbecome very involved in the organizing ofundocumented Latino immigrants, even thoseoutside the apparel industry.

The Guess? campaign in Los Angeles be-came an important arena for a showdownbetween the two unions. The campaign hadbeen devised and run by the ILGWU. Thebasic idea was to work toward an organizingstrike that would shut down Guess? and its

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contractors. The campaign was multifaceted,combining on-the-ground organizing withpublic exposure of Guess? as a sweatshop pro-ducer and with protest actions at their retailoutlets, among other tactics. While the possi-bility that Guess? might move its productionoffshore was always present, the hope was thatmoving in the face of a labor struggle wouldviolate the NLRA. Moreover, the unionhoped, once a contract was signed, to set lim-its on offshore production.

The merger of the two unions led to meet-ings between their organizing leaders. ACTWUparticularly was known for its brilliant corpo-rate campaigns. (The ILGWU was not weakin this area either.) It was hoped that theILGWU’s experience on the ground could becombined with ACTWU’s corporate know-how to strengthen the Guess? campaign. Butthis did not happen; the ACTWU leaders op-posed the strike strategy, leading eventuallyto the resignation of Hermanson and Young.ACTWU took over the campaign, which de-volved into a legal battle with Guess? Inc.Meanwhile, Guess? used the opportunity toshift most of its production to Mexico andLatin America. The battle was lost, eventhough it sputtered on for several years andcost UNITE millions of dollars.

The Guess? campaign was a turning pointfor UNITE’s role in the U.S. apparel industry.For one thing, it led to disillusionment withtrying to organize the apparel industry in LosAngeles. So much money had been spent, withso few results. The union needed to pull backfrom that situation and reassess. It still hada large membership base in New York sewingfactories that it had to maintain, but the newleadership did not seem interested in openingnew fronts in organizing immigrant garmentworkers.

The union decided to take two approaches.First, it shifted its new organizing efforts to acombination of apparel industry–related tar-

gets and other industries that were outside itstraditional jurisdiction, such as nursing homes.The apparel-related industries included indus-trial laundries and distribution centers. In nei-ther case was the industry likely to leave theUnited States. The women’s wear productionfactories, in contrast, were seen as too fragileto organize. They would simply go out of busi-ness or move offshore, leaving impoverishedimmigrant workers even worse off than theyhad been.

Occasionally UNITE has taken on apparel-industry organizing. For instance, in inLos Angeles, under the new leadership ofCristina Vazquez (Milkman and Wong ),UNITE organized a strike against Hollander,an old union company that was trying toescape from its contract.

UNITE’s second approach to global andflexible production has been to support, join,and develop the growing anti-sweatshopmovement, including the important studentmovement. This movement is concerned pri-marily with global sweatshops and how theyhave emerged as a product of the neoliberalworld order. Anti-sweatshop organizationshave sprung up all over since the mid-s,some linked to UNITE and some independentof the union (Shaw ). Even when UNITEhas played a role in developing an organiza-tion, however, the new group has quicklydeveloped its own voice. (This is apparent inthe development of United Students AgainstSweatshops and its creation, the WorkerRights Consortium.)

Critics of UNITE and of the anti-sweat-shop and anti-globalization movements haveclaimed that these efforts are protectionist.They argue that UNITE is trying to keepapparel jobs in the United States by trying toraise labor standards in countries of the globalSouth, so that those countries can no longercompete on the basis of lower wages, poorerworking conditions, and the absence of unions.

But this charge is false. There was a periodduring the s and early s when theILGWU ran a “Buy American” campaign inan effort to stop industry flight (Frank ),but those times are long over. The ship hasleft the dock and there is no turning back.UNITE’s anti-sweatshop work, along withthat of the numerous nongovernmental organ-izations that have joined it, is a principled formof opposition to declining labor and livingstandards for workers in other countries. Alongwith such groups as the AFL-CIO’s Solidar-ity Center, the union is trying to support andencourage organizing in the garment industryaround the world with a view to improvingconditions for all workers.

New Strategies by Labor

Three major approaches seem to dominatelabor’s response to global and flexible produc-tion at the beginning of the twenty-first cen-tury. The first approach involves organizingoutside traditional unions; the second, chang-ing the institutional structures of global capi-talism; and the third, cross-border organizing.

Working outside the Union: The Los Angeles Garment Workers’ Center

In the face of a loss of proactive organizing byUNITE in the Los Angeles garment industry,a group of organizations concerned with theexploitation of immigrant workers came to-gether in to form the Garment Workers’Center (GWC). Developed under the aegis ofthe nongovernmental organization SweatshopWatch, the GWC’s formation involved theactive participation of the Asian Pacific Amer-ican Legal Center, the Coalition for HumaneImmigrant Rights in Los Angeles (CHIRLA),and the Korean Immigrant Workers Advocates(KIWA), among others. Building on UNITE’s

justice center concept and learning from var-ious nonunion immigrant workers’ organiza-tions (such as AIWA, the Asian ImmigrantWomen’s Advocates; CHIRLA’s organizingof day laborers and domestic workers; andKIWA’s organizing of restaurant workers), theGWC serves as a legal aid, research, educa-tion, and action center for garment workers. Itis headed by Kimi Lee, and in its short life thecenter has already developed a local presenceas a force to be taken seriously. One of its keytenets is that it be multiracial, bringing to-gether Latino and Asian garment workers.

Perhaps this is the best model for organiz-ing workers under the extremely repressivelabor regime in the Los Angeles apparel indus-try. Because shops close down readily, becauseundocumented workers can be deported, andbecause garment workers live so close topoverty, traditional union organizing effortsseem doomed to failure. At best they are des-tined for the long term and are costly, andunions faced with both membership and finan-cial losses feel they cannot afford traditionalstrategies. The GWC, in contrast, dependslargely on foundation money and volunteerlabor and takes a less confrontational approachto the workplace. Although it takes on employ-ers and demands that workers be paid whatthey are owed under the law, it does not pushfor strikes or collective-bargaining agreements.

Changing the Institutions

A lot of institutional ferment surrounds globalproduction and its obvious negative conse-quences for workers and their families, bothhere and offshore. One important developmenthas been the growing movement targeting theWorld Trade Organization, the World Bank,the International Monetary Fund, and otherinstitutions that are directing corporate-dominated globalization. This movement isable to mobilize massive demonstrations at the

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meetings of the various bodies, insisting thatlabor and environmental rights be given aprominent place in all trade agreements.Accusations that the movement—which is acoalition of many forces, including unions,environmentalists, human rights groups, andyouth—is against all forms of global integra-tion are a distortion. What the movementwants is greater equality, within and betweencountries. Its supporters oppose the “race tothe bottom” that is developing as a result ofcountries being forced to compete with eachother to offer global capital the lowest possi-ble labor costs, and they want to see basic laborstandards put in place.

One might view these efforts as an attemptto create a kind of “global welfare state,” withinternational agencies putting in place andpolicing rules covering minimum wage, over-time, child labor, women’s rights, and rightsto organize. An important issue concerns theconcept of a “living wage,” since a single,global wage standard seems impractical. In-stead, activists want to ensure that, no matterwhat the differences in cost of living arebetween countries, workers are paid enough tofeed and educate their children and to live indecent housing.

An important demand of the movement isfor freedom of association by workers, includ-ing the right to organize independent unionsand the right to bargain collectively with theiremployers. Serious protections for such rightswould go a long way toward alleviating thesweatshop problem. Unfortunately, in toomany countries union activity is simplycrushed, sometimes with great brutality. Oneshould note that this is not only a Southernproblem but is prevalent in the United Statesas well, despite seemingly protective laws.

Institutional change is also being addressedat the level of companies (manufacturers andretailers). The basic challenge for labor is tobind these higher-level entities to their con-

tractors, so that they are forced to take respon-sibility for conditions in the contracting shops.The ILGWU fought for joint-liability legisla-tion, with only limited success.

Another approach to the problems that sur-round global and flexible production is to getcompanies to develop codes of conduct and tomonitor them to ensure that they are beingimplemented. This concept has extended tomunicipalities, regarding the uniforms theypurchase for city workers (New York Citypassed related legislation at the end of thes), and to universities (under pressurefrom University Students Against Sweat-shops, or USAS). Cities and universities haveset up codes for the companies with whichthey do business, trying to hold them account-able if their contractors violate the codes. Thecodes, in other words, act to enforce a kind ofjoint liability.

U.S. apparel companies have jumped onthis bandwagon, establishing their own codesof conduct and their own monitoring systems(see Schoenberger ). This can be seen asa preemptive and public relations strategy, asthe companies try to ensure the consumingpublic that they are “sweat-free” and wouldnot think of using any factory that violatesbasic labor standards. The companies thenhire monitoring firms to oversee their con-tracting empires around the world. The resulthas been the creation of a new industry ofglobal factory monitors. Various competingorganizations have taken up the challenge byrecruiting companies to join them, with a viewto providing monitoring for their members.The U.S. government–created Fair Labor As-sociation (FLA) is one such organization.UNITE, among other organizations, walkedout of the meetings that led to the creation ofthe FLA, on the grounds that it is an indus-try-dominated entity. (For the weaknesses ofmonitoring by companies, see Esbenshade.)

USAS, which has worked closely withUNITE, created its own oversight institution,the Worker Rights Consortium (WRC). One ofthe cardinal principles of the WRC, unlike theFLA, is to prohibit apparel firms from becom-ing members of the organization. The WRCis a tripartite entity, bringing together univer-sities, the student movement, and garment-worker advocates from around the world toensure that companies that license with uni-versities to produce collegiate apparel are liv-ing up to the WRC’s code of conduct. Ratherthan relying on self-monitoring of contractorsby their employing corporations, the WRC istrying to develop relations with workers viapro-worker nongovernmental organizations,including rights organizations, churches, andunions. Unlike the FLA, which promises com-panies certification that allows them to claimtheir goods as sweat-free, the WRC offers nosuch assurance but instead serves as a watch-dog to protect workers and give them a safeplace to lodge grievances. Given the greatimbalances of power between capital and laborin this industry, students and advocates believethat the companies do not need protection.The WRC can deal with them, but they shouldnot be part of the process of setting WRCstandards and policy. In particular, the WRCstrongly supports union organizing, which isgenerally anathema to the industry.

The WRC is a young organization in theprocess of development, so its model is stillbeing tested. University administrative repre-sentatives, especially those from schools withlarge athletic programs, want to maintain goodrelations with their licensees, some of whomgive those programs generous gifts in exchangefor prominently displaying their corporatelogos (Klein ). Universities are caughtbetween the demands of their students and thedemands of their licensees and tend to serve asa conservatizing force on the WRC. Never-theless, the WRC is a promising model that

may provide global garment workers (althoughin a narrow sector) with some protection fororganizing.

Cross-Border Organizing

The obvious answer to the challenges of globalcapitalism is the development of a global work-ing-class movement. If ever there was a timeto apply the slogan “Workers of the WorldUnite!” it is now. Efforts are going forth in thisdirection, and various campaigns have beenlaunched (see, e.g., Armbruster andArmbruster-Sandoval ). The AFL-CIO’sSolidarity Center is sending organizers to var-ious countries to work with local unionists, andnow that it has largely been stripped of itsCold War ideology, the center has more chanceof success. Some of the international tradesecretariats are also active, including the Inter-national Textile, Garment and Leather Work-ers Federation.

Throughout the s and into the twenty-first century, campaigns have been launchedagainst Nike and the Gap and against variouscontractors, such as Chentex (in Nicaragua)and Kukdong (in Mexico). There is no needto review each campaign here. The point isthat support for workers’ organizing effortshas developed around the world, and pressurehas been put on the corporations and retail-ers to stop local contactors from suppressingworker organizing. Since the natural reactionof transnational corporations is simply towithdraw and move their work to another fac-tory or country, additional pressure is put onthem not to engage in such an irresponsibleaction but instead to stay and clean up the messthey created.

The leverage that supporters in Northerncountries have is through their role as con-sumers. Supporters of workers and of union-izing efforts can expose a company’s sweatshopand union-busting practices to the public,

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thereby hurting its image and soiling its brandname (Klein ). These kinds of exposéscan push a company to get its contractor toconform to worker-supportive demands.

The effectiveness of such strategies remainssomewhat murky. Corporations can insist thattheir contractors change their practices with-out altering their own pricing policies. Theburden of change then falls on the contractor,and the corporation remains only a watchdog.Clearly, more money needs to be extracted atthe manufacturer and retailer level in order toget conditions to improve substantially for gar-ment workers around the world.

Toward the Future

In some industries, cross-border organizingmeans that workers and unions at the branchesof a major transnational corporation all worktogether and coordinate their actions anddemands. This was a feature of the UnitedParcel Service strike (Russo and Banks ).In the apparel industry, however, the opportu-nities for such coordinated strategies arestymied by the looser relations between thetransnational corporation and its contractorsand the resulting mobility and secrecy thatcharacterize the production network. The lackof a strong union base in the industry in manycountries (including the United States) alsomakes collaborating difficult.

Nevertheless, I believe the major route tosocial change is empowered workers who areable to demand that change. Developing stronginternational campaigns that bring togetherthe workers of contractors who operate inmore than one country (which sometimeshappens among bigger contractors, such asKukdong) or of multiple contractors whowork for the same transnational corporationmust be placed high on labor’s agenda. Thesekinds of campaigns require creative thinking

about how to organize far-flung workers. Andthey require that unions and federations ofunions put their best talent and resources towork on the task.

One way to think about international orga-nizing is to consider the entire circulation ofcapital and where labor has the power to inter-vene. For example, finance and distribution arecritical phases in capital’s circulation. In theUnited States the transportation of importedgoods could prove to be a bottleneck that isvulnerable to pressure on behalf of garmentworkers who are trying to organize themselvesin other countries.

Global and flexible production have defi-nitely strengthened the hand of capital andweakened that of labor. This is evident notonly in declining union density but also inthe severe lowering of labor standards in theindustry. Traditional approaches to unioniza-tion do not seem to work under these circum-stances, yet workers need unity and represen-tation more than ever. New ideas are beingtried, both by unions and by various worker-advocating organizations. Hopefully some ofthem will succeed.

References

Armbruster, Ralph. . “Globalization and Cross-Border Labor Organizing in the Garment andAutomobile Industries.” Ph.D. diss., Departmentof Sociology, University of California, Riverside.

Armbruster-Sandoval, Ralph. . “Globalizationand Cross-Border Labor Organizing: The Guate-malan Maquiladora Industry and the PhillipsVan Heusen Workers Movement.” Latin Ameri-can Perspectives : ‒.

Bonacich, Edna. . “Intense Challenges, Tenta-tive Possibilities: Organizing Immigrant Gar-ment Workers in Los Angeles.” In OrganizingImmigrants: The Challenge for Unions in Contem-porary California, ed. Ruth Milkman, pp. ‒.

Ithaca, N.Y.: ILR Press.

Bonacich, Edna, and Richard P. Appelbaum. .

Behind the Label: Inequality in the Los AngelesApparel Industry. Berkeley: University of Cali-fornia Press.

Compa, Lance. . Unfair Advantage: Workers’Freedom of Association in the United States underInternational Human Rights Standards. Washing-ton, D.C.: Human Rights Watch.

Esbenshade, Jill. . “Globalization and Resis-tance in the Apparel Industry: The Struggle overMonitoring.” Paper presented at the AmericanSociological Association meetings, Washington,D.C., August.

Frank, Dana. . Buy American: The Untold Storyof Economic Nationalism. Boston: Beacon Press.

Hermanson, Jeff. . “Organizing for Justice:ILGWU Returns to Social Unionism to Orga-nize Immigrant Workers.” Labor Research Review: ‒.

International Labour Office (ILO). . LabourPractices in the Footwear, Leather, Textiles andClothing Industries. Geneva: ILO.

Klein, Naomi. . No Logo: Taking Aim at theBrand Bullies. New York: Picador.

Milkman, Ruth, and Kent Wong. . “Cristina Vaz-quez.” In Voices from the Front Lines: OrganizingImmigrant Workers in Los Angeles, pp. ‒. LosAngeles: University of California, Los Angeles,Center for Labor Research and Education.

———. . “Organizing Immigrant Workers:Case Studies from Southern California.” In Re-kindling the Movement: Labor’s Quest for Rele-vance in the Twenty-first Century, ed. LowellTurner, Harry C. Katz, and Richard W. Hurd,pp. ‒. Ithaca, N.Y.: Cornell University Press.

Ross, Andrew, ed. . No Sweat: Fashion, FreeTrade, and the Rights of Garment Workers. Lon-don: Verso.

Russo, John, and Andrew Banks. . “BuildingGlobal Trade Union Campaigns and Organiz-ing Structures: Taking the UPS Strike Over-seas.” Paper presented at UCLEA/AFL-CIOEducation Conference, San Jose, California,May .

Schoenberger, Karl. . Levi’s Children: Comingto Terms with Human Rights in the Global Mar-ketplace. New York: Atlantic Monthly Press.

Shaw, Randy. . Reclaiming America: Nike, CleanAir, and the New National Activism. Berkeley:University of California Press.

Stein, Leon, ed. . Out of the Sweatshop: TheStruggle for Union Democracy. New York: Quad-rangle/The New York Times Book Company.

Varley, Pamela, ed. . The Sweatshop Quandary:Corporate Responsibility on the Global Frontier.Washington, D.C.: Investor Responsibility Re-search Center.

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Part IIIThe U.S.-Mexico Border Region

David Spener

The Unraveling Seam:

NAFTA and the Decline of the

Apparel Industry in El Paso, Texas

In this chapter I describe the restructuring andjob loss in the garment industry of El Paso,Texas, that has accompanied trade liberaliza-tion between the United States and Mexicosince the late s. As a small city whose “OldWest” economy has traditionally revolvedaround the “four C’s—copper, cattle, cotton,and climate” (Mangan , ), El Paso mayseem an unlikely subject for the study of traderegulations and the globalization of the ap-parel industry. In , on the eve of the pas-sage of the North American Free Trade Agree-ment, El Paso’s civilian labor force numbered,, of whom , worked in the gar-ment industry.1 As such, El Paso is just a “bit”player in the international manufacture anddistribution of clothing, accounting for onlyabout . percent of the , workers wholabored in the U.S. garment industry that year(U.S. Bureau of the Census ). Appear-ances can be deceiving, however, and a num-ber of factors combine to make the city anespecially interesting and important site forstudying change in the garment industry in theaftermath of the North American Free TradeAgreement:

• El Paso has for many years been one of thelargest, if not the largest, points of produc-tion of denim jeans in the United States.Since at least the s, the city has beenknown as the “Jeans Capital of the World”(van Dooren ). Until recently, nearlyone-quarter of Levi Strauss and Compa-ny’s twenty-five thousand U.S. employeesworked there, along with several thousandother workers in the employ of Wrangler,Lee Company, and Sun Apparel, amongothers. On a weekly basis, Levi’s plantsalone could produce over five hundredthousand pairs of blue jeans in El Paso. Inaddition, many aspects of blue jeans pro-duction in El Paso, involving both large-scale and smaller producers, are linked tothe operation of Mexican maquiladorassouth of the border.

• In addition to a handful of large-scale bluejeans factories, El Paso has been home todozens of smaller garment firms engagedin cutting, sewing, laundering, and finish-ing not only blue jeans but also a variety ofwomen’s and misses’ outerwear garments.These smaller firms are concentrated in the

city center and, taken as a whole, exhibitmany of the characteristics typically asso-ciated with entrepreneurial industrial dis-tricts—a skilled workforce, routine inter-firm collaboration based on social networkconnections among artisan-owners, as wellas intrafirm social capital based on sharedethnicity or common participation in immi-grant networks by entrepreneurs and theiremployees (Bull, Pitt, and Szarka ;

Portes ). Unlike successful entrepre-neurial garment communities elsewhere,however, the small-scale sector in El Pasofinds itself in acute crisis in the face of over-seas competition, especially from the ma-quiladoras. Ironically, some of these smallergarment shops until quite recently collabo-rated in subcontracting networks with ma-quiladoras in Mexico on a complementarybasis.

• In the s, El Paso was the scene of themassive strike against the Farah Company,one of the last major unionization battles inthe garment industry to be won by workers.Winning the strike and union recognitionproved to be a Pyrrhic victory for labor, how-ever, as after the strike Farah laid off thou-sands of workers and moved production off-shore (DeMoss ; Coyle, Hershatter, andHonig ; Honig ). The inability ofthe garment workers to gain recognition oftheir union and prevent the loss of jobs tothe maquiladoras in the late s continuesto have repercussions throughout the indus-try today.

• The U.S.-Mexico border region also offersa unique environment in which to observe,in stark relief, the effects that changes instate regulation of the clothing trade haveon workers and their communities. In ElPaso, the social construction of economicspace through state regulation is a strikingfeature of everyday life. Nowhere is thismore evident than in the local garment in-

dustry, many of whose owners and employ-ees maintain an intense interaction withMexico and Mexicans, a country and peoplewith whom they share a common culture,language, and history. Due to the vagaries ofthe world apparel market and changing gov-ernment trade policies, however, the extentto which their economic and social destinieswill remain linked is not clear.

• Finally, because the El Paso garment indus-try is largely peopled by Mexican immigrantwomen, the brunt of the massive job losseswitnessed since the beginning of arebeing borne by a particularly vulnerable andpoor segment of the local population. Risingimmigrant unemployment comes preciselyat a time when U.S. immigration and welfarepolicy has turned especially mean-spirited,leaving newly unemployed garment workerswith few appealing alternatives.

The analysis presented in this chapter isbased on data from official sources in theUnited States and Mexico, as well as in-depthinterviews and surveys conducted with entre-preneurs and workers in the industry from to . The chapter is divided into foursections. First, I give an overview of the historyand organization of the garment industry andits workforce in El Paso. Second, I describestate regulation of the garment trade betweenthe United States and Mexico under the Mul-tifiber Arrangement (MFA) and the in-bondassembly (maquiladora) program and how thisregulation helped structure the garment sectorin El Paso. Third, I analyze the reorganizationof the El Paso garment industry since the changes in the Multifiber Arrangement,which has intensified under the North Amer-ican Free Trade Agreement. This reorganiza-tion involves the closing or movement of manysewing operations, both large- and small-scale,to the Mexican side under the auspices of themaquiladora program. By way of conclusion,

I offer a few comments on what this reorgani-zation portends for garment-industry enter-prises and their workers in El Paso.

The Garment Industry in El Paso

The garment industry has played a major rolein the El Paso economy since at least the s,when Lebanese immigrants Mansour andHannah Farah began to manufacture cham-bray shirts and denim pants for rail, ranch, andmine workers in the Southwest. The industryexpanded after the Great Depression to meetthe demand for military uniforms duringWorld War II. After the war garment produc-tion continued to grow, fueled by El Paso’scheap, nonunion labor supply. In the immedi-ate postwar period, blue jeans emerged as thedominant garment in the city’s apparel sector,a dominance retained through the beginning ofthe twenty-first century (van Dooren ).In El Paso in , “men’s and boy’s furnish-ings,” which consisted mainly of large-scaleblue jeans production, accounted for approxi-mately percent of the city’s total apparelemployment. In addition, a significant num-ber of establishments and workers have beendedicated to the sewing of ladies’ outerwear,including jackets and blouses as well as pants.In the same year, fifty-three of El Paso’s

eighty-five registered garment-manufacturingestablishments were classified as being dedi-cated to the production of women’s wear (U.S.Bureau of the Census ). From these fig-ures we confirm the extent to which smaller-scale establishments that year were concen-trated in the production of women’s wear.

As has been the case in major U.S. cities onboth the East and West Coasts—New York,San Francisco, and Los Angeles, for exam-ple—the El Paso garment workforce has con-sisted largely of women immigrants who haveworked for low wages and sometimes in sweat-shop conditions. Table . indicates the extentto which the city’s garment-industryworkforce was dominated by Mexican immi-grants and Mexican Americans,2 who, takentogether, comprised percent of the city’stotal workforce (U.S. Bureau of the Census). Less than percent of the entire in-dustry workforce in consisted of non-Hispanic whites, and virtually all of these wereemployed in white-collar positions. In

nearly percent of manual garment work-ers in El Paso were of Mexican origin, and overtwo-thirds had been born in Mexico.

Table . provides selected characteristicsof the El Paso garment industry’s immigrantworkforce compared with the all members ofthe economically active population (EAP) andall Mexican immigrants working in the city in

.. Distribution of the Economically Active Population (EAP) ofEl Paso, Texas, by Ethnicity and Nativity, (in percent)

Garment Industry (manual and Garment Workers

Ethnic/Nativity Group Total EAP nonmanual workers) (manual only)

U.S.-Born Latinosa 40.8 33.9 31.2Latino Immigrants 24.6 61.1 67.4Non-Hispanic White Natives 27.7 2.6 0.2Members of Other Groups 6.9 2.4 1.2Total 100.0 100.0 100.0

Source: “ Percent Public Use Microdata Sample,” U.S. Census of Population and Housing, .

aOver percent of both U.S.-born and immigrant Latinos in El Paso are of Mexican origin.

. Immigrant garment workers were muchmore likely than both the overall EAP and alleconomically active Mexican immigrants to bewomen, to have less than a high school educa-tion, to speak English poorly or not at all, andnot to be U.S. citizens. In addition, Mexicanimmigrant garment workers had median earn-ings more than $, lower than local work-ers taken as a whole and were more than twiceas likely to live in poverty—more than a thirdof immigrant garment workers lived in house-holds whose income fell below the officialpoverty line, compared to “just” percent inthe overall EAP. Like most Mexican immi-grants working in El Paso, nearly all immigrantgarment workers spoke Spanish at home, anda substantial number—around percent—had immigrated to the United States in thes.

The apparel industry’s dominance of the ElPaso economy peaked in the early s, when percent of all manufacturing workers andnearly percent of all private-sector workersin the city were employed in the needle trades(Márquez ). By the end of the next decade,the apparel industry had declined precipi-

tously, in both relative and absolute terms:Only one-third of manufacturing workers andjust percent of all workers were employed inthe manufacture of clothing, as around tenthousand jobs in the industry were lost (Honig; Márquez ).

There were several reasons for this elimina-tion of jobs in the garment industry in El Pasoin the late s and early s. Labor strifewas a major precipitating factor. In , oneof the largest local employers—the FarahCompany, which employed around seventhousand workers in El Paso—finally suc-cumbed to a successful unionization effortafter a two-year strike (Coyle, Hershatter, andHonig ; DeMoss ; Honig ). Thisimportant union victory proved to be short-lived: Farah and other local manufacturersdrastically scaled back their El Paso sewingoperations and moved across the border intoMexico to set up as maquiladoras. After thesevere devaluations of the Mexican peso inthe early s, these firms could avail them-selves of labor that was only one-tenth to one-eighth as expensive as minimum-wage labor inEl Paso. Some of these companies, such as

.. Selected Characteristics of the Economically Active Population (EAP) ofEl Paso, Texas,

Mexican Mexican Immigrant Characteristic Total EAP Immigrants Garment Workers

Percent who work in the garment industry 5.5 14.0 100.0Percent female 44.1 44.6 61.5Percent who have completed high school or its equivalent 73.0 40.0 19.2Percent who speak English “not well” or “not at all” 12.6 42.6 65.6Percent who speak Spanish at home 63.3 96.2 96.5Percent who are U.S. citizens 82.9 36.1 30.4Percent who immigrated from Mexico, 1985–90 — 11.9 13.7Percent who immigrated from Mexico, 1980–90 — 29.0 26.4Median age 36.3 38.4 37.9Median annual earnings, 1989 (U.S.$) 15,156 9,681 9,062Percent living below the official poverty line 16.3 33.1 33.7Median public assistance received, 1989 (U.S.$) 519 855 770

Source: “ Percent Public Use Microdata Sample,” U.S. Census of Population and Housing, .

Farah, formed Mexican subsidiaries, whileothers contracted their sewing operations toMexican national companies.3

In addition, the overall stagnation of theU.S. economy in the late s and early shad the effect of depressing clothing sales andprices. Combined with a surge in low-costAsian imports, this resulted in severe job lossesin the garment industry. The decline of theapparel industry in El Paso mirrored thedecline in the industry nationwide—‒

saw a net loss of over four hundred thousandgarment jobs in the United States (U.S. Bu-reau of Labor Statistics, cited in Blumenbergand Ong , ). While the Mexican ma-quiladoras cannot account for many of the U.S.jobs lost in the industry nationwide, the loss ofsewing jobs in El Paso after can be attrib-uted in some measure to maquiladora plantsopening in Mexico.4

Another important consequence of the suc-cessful unionization of Farah was the emer-gence of a set of small, subcontractor sewingshops, many of which were started by formeremployees of the larger manufacturers andsome of which could accurately be describedas sweatshops.5 Although the informal, under-ground nature of many of these shops makesit difficult to estimate their number with anydegree of accuracy, informants I interviewedin the field suggest that as recently as sev-eral dozen small sewing establishments (withtwenty to fifty employees each) were still scat-tered throughout El Paso’s central industrialdistrict.6

Employment in this small-scale sector drewlower wages than in the larger plants and wasalso extremely precarious—when there wereorders to fill, workers could labor around theclock; when orders were scarce, employeeswere laid off. In addition, it was not uncom-mon for shop owners to fail to pay their work-ers when they had cash-flow problems, in somecases shutting down their shops entirely and

then reopening in new locations shortly there-after in order to avoid paying back wages owed(author’s field interviews, corroborated inMárquez ). Prior to the Immigra-tion Reform and Control Act, which legalizeda large portion of El Paso’s Mexican undocu-mented workers, many of the employees inthese small shops did not have a U.S. workpermit, which made them extremely vulner-able to exploitation by employers. Even afterthe legalization program’s completion, thedepressed state of the garment industry, com-bined with the continual arrival of new Mex-ican immigrants to El Paso, kept the supplyof cheap labor abundant, limiting the abilityof legalized immigrants to better their statusand pay.7

El Paso under MFA and Item

Before the North American Free Trade Agree-ment on January , , much of the struc-ture of the garment industry in El Paso wasinfluenced by regulations contained in theMultifiber Arrangement and those aspects ofthe U.S. tariff code (Item ) that governedin-bond assembly of garments overseas. TheMultifiber Arrangement (MFA) is a multilat-eral agreement first negotiated under the aus-pices of the General Agreement on Tariffs andTrade (GATT) in and renewed every fiveyears since; in the early s about fifty coun-tries were signatories to the agreement (Bona-cich and Waller ). Under the GATT Uru-guay round, a ten-year phaseout (‒)of the MFA was negotiated, a process that isnow in progress (World Trade Organization). The MFA permits signatories to nego-tiate bilateral agreements regulating the tradein garments. Before the adoption of the NorthAmerican Free Trade Agreement (NAFTA),the in-bond assembly program for garmentsthat had been developed by the United States

and Mexico operated in accordance with MFArules.

Under Item of the U.S. tariff code,manufacturers may ship U.S.-made compo-nents to another country for assembly and thenimport them back into the United States, pay-ing a duty only on the value added in the othercountry. This allows U.S. companies to takeadvantage of lower-cost labor overseas to com-plete labor-intensive aspects of their produc-tion processes. While, in principle, Item

may be used anywhere around the world, com-panies mainly have used it for production inMexico and the Caribbean countries, whoseclose geographic proximity to the UnitedStates prevents transportation costs from eras-ing any cost savings to be gained by employ-ing cheaper labor (Bonacich and Waller ;

Mathews ).Before the adoption of NAFTA, a number

of peculiarities in the administration of Item limited the quantity of garments that couldbe assembled by Mexican maquiladoras forexport to the United States (Anderson ;

Tiano ). These served to protect apparelproduction by both large- and small-scale oper-ations in El Paso. First, only the actual sewingof garments could be carried out “in bond” onthe Mexican side, since this was the only partof the garment manufacturing process that wasconsidered to be “assembly.” Thus other oper-ations, such as cutting, washing, finishing, andpackaging of garments, had to remain in theUnited States in order for garments to be eli-gible for treatment. Second, in keepingwith the MFA framework, the United Statesand Mexico negotiated numerical import quo-tas that limited the annual quantity of gar-ments that could be sewn in Mexico bymaquiladoras for subsequent sale in the U.S.market. These annual quotas were made sub-stantially more flexible after bilateral negotia-tions in ‒, with the effect that, begin-ning in , annual quotas for Item

apparel goods were raised by percent ormore each year and were automatically adjustedupward any year in which they were filled(Bonacich and Waller ; personal commu-nication, U.S. International Trade Commis-sion, November ). Thus, for all practicalpurposes, numerical quotas for apparel ma-quiladora imports into the United States wereeliminated in . Under the bilateral agree-ment negotiated in ‒, the tariff onmaquiladora-assembled garments entering theUnited States averaged around percent onthe value added in Mexico, or around percentof the total cost of the garment to the manu-facturer (Hufbauer and Schott , ‒).Because of the rise in the value of the peso rel-ative to the U.S. dollar in the late s andearly s, hourly labor costs for sewing oper-ators in Mexico in were about $., com-pared to the rate of $.–$. per hour thatoperators in aboveboard establishments couldearn performing the same tasks across the bor-der in El Paso.8

Given the elimination of quotas and the costpressures retailers were placing on producers,by considerable advantages could begained by expanding production into Mex-ico. Not surprisingly, Mexico saw a burst ofapparel maquiladora employment, particularlyin interior cities away from the border. Wherein only about thirty-five thousand work-ers labored in apparel maquiladoras in Mexico,by the number had risen to sixty-fivethousand (CIEMEX-WEFA ; INEGI). During the same period, the value ofgarments exported through the El Paso andLaredo, Texas, customs ports by U.S. firms toMexico, a large portion of which were des-tined for assembly in maquiladoras, rose from$ million in to over $ million in (U.S. Department of Commerce b).The exports of “men’s or boys’ trousers ofblue denim” (blue jeans) alone rose from justunder million pairs in to over mil-

lion in (U.S. Department of Commercea).9

How did the El Paso garment industry or-ganize itself in the face of this binational reg-ulatory arrangement? A number of large-scaleproducers—among them Action West, Farah,and Sun Apparel—opened or expanded sewingoperations in Mexico, whether by means ofowned-and-operated facilities or throughcontractors. At the same time, regula-tions required that these and other companies’maquiladora-produced garments be cut andfinished on the U.S. side. Thus a company suchas Farah eventually shut down all its El Pasosewing facilities but maintained a cutting roomand finishing and distribution center to com-plement its Mexican production (Honig ;

van Dooren ). After , as maquiladoraproduction of denim garments expanded inTorreón, Mexico, demand for cutting and fin-ishing services in El Paso was fueled by theneed to have cloth cut on the U.S. side in orderto qualify for tariff reductions. In somecases, larger firms already established in El Pasoopened or expanded their own cutting or fin-ishing facilities there, while others, especiallythose operating through brokers located else-where in the United States, contracted tosmaller-scale, independent cutting rooms andfinishers around the city.10 Already beforeNAFTA, competition from Mexican importsput severe pressures on small-scale sewing oper-ations in El Paso, with many closing their doors.

By the time I arrived in El Paso to conductinterviews in , only a few small-scalesewing operations were still in business (andmost of these have since shut down). Thesehangers-on survived in a number of ways,including by doing special small-batch “rush”jobs for manufacturers or brokers located inEl Paso and elsewhere in the United States, byproducing specialized garments (such asHarley-Davidson jackets or small-label west-ern wear) for retailers and their brokers, and

by offering smaller U.S.-based companieswithout overseas experience a relatively inex-pensive alternative to organizing productionoutside the country.

The effects on the El Paso garment econ-omy of this pre-NAFTA boom in Mexicanmaquiladora apparel production were mixed.On the one hand, it became more advanta-geous for U.S. manufacturers to contract agreater percentage of their sewing operationsto Mexican maquiladoras. This put competi-tive pressure on El Paso sewing rooms. On theother hand, the boom in maquiladora apparelproduction in Mexico turned El Paso into aprime location for cutting and finishing oper-ations, since these operations could not be car-ried out in Mexico if the completed garmentswere still to qualify for Item tariff treat-ment. Thus the bilateral trade arrangements inplace from through probably led tothe loss of some sewing jobs and the additionof some cutting and finishing jobs in El Paso,as well as the rapid increase of sewing jobsacross the border.

Somewhat paradoxically given these con-tradictory tendencies in the market, apparelindustry employment in El Paso grew sub-stantially in the last pre-NAFTA years. Fromthe to average annual employmentrose, from , jobs to , jobs (see Fig-ure .).11 Most of this increase in employ-ment did not have to do directly with the bi-national trade regime, however. In the earlys several large blue jeans manufacturers—among them Levi Strauss and Company, LeeCompany, Wrangler, and Sun Apparel—expanded their existing operations or openednew plants in El Paso (personal communica-tion, El Paso Office of Economic Develop-ment, October ; Medaille and Wheat). Lee, Sun Apparel, and Wrangler com-bined to add more than two thousand employ-ees to the garment workforce between

and (Crimmins ).12

There were three reasons for this increasein production and employment. First, stylechanges in the industry in the early s pro-moted the sale of denim shirts and pants, lead-ing to a percent increase in blue jeans salesbetween and , reversing a decade-long slump (Bary ). Second, interviews I conducted with employees of Levi Straussand Company and Wrangler suggest that oneof the main reasons for this expansion was thedesire to produce garments with a “Made inthe U.S.A.” label for sale not only in the U.S.market but especially in Europe and Japan,where a pair of standard-cut blue jeans wereselling for as much as $ (corroborated inCrimmins ; Medaille and Wheat ;

van Dooren ).13

El Paso, with a large, experienced denim-garment workforce, location in a right-to-workstate, and some of the cheapest labor in theUnited States, was an ideal location for expan-

sion. It should also be noted that sewing-machine operators in the Lee, Wrangler, andLevi Strauss plants were paid considerablymore (on the order of $–$ per hour) thanemployees in the smaller-scale shops describedabove, with much greater job security as wellas other benefits, such as paid vacations andhealth insurance. Working conditions werealso considerably better than those found inthe smaller garment shops, and due to the useof newer and more sophisticated machinesdesigned especially for sewing blue jeans, pro-ductivity was much higher as well.

At the dawn of NAFTA, then, El Paso wasin the midst of a boom in garment employ-ment, with the local industry dominated bythree large employers. Levi Strauss and Com-pany, Lee, and Wrangler had, respectively,forty-six hundred, two thousand, and twenty-six hundred El Paso employees (El Paso Officeof Economic Development ). The expan-

.. Average Annual Apparel Employment in El Paso, Texas, –

Source: Compiled from raw data provided by the Texas Workforce Commission.

sion of these companies in El Paso also gaverise to considerable employment in the laun-dering of jeans, some of which was conductedby their owned-and-operated finishing plantsand some of which was contracted to large-scale independently operated finishing plants.14

In addition to laundering jeans produced lo-cally in El Paso, Levi Strauss and Company’sowned-and-operated finishing facilities laun-dered jeans produced by its plants in otherU.S. locations and by its network of contrac-tors in Mexico and elsewhere in Latin Amer-ica. Laundering operations accounted for asmany as , of the , garment jobs inEl Paso in . A glowing article in the TexasComptroller’s Fiscal Notes, published in Feb-ruary , argued that El Paso’s plants’ use ofadvanced technologies and flexible productionapproaches had enabled them to buck thenational downward trend in production andemployment and would keep the city’s gar-ment industry competitive well into the future(Crimmins ).

Post-NAFTA Plant Closures and Layoffs

Changes in the Binational Trade Regime and the Peso Devaluation

Upon its implementation on January , ,

NAFTA superseded previous agreements reg-ulating binational trade between the UnitedStates and Mexico, including the MultifiberArrangement and trade regulations pertainingto in-bond (Item maquiladora) assembly.NAFTA changes in the existing binationaltrade regime for garments are being phased inover a period of years, however, so some as-pects of the regulation of garments have beencarried over from the previous regime.

Nevertheless, three of the most importantchanges were implemented immediately, onJanuary , and had significant consequences

for the El Paso apparel industry. First, the quo-tas for Item apparel that had been raisedand made more flexible in were elimi-nated altogether. Second, the percent dutyassessed on value added to garments assem-bled in Mexico was eliminated, thus effectivelylowering Mexican labor costs to the manufac-turer by one-fifth. Third, the washing of gar-ments, including the high-value-added stone-washing process used for jeans, was no longerconsidered to be a “transformation” of the rawmaterial and thus could be carried out on theMexican side without tariff penalties beingassessed. In addition, tariffs assessed by theUnited States on nonmaquiladora garmentswhose fabric originated in North America werelowered to around percent, thus substantiallyreducing the barriers to Mexican national pro-ducers who wished to export their product tothe United States.

These changes in the binational trade re-gime combined with two other developmentsto put increased pressures on the El Paso gar-ment industry to lower its production costs orlose its market share. First, the overall stagna-tion in apparel sales in the United States by themid-s, due to overproduction early in thedecade, sluggish retail sales generally, andchanges in women’s fashions favoring simpler,more functional designs, put increased pres-sure on local producers to lower their prices tothe buyers. Second, the unexpectedly drasticdevaluation of the Mexican peso in December and its continued free fall during the firstmonths of dramatically lowered laborcosts in Mexico relative to those prevailing inthe United States; this change in relative costscame in addition to the percent effectivelowering of Mexican labor costs attributabledirectly to NAFTA.

Changes in the binational trade regime com-bined with the radical lowering of Mexicanlabor costs accompanying the peso devaluationhad a devastating impact on El Paso’s garment

sector. Job losses in the industry that havebeen certified by the U.S. Department of La-bor as due to the implementation of NAFTAtotaled , by May ,15 representingabout percent of the , net jobs lost inthe industry by the end of the third quarter of. (See Figure . for the evolution of gar-ment employment in El Paso, ‒.)Nearly two-thirds of these certifications werefor Standard Industrial Classification (SIC), “men’s and boys’ trousers and slacks”(i.e., blue jeans), and another one-fifth were forSIC , “women’s and misses’ outerwear,”which was also dominated by denim pants andother denim garments. Nearly one-third ofthese certifications were made on the basis ofcompanies transferring production to Mexico,with the remainder due to increased penetra-tion of Mexican imports after the implemen-tation of NAFTA. The list of forty-nine com-panies that laid off a significant number ofworkers includes the names of such large-scaleoperators as Sun Apparel ( workers) and itsGreater Texas Finishing plant ( workers),16

Farah ( workers), and El Paso ApparelGroup ( workers), as well as smaller, localcompanies such as CMT Industries ( work-ers who manufactured women’s blazers), JAMEnterprises ( workers), a local cutting room,17

and Final Finish ( workers), a local jeanslaundry. Unlike earlier periods of job loss inthe El Paso garment sector, this round occurredduring a period of national economic boom,with increasing disposable income amongconsumers and strong growth in retail salesaround the nation.

As jobs were disappearing from El Paso,garment maquiladora employment in Mexicoexperienced another dramatic surge in growth.In around , garment workers la-bored in maquiladoras throughout Mex-ico. By employment had risen to ,

employees working in maquiladoras. Atthe end of , the econometrics firm

CIEMEX-WEFA reported there were ,

garment workers laboring in maquiladorasin Mexico. By the year , , workerswere sewing garments in , maquiladoras(INEGI , , , ). The low-costcompetition from these maquiladoras, many ofwhich produced high-quality garments for thesame manufacturers that had plants in El Pasoor for the same retailers that contracted pro-duction to El Paso manufacturers, has playeda fairly direct role in much of the job loss ElPaso’s apparel sector has experienced sinceJanuary , .

In contrast, the massive layoff of Levi’s em-ployees that followed the company’s announce-ment of El Paso plant closures, first in Novem-ber , then in September , and againin February , could not be directly attrib-uted to increased maquiladora production orNAFTA. It is to the proximate causes of theseplant closures and their longer-term relation-ship to NAFTA that we now turn our attention.

The Levi Strauss and Company Plant Closures and Layoffs

By the mid-s, Levi Strauss and Companywas El Paso’s largest private employer,18 oper-ating seven plants in the city and employingaround forty-six hundred workers.19 Thecompany had instituted a flexible work-teamapproach, automated parts of the jeans-assem-bly process, and renovated work stations in itslocal plants. These innovations were creditedwith significant improvements in productivity(Crimmins ). Levi’s five sewing plants inEl Paso produced more than half a millionpairs of “Made in the U.S.A.” and

jeans per week at peak production. Hourly payfor workers ran as high as $., and the com-pany offered generous fringe benefits, includ-ing paid health care, paid vacation, depend-ent-care benefits, and a retirement plan. Thecompany enjoyed cordial relations with the

Union of Needletrades, Industrial, and TextileEmployees (UNITE) in its unionized Cypressplant and offered comparable pay and benefitspackages to both union and nonunion em-ployees. Company revenues had been growingthroughout the s, and Levi Strauss andCompany announced record worldwide salesof $. billion for fiscal year . This repre-sented a percent increase over and wasled by demand for Levi’s brand products (notincluding Slates or Dockers) in both theUnited States and Europe (Levi Strauss andCompany press release, February , ). ElPaso, with a large poor and undereducatedpopulation, seemed especially blessed to havesuch a successful and beneficent employeroffering so many jobs to workers with only ahigh school diploma or less.

Already in early , however, Levi Straussand Company’s management team had de-cided that the company needed to cut over-head costs for its U.S. business—which werewell above the industry average—by at least$ million per year. A hiring freeze was insti-tuted, and management informed employeesthat approximately one thousand salaried posi-tions nationwide in the company would beeliminated within a year. Around the sametime, the company announced that it wouldreduce its El Paso workforce by percent bythe end of the year, a goal it hoped to reachmainly through attrition (Weddell ).20 Ashort time later, by mid-, Levi’s cut oper-ating hours at its El Paso plants by to

percent, effectively cutting full-time workersback to a part-time paycheck (but with full-time benefits). Then, on November , ,

the ax fell: The company announced it wasshutting down eleven U.S. facilities that em-ployed a total of , workers, including threesewing plants in El Paso—Airway, Eastside,and Lomaland—that employed sixteen hun-dred persons (Levi Strauss and Companypress release, November , ). The ax fell

again in September when the companyclosed two Texas finishing centers due to de-clining demand for their services after theshutdown of the eleven manufacturing plants.One finishing plant was located in Amarillo,while the other was El Paso’s Pelicano finish-ing center, resulting in the combined layoff ofanother workers (Levi Strauss and Com-pany press release, September , ). OnFebruary , , Levi Strauss announcedthat it would close ten plants in North Amer-ica (nine in the United States and one inCanada), including El Paso’s Cypress plant,whose workers lost their jobs later thatyear (Vaughan and Bizar ). In keepingwith the company’s generally benevolent poli-cies toward workers under the leadership ofRobert Haas, laid-off workers were grantedgenerous severance packages consisting ofeight months’ notice, three weeks of severancepay for each year of service, extended medicalcoverage, and as much as $, for retraining,relocation, or business start-up expenses (LeviStrauss and Company press releases, Novem-ber , , September , , and Febru-ary , ; Vaughan and Bizar ).21

Through the end of , Levi Strauss offi-cials publicly stressed that the closing of plantsin El Paso and elsewhere in the United Stateshad not resulted from any decision by the com-pany to transfer production overseas, whetherto Mexico, elsewhere in Latin America, orChina.22 Rather, they gave excess capacity,brought about by improved efficiency, and asoftening of the denim apparel market as themain reasons for the cutbacks (Levi Straussand Company press release, November ,

; Colliver ). Indeed, Levi Strauss andCompany’s fiscal-year worldwide salesdropped percent to $. billion and then, infiscal year , another percent to $ bil-lion. These declines were due primarily to thepoor market performance of Levi’s brand-name products (Levi Strauss and Company

press releases, February , , and February, ).

That the denim apparel market had softenedwas challenged by industry analysts who notedthat Levi’s rival, the Gap, was posting double-digit increases in annual sales (Colliver ).Instead, analysts suggested that Levi Straussand Company’s problems were twofold. First,by focusing excessively on the manufacturingprocess, Levi’s had failed to keep abreast ofchanging denim fashions, especially in theimportant teenage market (Colliver ; King; Munk ). Levi Strauss and Companywent from a . percent share of the marketfor men’s jeans (ages sixteen years and above)in to just percent in , losing outnot only to VF Corporation’s Lee and Wran-gler brands but especially to lower-cost privatelabels, which went from just . percent of themarket to over percent during the same timeframe (Tactical Retail Monitor, cited in Munk, ). Second, many analysts believe thatLevi’s touted team-production innovations andcompany-wide reengineering flopped badly,leading to increased labor and overhead costs,chaotic management, and disgruntled workers(Chanove ; King ; Munk ). Theplants closed in El Paso were beset by both setsof problems, for they produced traditional five-pocket Levi’s jeans exclusively and sufferedthrough several years of transition from assem-bly-line piecework to team production and backto modified piecework again (Chanove ).23

By the time disappointing sales andnew layoffs were announced in February ,

Levi Strauss and Company had undergone amajor internal reorganization to respond tothese problems. In its announcement of

sales, the company emphasized that its newfocus would be on increasing sales and win-ning back market share by giving apparel con-sumers what they wanted in the form of newproducts and brands and then by intenselymarketing its brand names:

During the second half of , LS&CO.moved to an entirely new business model—consumer focused brand management. Thisnew model, with its intense focus on the con-sumer, is intended to enable the company tobuild its existing brands as well as a largerportfolio of brands, whether these are sub-brands or new brands. As part of this newstrategy, LS&CO. is devoting more resourcesto innovative marketing and product designin all of its three divisions worldwide. (LeviStrauss and Company press release, February, )

In announcing the layoff of , em-ployees ( percent of its remaining ,-employee workforce in the United States andCanada), the company acknowledged what ithad denied at the time of the layoffs: thatthe company was, in fact, shifting most of itsproduction overseas in order to remain com-petitive in the industry. This cost-saving shiftwould, in effect, finance the company’s newmarketing and retail ventures, as stated byJohn Ermatinger, president of Levi Strauss–The Americas:

Our strategic plan in North America is tofocus intensely on brand management, mar-keting and product design as a means to meetthe casual clothing wants and needs of con-sumers. Shifting a significant portion of ourmanufacturing for the U.S. and Canadian mar-kets to contractors throughout the world will givethe company greater flexibility to allocate re-sources and capital to its brands. These steps arecrucial if we are to remain competitive. (LeviStrauss and Company press release, February, ; emphasis added)

Interviewed by the San Francisco Examiner,Levi Strauss and Company CEO Bob Haaswas even more direct about the need to cutlabor costs:

We can’t swim against the tide. We haveinvested tens of millions of dollars to try (to)find a way to make our owned-and-operated

factories enough of an asset [to offset wagedifferences]. We’ve invested in automatedequipment, in training and incentives, but,frankly, today’s announcement is just facingthe realities. . . . We can’t ignore the fact thatcertain jobs are not going to be sustainable inNorth America. They’re better done in othercountries. (Quoted in Emert )

An internal source I interviewed before the layoffs, however, suggested that even thenthe company’s senior management was con-templating the shift of company resourcesaway from owned-and-operated manufacturingplants in the United States and into productdiversification and retail marketing of its brandnames. This would inevitably entail increas-ing reliance on the company’s network of fivehundred overseas contractors and owned-and-operated facilities.24 Not surprisingly, thiswould include heavier reliance on contractorsin nearby Latin America, especially in post-NAFTA Mexico. An interview with the sameinternal source in July revealed that from to , Levi’s trained and certifiedthirty-nine contractors in Latin Americancountries, including Costa Rica, Honduras,Guatemala, and Mexico. In and thecompany’s Miami office began to place specialemphasis on Mexico with the approach of theJanuary , , lifting of tariffs on the cuttingof garments in Mexico. This NAFTA mea-sure would facilitate the company working with“full-package” contractors in Mexico.25 Bythen the company’s Miami branch was dedi-cating considerable resources to an aggressiveeffort to develop and certify contractors ininterior Mexican cities such as Aguascalientes,Oaxaca, Puebla, Querétaro, and Torreón.26

As this discussion demonstrates, El Paso’slargest garment layoffs by its biggest privateemployer could not be attributed in any imme-diate sense to changes in the binational traderegime. Rather, their proximate cause had todo with Levi Strauss and Company’s inatten-

tion to fashion trends and marketing, on theone hand, and its inability to lower high over-head costs sufficiently by raising productivitythrough organizational innovations and auto-mation, on the other. As a result of decliningmarket share and automation, the companysuffered from overcapacity in the U.S. market.At the outset, when the company decided toclose plants in El Paso and elsewhere in theUnited States, it was not in order to shift pro-duction to its overseas contractors to fill de-mand for its products at lower cost. Rather,the company sought to unburden itself of itsfinancial commitments to high-cost plants andworkers in the United States in order to shiftresources into design, marketing, and sales, sothat it could boost sales and regain marketshare. In this sense the company’s strategy wasone of classic “flexibilization” designed toimprove competitiveness by reducing its fixedinvestments in a volatile market.

At the same time, the company was able topursue this strategy only because it already hada network of five hundred contractors in placeworldwide, as well as the ability to develop oth-ers in a relatively short period of time. More-over, in the wake of NAFTA and the pesodevaluation, it made sense for Levi Strauss andCompany to turn increasingly to Mexico as aproduction site, a country where it already hada considerable presence in the form of owned-and-operated plants and subcontractors. Whilethe Levi’s jobs that disappeared from El Pasowere not immediately transferred to Mexico,many of them would eventually reappear acrossthe border if the company’s reorganization wassuccessful. Thus, while their disappearancefrom El Paso could not have been caused byNAFTA, their reappearance in Mexico verywell might be. With labor costs in El Paso eightto nine times higher than in most Mexicancities, and total production costs four to fivetimes higher,27 there was little hope that thejobs would be coming back to Texas even if the

company regained the ground it had lost inrecent years.28

Mercifully for El Paso, as of July , VFCorporation’s Wrangler and Lee divisions(which together employ around four thousandworkers) had not yet resorted to the massiveplant closures and layoffs that Levi’s had.While VF Corporation has made no an-nouncements that it plans such closures in theforeseeable future, El Paso economic develop-ment officials fear that it could happen. By, Wrangler had failed to meet its new-hirerequirement to qualify for tax abatementsnegotiated with the city. City officials I inter-viewed in May reported that they hadlearned that both Lee and Wrangler were in-creasing their Mexican operations, and thisworried them. A Wrangler official I inter-viewed in June noted that the companywas then beginning to operate maquiladorasin Mexico and was in the process of openinga new plant in Torreón. Still, he said, the com-pany wanted to go up only to percent inter-national production, a level that would notaffect El Paso production much. In addition,he believed that a “Made in the U.S.A.” labelwas still valuable for the sale of western wear.29

However, an engineer at VF Corporation’sWrangler, whom I interviewed in July ,

said that the company was then moving intoMexico aggressively, with new owned-and-operated plants already open or in the planningstages in Torreón and Chihuahua City. Thisinformant reported that Wrangler was espe-cially looking to open sewing facilities in smallMexican towns where it could be the largestemployer. The El Paso plants were being usedto train technical and managerial personnel forthe new Mexican facilities. According to thisinformant, Wrangler planned to double itsowned-and-operated plant capacity in LatinAmerica between and . Given thesimilarities between VF Corporation’s andLevi Strauss and Company’s El Paso opera-tions and wider corporate structure and strate-

gies, El Paso city officials are probably right toworry about the possibility of layoffs by VFCorporation as well.

The Unraveling Seam

The plants that have closed and the jobs thathave left El Paso are not likely to return. Giventhe competitive nature of the world apparelmarket and the reduced barriers to trade andinvestment that are a consequence of GATTand NAFTA, it seems likely that El Paso’sremaining major garment employers will followin the footsteps of Farah and Levi Strauss andCompany, continuing to scale back their oper-ations in the city as they increase productionlevels in Mexico and other overseas locations.With the remaining barriers to cutting and fin-ishing in Mexico now removed by NAFTA,these cutbacks will not be limited to sewingoperations. Cutting and finishing facilities thatare contracted to major El Paso employers orthat perform such operations for Mexicanmaquiladoras are likely to fall away as theseoperations, too, are carried out in Mexico to anincreasing extent.

In the entire Mexican manufacturingsector was extended the same tariff treatmentas maquiladoras, and this development shouldfurther cement the competitive disadvantageof El Paso as a major production site for denimapparel. This is not to say that the garment in-dustry will cease to play any role in the El Pasoeconomy. One can imagine companies main-taining warehouses and distribution facilitiesthere, and undoubtedly some market segmentin “western wear” will remain to be served by“Made in the U.S.A.” garments. Nevertheless,the tendency appears to be toward continuedcontraction of production in El Paso. As shownin Figure ., employment in the industry hasfallen to less than half its level pre-NAFTA:Average annual employment in the industrywas just , workers in the year .

The situation of the small and medium-scale firms operating in the industry in El Pasoappears particularly dire. Few are likely to sur-vive as presently constituted. Protected to someextent from Mexican competition through thes, the small-scale sector’s chief “compar-ative advantage” relative to other regions inthe United States was the ready availability ofcheap immigrant labor. In addition, much ofthis cheap labor was also highly skilled in theneedle trades. By the s, however, the avail-ability of cheap immigrant labor with indus-try experience had increased substantially inother parts of the United States, particularlyin Los Angeles, Miami, and New York. More-over, as several informants in El Paso pointedout to me, the urban geography of El Paso doesnot lend itself to sweatshop employment onthe same scale as do these more heavily anddensely populated cities, where it is much eas-ier to hide illegal workshops in warehouse dis-tricts and private residences with little fear ofdetection by the authorities. With the MFArestrictions rescinded under NAFTA, thesmall-scale garment sector in El Paso has lit-tle to offer by way of cost savings, no matterhow much it “sweats” its workforce.

With assistance from the City of El Paso inthe early to mid-s, some small-firm own-ers participated in the formation of the ElPaso Fashion Development Center. The goalof the center was to encourage the formationof a vibrant, fashion-oriented garment districtconsisting of small firms cooperating in theproduction of high-end, small-batch gar-ments for sale in boutiques around the UnitedStates. The strategy of the center was toencourage experienced producers to get outof the business of mass-produced garments,such as blue jeans, and begin to focus on morecomplex garments made from other fabrics,such as silk and polyester. A number of themore successful firms in the city’s small-scalegarment sector had been able to survive intothe mid-s by following exactly this strat-

egy, and the idea was to get other firms to fol-low suit.

The Fashion Development Center seemsnot to have met with much success, however,and its strategy has little potential given thestructural obstacles facing the industry in ElPaso. At least one of the “fashion” firms con-tracted out its sewing to home workers, whoexploit unpaid family labor to sew these firms’stylish garments. In spite of the fact that theywere already making use of the cheapest laboravailable to them on the U.S. side, the ownersof this firm also began to contract sewingacross the border in Mexico in search of thelabor cost savings that competition requiresthem to obtain. Fashion garments involvingcomplicated patterns are routinely sewn inlow-wage, low-tech shops around the world,and it is improbable that a significant niche inthis market remains to be filled by El Paso.Moreover, while local firms have a great dealof production experience, they generally lackthe design and marketing experience theywould need to compete effectively with majorfashion garment centers elsewhere.

Not all the small garment subcontractors inEl Paso have gone out of business, however. Ahandful have either moved operations to theMexican side or have themselves become bro-kers who source production to subcontractorsin Mexico. The former option seems moreviable for Mexican immigrant owners, some ofwhom have business experience in Mexico andare thus familiar with the commercial and reg-ulatory environment. For example, one immi-grant cutting-room owner I interviewed in planned to make as much money as hecould until the NAFTA phaseout of cuttingrestrictions occurred. After that, he plannedto take the capital and machinery he had ac-cumulated to open a cutting room in eitherTorreón, Coahuila, or in Chihuahua City.30

Another had already moved his sewing opera-tions across the border and planned to movehis cutting and finishing operations across by

early . Two long-term Anglo owners of asmall garment operation whom I interviewedin had begun to contract out all theirsewing operations to the Mexican side severalyears earlier. In spite of the fact that these own-ers did not speak Spanish fluently and had noprevious experience doing business in Mexico,through their network of contacts in the indus-try they were able to locate a suitable set of sub-contractors with whom to work in Torreón.31

When I was in the field in ‒, a fewowners of small shops were hanging on in spiteof the odds stacked against them. This groupof owners had to lay off employees. They ad-mitted that they should probably get out of thebusiness altogether, but they resisted doing sobecause they have the garment business “intheir blood.” Most of these had worked theirentire adult lives in the industry, having startedtheir careers at one of the larger, “traditional”employers, such as Farah or Billy the Kidd. Intheir forties or fifties at the time I interviewedthem, they had started their own businesseson the basis of their skills and network of con-tacts in the local industry. These artisan-own-ers had no experience doing other kinds ofwork and were “too old” to learn a new tradeor move out of the area in search of anotherjob or a place to start another garment business(such as in Mexico).

Although other analysts of small-scale en-terprise in the garment industry (Dore ;

Portes and Guarnizo ) have commented onthe positive aspects of social capital put to usein this sector, social capital in El Paso’s garmentdistrict seems not to have done much to ame-liorate the devastating effects of internationalderegulation of the apparel industry. The socialcapital that owners of small garment factoriesin El Paso have relied on typically has beenaccumulated over the course of many years ofliving and working in a particular local envi-ronment where dense networks have formed onthe basis of the peculiarities of the trade regimeon the U.S.-Mexico border. The social capital

of many garment business owners, particularlythose who are El Paso natives as opposed tomore “cosmopolitan” latecomers, is not espe-cially exchangeable outside the district, as it wasconstructed prior to NAFTA. As James Cole-man () noted, social capital tends to bequite “sticky,” that is, it is not easily transferredfrom one activity or context to another.

Some garment entrepreneurs have at-tempted to reconfigure their businesses to sur-vive in the face of the new trade regime. Theyhave typically done so by closing their opera-tions on the U.S. side and setting up as smallmaquiladoras in Mexico or by getting out ofdirect production altogether and taking up therole of intermediary between their old cus-tomers and the new direct producers on theMexican side of the border. The social capitalof such entrepreneurs has aided in this shift tosome extent, but it has not done much, if any,good for their U.S.-side employees, who havealmost invariably lost their jobs in the process.While these border-hopping entrepreneursmay in principle be happy to offer jobs to theirU.S. employees in their new operation in Mex-ico, the pay and working conditions offeredmake this option no alternative at all for mostgarment workers. Thus the social capital ofmost garment entrepreneurs and workers inEl Paso’s small-scale sector has provided littlesecurity as the trade protections that gave riseto such capital in the first place have been lev-eled by NAFTA.

The results of my ‒ survey of em-ployees of seven small- to medium-scale gar-ment shops and one Levi’s plant in El Pasoconfirm what was already widely known aboutthe composition of the sector’s workforce: It isdominated by Mexican immigrant womenwith little formal education. Most of the twohundred workers interviewed in eight plantswere women who were born in Mexico andwho had completed only a primary school edu-cation. They spoke Spanish at work and hadlittle formal work experience outside the gar-

ment industry. A significant minority hadworked previously in the maquiladora sectorin Ciudad Juárez. Some continued to live inJuárez and commuted to their jobs in El Pasoon a daily basis. Most of the women had de-pendent children and in many cases did notlive with their spouses.

As already noted, Levi’s workers enjoy muchbetter pay, benefits, and working conditionsthan their counterparts in the small-scale sec-tor. Not surprisingly, Levi’s workers inter-viewed for this study were more likely to bemen, to have completed high school or itsequivalent, and to have been born in the UnitedStates. In short, jobs at Levi’s are among thebetter manual jobs to be found in El Paso, andworkers there are correspondingly somewhatbetter qualified than garment workers in thesmall-scale sector. At the same time, manyLevi’s workers were immigrants with a socialprofile that was not markedly distinct from gar-ment workers in smaller establishments.

Mexican immigrant garment workers arepoor by U.S. standards but much better offdoing the work they are doing in El Paso thanthey could ever expect to be performing thesame work in Mexico. Upon losing their jobsas garment workers, most would find it quitedifficult to locate comparably gainful employ-ment in El Paso, given their inability to speakEnglish and low levels of educational achieve-ment. The experiences of displaced garmentworkers to date support this conjecture. In, El Paso accounted for percent ofTexas claims for retraining and job-huntingassistance made by NAFTA-displaced work-ers, and most of these were garment workers(author’s interview with Harry Crawford,Texas Workforce Commission, May , ).

New jobs are being created in El Paso in anumber of growth industries. Some of thesederive directly from the city’s location on theborder with Mexico and serve the in-bondassembly industry. For example, a dozen or socompanies that mold plastic inputs for ma-

quiladoras were attracted to El Paso in the lates. These companies, however, typicallyhave hired employees who have completedmore years of education and were able to speak,read, and write English better than most immi-grant garment workers. In addition, only a fewhundred such jobs have been created.

According to the city’s Office of EconomicDevelopment, a number of other major com-panies opened facilities in El Paso in the lates. These companies, which included thetelecommunications giant MCI and AcerComputers, were moving to El Paso not be-cause of its proximity to Mexico but ratherbecause of its double-digit unemploymentrate. Simply put, tight labor markets elsewherein the U.S. motivated companies in search ofcheap domestic labor to consider El Paso.Again, the human capital requirements ofthese companies prohibited most displacedgarment workers from filling the new jobs cre-ated: In spite of the fact that most of the newjobs pay little more than $ to $ per hour,applicants are required to be high school grad-uates and to speak English fluently.

While the arrival of new companies hashelped somewhat, job growth outside the gar-ment industry in El Paso has tended to be slug-gish in recent years. In fact, an analysis con-ducted in ‒ by the El Paso Office ofEconomic Development showed that overalljob growth in the s had failed to keep upwith growth in the city’s economically activepopulation, suggesting continued high unem-ployment in the city in the early years of thetwenty-first century. Indeed, El Paso has thehighest unemployment of any major city inTexas. The city’s average annual unemploy-ment rate for was . percent, comparedto just . percent for the state of Texas as awhole. Worse still from the immigrant gar-ment worker’s point of view, the Personal Re-sponsibility and Work Opportunity Reconcil-iation Act of took away from immigrantsthe most important welfare benefits for which

they once qualified. This is all the more alarm-ing because over one-third of Mexican immi-grants in the city lived in poverty even beforepost-NAFTA layoffs began. Given these cir-cumstances, the future looks bleak for thethousands of mexicanos who built El Paso’sdominant industry and, in so doing, clothedmillions of people around the United Statesfor several generations.

Notes

Acknowledgments: Generous support for researchreported in this paper was provided by the FordFoundation, Mexico City and New York offices, inthe form of a grant to the Population Research Cen-ter of the University of Texas at Austin. The authoralso thanks Randy Capps and Kelly Fenton for theirable research assistance.

. Except where otherwise noted, figures onemployment in El Paso are based on data providedby the Texas Workforce Commission (TWC), thestate government agency in Austin charged withoverseeing and providing workforce developmentservices to employers and job seekers of Texas. Asubstantial portion of these data may be accessed onthe TWC Web site at <http://www.twc.state.tx.us>.

. By Mexican American I mean persons whowere born and raised in the United States but whotrace their family’s origins to what is now or oncewas Mexico.

. By the end of the s, Farah carried outmore than percent of its production overseas,principally in Mexico, Ireland, and Hong Kong(DeMoss , viii). Farah began by establishingits own factories in Ciudad Juárez and ChihuahuaCity but later came to rely almost exclusively oncontractors (van Dooren ). In , Farah,which at the time of the strike was El Paso’slargest private employer, did not even appear on thelist of the city’s top twenty employers (El PasoOffice of Economic Development ). By thattime the company’s productive operations in thecity were limited to one cutting room and a distri-bution facility (Honig ).

. Between and only about thirtythousand apparel jobs had been added to the ma-quiladora sector, bringing the total to just overforty-six thousand (INEGI ).

. Ironically, some of these shops were startedwith assistance from labor organizations that pro-vided support to striking Farah workers. In inter-views with the author for an unrelated study con-ducted in , veteran organizers from La MujerObrera (“The Woman Worker,” a nongovernmen-tal organization in El Paso founded by former FarahCompany employees) described how, in little morethan a year, the organization went from helping laid-off strikers start their own shops to picketing thesesame shops on behalf of their exploited workers.

. That small to medium-size shops used toaccount for a considerable portion of total apparel-industry employment in El Paso is reflected by thefact that registered garment establishments withfewer than employees accounted for over

percent of all official garment employment in ;

establishments with fewer than employees ac-counted for nearly percent (author’s estimatebased on figures in County Business Patterns, U.S.Bureau of the Census ). The actual figures mayhave been higher, given the informal nature of manyof these small enterprises.

. In this regard it is important to rememberthat it is not only the immigrant workers’ legal sta-tus that determines their job prospects but alsotheir human-capital characteristics and the locallabor market supply-and-demand conditions. Thejob opportunities available in El Paso even to legalresidents of the United States remain quite limitedif they cannot speak, read, and write English welland have completed only a few years of formaleducation.

. It should be noted, however, that the $.

per hour figure for Mexico is inclusive of fringebenefits, whereas the figure for El Paso is for hourlywages only, exclusive of any benefits. Thus theMexican wage is somewhat inflated, while the ElPaso wage is somewhat deflated. Mexican wage fig-ures are taken from INEGI . El Paso figures arefrom retrospective interviews the author conductedwith several garment-shop owners in ‒.

. The figures for pairs of blue jeans are forexports through all U.S. customs ports, not just

Laredo and El Paso (although these two ports han-dled around percent of all U.S. surface exportsto Mexico).

. Cutting-room operators I interviewed in ElPaso contracted to a variety of larger companies thatengaged in maquiladora production in the Mexicaninterior. These larger companies included SunApparel, Denver-based Rocky Mountain, and Ken-tucky Apparel. Two also cut for Mexican “full-package” companies based in Torreón and Puebla.

. These figures, derived from the author’s cal-culations using raw data provided by the TexasWorkforce Commission, include employment in“laundry, cleaning, and garment services,” SIC ,

which includes stonewashing of jeans. In ‒

around three thousand persons were classified asworking in SIC .

. Not surprisingly, the percentage of area gar-ment workers employed in establishments withfewer than employees declined from around

percent of the total in to just percent in

(author’s estimate using data from County BusinessPatterns, U.S. Bureau of the Census ). This wasdue to the growth in employment among this hand-ful of large companies combined with the decline inemployment among smaller establishments. Datacollected by the Texas Workforce Commission andthe U.S. Bureau of the Census (as published inCounty Business Patterns) do not, unfortunately, dis-tinguish among establishments dedicated to specificoperations in the production of garments—thus wecannot observe the quantitative changes in cuttingversus sewing or finishing employment.

. Indeed, a Levi Strauss and Company pressrelease dated February , , notes that its Euro-pean sales in were led by the traditional “Madein the U.S.A.” .

. Levi’s, for example, contracted to at least twolocal laundering firms, one of which employed upto one thousand workers.

. NAFTA-TAA (Transitional AdjustmentAssistance) certifications are available electronicallyon the World Wide Web from Public Citizen’s Glob-al Trade Watch site at <http://www.citizen.org/pctrade/NAFTATAA/weball_1.HTML>. The datapresented by this anti-NAFTA advocacy organiza-tion come from the U.S. Department of Labor andare comparable to those available from the North

American Development Bank’s Community Ad-justment and Investment Program at <http://naid.sppsr.ucla.edu/nadbank/application.html>. Thedata reflect the number of workers who have appliedfor and been certified to receive NAFTA TradeAdjustment Assistance from the U.S. Departmentof Labor’s Employment and Training Administra-tion. While some observers have argued that joblosses in other parts of the country are falsely attrib-uted to NAFTA (Richards ), in El Paso thereis little doubt that NAFTA has contributed to theelimination of the jobs that the U.S. Department ofLabor has certified.

. Sun Apparel’s El Paso plants produced gar-ments for Ellemeno, Faded Glory, Arizona, Polo,Sasson, Fila, and Hunt Club (Medaille and Wheat; Greater Texas Workers Committee ). ElPaso–based Sun Apparel was acquired by the JonesApparel Group in October , a major women’swear firm based in Bristol, Pennsylvania (Hoover’sOnline, retrieved from <http://www.hoovers.com/capsules/14954.html> on May , ). Jones pre-viously contracted to other El Paso companies toproduce women’s wear, including ladies’ jacket makerCMT Industries. Fifty-five percent of Sun Apparel’srevenues comes from production of Polo jeans forRalph Lauren in owned-and-operated facilities inthe United States and through a network of Mexi-can contractors in Mexico (Hoover’s Online, re-trieved from <http://www.hoovers.com/capsules/57198.html> on May , ).

. Cutting rooms enjoyed a temporary marketniche since the complete elimination of U.S. tariffson garments cut in Mexico was not phased in untilJanuary , . Several of the operators of cuttingrooms I interviewed in indicated that until thattime they expected to be busier than they had everbeen. Two that were affiliates of larger companiesthat had owned-and-operated plants in Mexico oralready worked through Mexican sewing contrac-tors expected to move their cutting operations intoMexico by . The independent operators wereeither planning to get out of the business by thenor were already exploring the possibility of movinginto Mexico themselves.

. Information presented in this section is basedon a combination of visits to Levi’s plants in El Pasoand San Antonio, formal and informal interviews

with company officials in both cities, interviews withmanagers at two finishing plants contracted toLevi’s, official press releases obtained from thecompany Web site, and a review of publishedsources.

. At the time the company employed aroundtwenty-five thousand workers in thirty-two manu-facturing plants and finishing centers in the UnitedStates.

. A source within the company whom I inter-viewed in June believed that by that time thecompany had already begun slowly to decrease itsEl Paso workforce through natural attrition.

. This package was in sharp contrast to whatwas offered to , Levi Strauss workers who werelaid off in San Antonio in early when the com-pany abruptly closed a Docker’s plant and movedproduction to Costa Rica. In that instance, workersreceived no advance warning of the plant closure andlittle more than severance pay commensurate withyears of service. Since a nongovernmentalorganization known as Fuerza Unida has been pres-suring Levi’s to make more extensive reparations toworkers it claims were not justly compensated bythe company or were left with job-related disabili-ties that prevented them from finding new jobs.Today, Fuerza Unida activists argue that Levi’s gen-erous severance packages are, at least in part, theconsequence of the group’s campaigns against thecompany for the last nine years (personal interviewwith Petra Mata, Fuerza Unida coordinator, Novem-ber ; Fuerza Unida ; see also Zoll ).

. The company’s April decision to re-sume production in the People’s Republic of Chinadrew fire from human rights activists and U.S.worker representatives who believed the companywas transferring high-cost production from theUnited States to that authoritarian and low-wagecountry (Landler ; Zoll ).

. In addition, a group of El Paso workers suc-cessfully sued the company for having discrimi-nated against them after they had filed workers’compensation claims. Plants in El Paso had espe-cially high workers’ compensation overhead costs,and the company had designed a special injured-worker “reentry” program to lower these costs. InSeptember an El Paso jury awarded the work-

ers $. million in damages (see Wall Street Jour-nal ).

. At the start of , Levi’s began producingits top-of-the line jeans in its owned-and-operated plants in Mexico. This marked the firsttime that jeans had been sewn in Latin Amer-ica (personal communication from Jorge Mendoza,based on interviews he conducted with Levi Strauss–Mexico employees, Mexico City, June ).

. The company already operated or contractedto a number of Mexican finishing plants in citiessuch as Torreón, Querétaro, and Puebla.

. Interestingly, one of Levi’s El Paso finishingcontractors whom I interviewed in told me ofhis plans to open finishing plants in an industrialpark near the U.S. border in Meoqui, Chihuahua (a major competitor, Aquatech, already had openeda plant there), as well as near Ensenada, Baja Cali-fornia. Thus we see that Levi’s departure from ElPaso could encourage some of its local contractorsto move into Mexico as well.

. Overall costs in Mexico were less than laborsavings because of added transportation costs andthe greater productivity of workers on the U.S. sidedue to investments there in automation and otherproductive technologies.

. Neither, presumably, would the jobs returnthat were eliminated by Levi’s contractors in town,including Final Finish, Stitches, and InternationalGarment Processors.

. Wrangler plants in El Paso produced jeansfor its own label as well as for Wal-Mart, Kmart,Target, and Maverick.

. Although I was not able to contact thisentrepreneur for an update, his firm now appears onthe U.S. Department of Labor’s list of NAFTA-TAA certified layoffs, suggesting that the firmeither went out of business or did, in fact, moveinto Mexico.

. These entrepreneurs’ choice of interiorMexican locations as a place to set up operationscorroborates the finding of other recent studies ofthe garment industry in Ciudad Juárez, namely, thatthere is relatively little integration between themaquiladoras in Juárez and garment producersbased in El Paso. The Juárez producers, rather,maintain relationships with either their parent com-

panies or suppliers in the northeastern and south-eastern United States (see Chapters and in thisbook; van Dooren ; Verkoren ).

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Robine van Dooren

TexMex: Linkages in a Binational

Garment District? The Garment

Industries in El Paso and Ciudad Juárez

Introduction

This chapter describes the organization of gar-ment production in the border cities of ElPaso, Texas, and Ciudad (Cd.) Juárez, Chi-huahua, Mexico. As is widely acknowledged,El Paso has occupied a unique position in theU.S. garment industry due to, among otherthings, the dominance of jeans production inthe city’s apparel sector (McIntyre ; vanDooren and van der Waerden ; Chapter in this book). The specialization in standard-ized garments has, since the mid-s, cre-ated great difficulties for the “Jeans Capital ofthe World” because of the vulnerability ofthese types of products to international pricecompetition. However, the fact that El Paso’sneighboring city across the border, Cd. Juárez,houses a considerable number of garmentcompanies producing in a relatively low-wageenvironment leads one to expect to find across-border reconfiguration of the commod-ity chain and, accordingly, a cross-border divi-sion of labor. The obvious cost advantage todividing production between highly labor-intensive assembly activities in Cd. Juárez and

capital-intensive activities in El Paso shouldlead to the development of complementary,mutually beneficial cross-border linkages be-tween different types of firms on both sides ofthe border, thus possibly even giving rise to atransborder industrial district.

This chapter investigates the nature and rel-ative importance of local and transborder inter-firm linkages, drawing on insights from newinternational division-of-labor theory as wellas the global commodity chain and industrial-district approaches. The competitive pressuresthat El Paso is experiencing and the wage dif-ferential between El Paso and Cd. Juárez makethe El Paso–Cd. Juárez region an exceptionallyinteresting environment for research into theeffects of globalization on the development ofregional garment-production networks.

In pursuing the description and explanationof transborder linkages in the garment indus-try, I have organized this chapter in the follow-ing manner. First, I examine the industries inboth border cities in terms of their roles in theMexican and U.S. garment industries and ofthe government policy affecting these sectors.I provide an overview of the characteristics of

both industries—in terms of product orienta-tion, number of companies, and so forth—andof the relative importance of the industries toboth cities. Second, I briefly examine a varietyof production linkages between garment pro-ducers in both border cities. Contrary to ex-pectations arising from the new internationaldivision-of-labor and industrial-district theo-ries, local linkages and transborder linkagesbetween El Paso and Cd. Juárez are relativelyunimportant. I indicate several reasons that liebehind this surprising finding. The third partof the chapter then examines the linkages thatdo exist, connecting El Paso to production inthe Mexican interior and production in Cd.Juárez to northern states of the United States.

In discussing the research findings, I usethe term regional when referring to the ElPaso–Cd. Juárez border region as a whole andthe term extraregional in reference to linkagesbetween companies in either of the two citiesand companies outside the region. I use theterm local when discussing developments ineither of the two cities. The data presentedhere are taken from research conducted in ElPaso and Cd. Juárez during the first monthsof and based on a diverse sample of sixtygarment companies in the region.1 Samplecompanies were chosen randomly, based ontheir willingness to cooperate and not on sta-tistical sampling requirements. I conductedpersonal interviews with managers or ownersaccording to a standard questionnaire.

The Regional Garment Complex in a Binational Context

The current phase of internationalization andglobalization of production in the world econ-omy heavily affects the clothing industry. Inthe face of increasingly fierce price competi-tion from manufacturers in low-cost produc-tion locations, large U.S. garment manufac-

turers are trying to counter their labor-costdisadvantage (which is especially harmful inthe mass production of basic garment prod-ucts) by developing production networks thatconnect different types of companies in dif-ferent countries and different industrial sec-tors (Gereffi b). In shaping these net-works, manufacturers increasingly are focusingattention on Mexico, especially since the im-plementation of the North American FreeTrade Agreement (NAFTA). Linkages withMexican contractors offer not only the advan-tage of a low-priced labor force but also greatercontrol over production and shorter lead times,compared to production in other Latin Amer-ican and especially in Asian countries. BothU.S. manufacturers and marketers increasinglyappreciate the advantages of production inMexico and are trying to incorporate these ad-vantages into their production strategies bydeveloping linkages to actors in the Mexicangarment industry. This development is possi-ble because of the relative ease in separatingthe apparel-production process into severaldistinct steps; the availability of an abundant,inexpensive labor force; and good transporta-tion and communication in Mexico.

The existence of cross-border linkages inthe apparel industry would thus seem to be inline with the theory of the new internationaldivision of labor. According to this theory, theabove-mentioned conditions promote a spa-tial division of labor in which the most labor-intensive processes (e.g., assembly of garments)are shifted to low-labor-cost locations (Fröbel,Heinrichs, and Kreye ). Recent changeshave led to a tremendous increase in Mexicangarment exports to the United States. Mexicois now approaching China in terms of thedollar value of its total exports to the UnitedStates, and some have noted that Mexico haseven overtaken China in certain productioncategories (Khanna ; Gereffi and Bair).

How are the garment industries in El Pasoand Cd. Juárez, twin cities located on eitherside of the U.S.-Mexico border, affected bythe development of linkages between U.S. andMexican companies and the dramatic increasesin Mexico’s exports to the United States? Inconsidering the socioeconomic indicators pro-vided in Table ., one needs to bear in mindthe relative ease of separating the assemblystage from the rest of the production processfor apparel, as well as the high quality of com-munication and transportation facilities in theU.S.-Mexico border region. The combinationof these aspects with the indicated wage differ-ential between the twin cities led to the formu-lation of a hypothesis for the research on thebasis of the new international division-of-labortheory. It was expected that companies in ElPaso would counter their labor-cost disadvan-tage by developing linkages with subcontrac-tors in Cd. Juárez or by setting up assemblyplants (maquiladoras) there. Moving assemblyto Cd. Juárez would minimize labor costs forthe most labor-intensive part of the productionprocess, thereby decreasing total production

costs and increasing competitiveness. The factthat El Paso and Cd. Juárez are bordering citiesmeant that transportation costs could be keptvery low and quality control was relativelyeasy. Companies located in El Paso would beresponsible for administering the networks anddistributing to the U.S. market the productsassembled in Mexico.

In addition, the spatial concentration ofgarment producers of different sizes in thetwo cities guided the research to examine lo-cal and regional “backward” and “forward”linkages (i.e., linkages to actors in the pre- and postassembly segments of the produc-tion chain) as an indication of the industrial-district characteristics of the region and ofeach of the two cities. Such linkages, against acommon cultural background and supportedby local institutions, are thought to providefirms in the industrial district with a compet-itive edge based on external economies (i.e.,they derive incidental competitive benefitsfrom geographical proximity to other actors inthe industrial district), joint action, minimaltransaction costs, and flexible specialization

:

.. Population, Employment, and Wages in El Paso and Cd. Juárez,

El Paso Cd. Juárez

Population 682,000 Population 1,011,786

% Unemployment 11.8 % Unemployment 1.8

% Employed in manufacturing 20.6 % Employed in manufacturing 66

Number of garment companies, 1995 82 Number of garment companies, 1994 149

Average hourly wage, U.S. apparel $7.48 Minimum hourly wage, seamstress, $1.34worker, 1995 wage zone C, most interior

locations in Mexico

Average hourly wage, El Paso apparel $6.00 Minimum hourly wage, seamstress, $1.39worker, 1995 wage zone B, Mexico

Minimum wage, Cd. Juárez worker, $1.45wage zone A

Sources: U.S. Department of Labor, a, b; Desarrollo Economico de Cd. Juárez ; INEGI ; Twin Plant News ;

and Texas Centers .

Note: All information is given in U.S. dollars. Exchange rate is calculated at pesos to the dollar. Hourly wage figures include alltaxes and required fringe benefits and bonuses. However, most employers pay between and percent above this wage throughproductivity bonuses, saving plans, etc. For detailed information coverage of the wage zones, see Twin Plant News , .

(Piore and Sabel ; Porter ; Schmitzand Nadvi ; Humphrey and Schmitz).

In addressing the interrelationships of actorswithin each city and between the two cities, Iadopted the global commodity chain approach(Gereffi and Korzeniewicz ), making theproduction process and the organization there-of a focal unit of analysis. Furthermore, thisapproach enables a clear positioning of the de-velopments in the region within the broaderNorth American garment context.

This study found, contrary to expectations,that cross-border linkages between the indus-tries in both cities and local linkages withinthe cities were limited in number. Instead,linkages seemed to be skipping the border,connecting El Paso to cities in the interior ofMexico, such as Torreón/Gómez Palacio andAguascalientes, and Cd. Juárez to large apparelcities in the United States, such as New Yorkand San Francisco. An overview of the sur-prisingly limited nature of linkages betweenthe industries in both cities and, more impor-tant, an explanation of this finding as well asa description of alternative linkages are pre-sented after a short discussion of the maincharacteristics of the garment industries of ElPaso and Cd. Juárez.

El Paso

El Paso is not the biggest or even one of thebiggest apparel production centers in theUnited States. Nevertheless, it is an interest-ing location for research on the garment indus-try. First, it is one of the cities in the southernUnited States whose garment industry has,until recently, expanded, contrary to the na-tional trend. In addition, jeans overwhelminglydominate garment production in El Paso. AsDavid Spener notes in Chapter , El Paso is“one of the largest, if not the largest, points of

production of denim jeans in the UnitedStates.” Large-scale mass-production plantsof branded manufacturers such as Levi Straussand Company and the VF Corporation havedominated the local garment sector for a longtime. The statistical data presented in Table., which examine the most important citiesfor apparel production in the United States,indicate El Paso’s position in the context ofthe U.S. garment industry.2 Although it lagsbehind several big cities, El Paso deserves aplace among leading apparel cities.

Considering the number of apparel estab-lishments in the cities listed in Table ., thedifference between large metropolitan areasand the border cities examined becomes quiteclear. New York is typical of the northeasternU.S. cities, which have witnessed a sharp de-cline in apparel production and employment.The negative trend in these northeasterncities and in other metropolitan areas, suchas Miami, accounts for the steady decline innational production and employment since thelate s.

The garment industry outside the tradi-tional apparel zone of the Northeast has beendoing much better. The number of companiesin Los Angeles doubled over the past fourdecades, with employment growing signifi-cantly as well. However, until the mid-sthe border cities were the best examples ofphenomenal growth in the garment industry.The number of companies in the border citiesof El Paso, McAllen, and San Diego grew vig-orously between and . The data inTable . reflect the tail end of a shift in gar-ment production from the Northeast to theSouth of the United States that started inthe s. In the course of this shift El Pasobecame one of the most important garmentcenters in the South. Since , however, anegative trend has set in for the garmentindustry in El Paso. In the number ofapparel-related companies there dropped from

eighty-two the previous year to seventy-two,and the number of employees fell from ,

to , employees (U.S. Department of Com-merce ). Job losses in the industry havecontinued since then.

Until the mid-s employment in thegarment industry of the border cities grewconsiderably as well, but at widely varyingrates. The differences in the growth of em-ployment are reflected in the average numbers

of employees per plant for the various citiesin Table .. The high average number ofemployees for companies in McAllen and ElPaso is especially striking, since it is well abovethe average for the other cities. For El Pasothis can be explained by the presence of thebranded manufacturers and other big compa-nies. This may apply to McAllen also, since itpossesses the same locational advantages as ElPaso in terms of its proximity to the border

:

.. Numbers of Companies and Employees in the Garment Industry for SelectedU.S. Cities

1967 1977

Avg. No. Avg. No. No. Comp. No. Empl. Empl./Comp. No. Comp. No. Empl. Empl./Comp.

United States 16,314 1,142,047 70 13,259 1,021,927 77

Major Metropolitan AreasNew York 6,711 216,226 32 4,635 138,842 30Los Angeles 1,135 41,233 36 2,099 66,798 32Miami 226 8,919 39 652 21,773 34

Border CitiesEl Pasoa 20 11,140 557 55 13,977 254San Diegoa 16 2,154 135 45 3,866 86McAllen 3 365 122 8 1,958 245

1987 1995

Avg. No. Avg. No. No. Comp. No. Empl. Empl./Comp. No. Comp. No. Empl. Empl./Comp.

United States 14,635 838,423 57 15,007 652,129 43Major Metropolitan Areas

New York 3,290 108,075 33 3,505 62,329 18Los Angeles 3,048 84,640 28 4,069 94,552 23Miami 623 16,520 27 531 12,254 23

Border CitiesEl Pasoa 67 13,213 197 82 13,999 171San Diegoa 99 2,358 24 132 3,523 27McAllen 16 3,352 210 18 4,823 268

Source: U.S. Department of Commerce , , , .

aFor both El Paso and San Diego, the difference between the increase in the number of establishments and the number of employeesis remarkable. For El Paso, the number of companies more than quadrupled, whereas the number of employees grew by only per-cent. For San Diego, the exact numbers are different but the magnitude of the difference between the two is similar. The explanationfor this phenomenon, certainly for El Paso, may well lie in the fact that the development of the industry in the region was triggeredby big companies while the later growth occurred through small and medium-sized companies, many of which were set up by theformer employees of the big companies. (See Chapter .)

and an abundance of cheap labor—two factorsthat are generally known to attract big manu-facturers of standardized, basic products suchas jeans and T-shirts.

Thus the average number of employees inEl Paso factories is directly related to the sec-ond unique feature of the garment industry inEl Paso: the dominance of jeans and otherdenim products. In more than percentof all companies in El Paso produced “men’sand boys’ furnishings,” and more than per-cent “women’s and misses’ outerwear” (U.S.Department of Commerce ). One of theproducts in both subsectors is jeans, and thefact that a large number of the companies inthese subsectors produce jeans appears tojustify El Paso’s nickname of “Jeans Capital of the World.” By contrast, the three metro-politan areas examined in Table . special-ize in the more fashion-sensitive women’s andmisses’ outerwear products such as dressesand blouses.

Ciudad Juárez

The industry in neighboring Cd. Juárez pro-vides an interesting contrast to the one in ElPaso. The appearance of the garment indus-try there is a relatively recent phenomenonand is related to the maquiladora program. Inthe s and s the maquiladora programattracted all kinds of industries to the borderregion, among which the clothing, automo-tive, and electronics industries were the mostimportant. In , out of a total of

maquiladora plants in Mexico were located inCd. Juárez, only of which were operatingwithin the apparel industry (Gelderloos ).By their number had hardly grown: Atthat time apparel maquiladora plants werelocated in Cd. Juárez. Apparel maquiladorasin Cd. Juárez assemble different types of ba-sic, standardized garments and dominate the

local apparel sector in terms of number ofemployees.

The establishment of a large number ofnongarment maquiladoras led to high demandfor work clothes and uniforms, especially in theautomotive industry (van Dooren and van derWaerden ; and Chapter in this book). Asa consequence many small and medium-sizeduniform producers emerged, which currentlyform the largest number of companies amonggarment makers in Cd. Juárez. Besides the uni-form producers and maquiladoras, wedding-dress producers for the local and regional mar-ket are an important group of companies in thecity, more so in terms of numbers of plantsthan in terms of employees.

Table . gives an indication of the numberof clothing companies and employees in sev-eral Mexican cities for .3 The data illus-trate that Cd. Juárez deserves a place amongthe important clothing centers in Mexico,despite the fact that the garment industry isamong the smaller industries in the city. Thecharacteristics of Cd. Juárez as compared toother cities are rather unremarkable. An expla-nation for high average number of garment-company employees in the interior cities ofTorreón/Gómez Palacio and Aguascalientesmight be the recent increase in large-scaleinvestments by U.S. companies and the pres-ence of relatively large Mexican manufac-turers in these cities, as a number of peoplein the Mexican clothing industry who wereinterviewed during the course of the researchpointed out.

Under NAFTA the Mexican garment in-dustry and its employment have boomed.Although Cd. Juárez could absorb part of thisoverall growth in garment production, thegrowth has concentrated in locations outsidethe border region (Solunet ). At the endof the number of apparel maquiladorashad grown to along the border and inthe interior, and this trend has intensified since

(Mexican Investment Board ). The dif-ference between Cd. Juárez and other bordercities and locations in the interior lies in thehigher wage levels in the border region in gen-eral and the tight labor market in Cd. Juarezin particular.

Policies Affecting the Mexican andU.S. Clothing Industries

Clothing is the only industrial sector that hasits own international trade regulatory system,the Multifiber Arrangement (MFA), whichwas first negotiated in . Under the MFAthe United States and the European Unionnegotiate bilaterally with individual exportingcountries in order to limit the volume ofimported clothing that reaches their markets.In accordance with MFA regulations, theUnited States developed the program,which permitted the import of garmentsassembled outside theUnited States with du-ties paid only on the value added in the as-sembly process abroad. The main conditionof the program was that to qualify for the low-er tariff rates, only assembly could be done

abroad, while cutting and—in the specific caseof jeans—laundering had to be performed inthe United States. The regime applied toa large number of low-cost production loca-tions but in practice was used almost exclu-sively for assembly programs in Mexico andthe Caribbean Basin Initiative region. The

program gave rise to a very particular distri-bution of production activities between theUnited States and these lower-wage countries(van Dooren and Verkoren ).

The MFA and restrictions have beenlargely replaced by NAFTA regulations, mean-ing that garments produced from fibers madein North America may be exported freely toany of the NAFTA countries without incur-ring duties. This has already affected the con-figuration of the apparel commodity chainspanning the United States and Mexico. Mex-ican manufacturers are increasing in impor-tance and are becoming involved in a greaternumber of production activities as new linkson the commodity chain move to Mexico (Ge-reffi ). Meanwhile, the U.S. competitiveposition is under great pressure due to rela-tively high labor costs in the United States.

Structure of the Regional Garment Industry

A typology of the companies included in the ElPaso–Cd. Juárez sample has been created inorder to group together those sample compa-nies that are expected to be most similar interms of behavior and position in the industry.It is thus easier to discern trends in behaviorand the development of interfirm cross-borderlinkages. The typology is based on “size” and“type” of company. The number of employeesdetermines the size of a company: A companywith fewer than ten employees is consideredsmall, a company employing between ten andone hundred employees is considered medium-

:

.. Number of Companies andEmployees in the Clothing Industry inSeveral Mexican Cities,

Avg. No. No. No. Empl./

Comp. Empl. Comp.

Garment Centers, Interior of Mexico

Torreón/Gómez Palacio 105 2,581 24.6Aguascalientes 316 8,816 27.9Puebla 339 3,408 10.1

Border CitiesReynosa 66 1,106 16.8Tijuana 150 2,712 18.1Cd. Juárez 149 2,964 19.9

Source: INEGI .

sized, and large companies are those that em-ploy more than one hundred employees.

The determination of the type of companyis based on the position of companies in theindustry. In this research, types of companiesare defined as follows.4 Branded manufacturersare engaged in all activities in the areas ofdesign, cutting, assembly, laundry, and mar-keting and are autonomous in decision makingin these areas. They produce under their ownbrand name, own manufacturing plants, andmay contract out some of their production.They are prevalent in the men’s and boys’ seg-ment of the industry. Examples of brandedmanufacturers are Levi Strauss and the VFCorporation that produces the Lee and Wran-gler jeans brands. Marketers are engaged onlyin design and marketing activities and do nothave any production capacity of their own butinstead rely on contractors. Contractors arecompanies that produce garments for mar-keters, retailers, or branded manufacturers. Inmany cases the contractors are supplied withthe design and sometimes all material inputsby the firms that contract with them to dowork. Similar to contractors in terms of posi-tion and production activities are the subcon-tractors. These are generally smaller-scaleproducers, often hired by contractors to do aspecific production activity, a phenomenonthat is referred to as “specification contract-ing.”5 However, they can also engage in “ca-pacity contracting” when they are hired toproduce part of an order that exceeds the pro-duction capacity of a contractor. Finishers arecompanies that are specific to the productionof jeans, since they specialize in the laundry ofjeans, giving them their characteristic color,while often also taking care of other finishingactivities, such as pressing, rescreening, andticketing. The suppliers to the garment indus-try are those companies that supply the indus-try with the necessary inputs of fabric, thread,needles, and so forth. They are not directlyinvolved in the manufacturing of garments.

Finally, maquiladoras are companies located inMexico, operating in accordance with the

program rules, whose production activities arelimited to assembly activities only, with fabricsupply, design, cutting, finishing, and distri-bution handled by their U.S. counterparts.Often these maquiladoras are subsidiaries oflarge U.S. manufacturers.

Of all these types of companies, neithersuppliers nor marketers are represented in thesample. Table . provides a short summaryof the characteristics of the various groups ofcompanies included in the sample.

As the table shows, the garment industry inthe region consists largely of subcontractors,contractors, branch plants, and a relativelylarge number of independent producers. Thetable also shows the importance of the cuttingand sewing aspects of the commodity chain inthe region.6 It is interesting to note that finish-ers, subcontractors, and contractors are limitedin the scope of production activities that theyperform, regardless of size. The independentproducers are the most well rounded compa-nies in the region, since all companies in thisgroup are involved in all production activities.

Some other interesting aspects of the sam-ple are not immediately clear. The size of thesample firms ranges from a sample maker whoworks on his own to a branch plant of the VFCorporation with twelve hundred employees.All the small firms have specialized, either inthe production of a niche product or in oneparticular stage of the production process. TheEl Paso part of the sample includes branchplants of branded manufacturers, contractors,subcontractors, and finishers. The majority ofthe sample companies in El Paso are involvedin the production of jeans. Less importantproducts are general sportswear, coats, and T-shirts for women.

The sample companies in Cd. Juárez can bedivided into three main groups: the maquila-doras, producers of uniforms, and producers ofwedding dresses. None of these three sorts of

companies fit into the traditional classificationof garment companies as manufacturers, mar-keters, contractors, subcontractors, and finish-ers since they are all more or less independentof other companies in the industry. The wed-ding-dress makers and uniform companies arethus considered “independent.” The maquila-doras are mostly branch plants of U.S. firmsand have accordingly been grouped underbranch plants. The maquiladoras produce T-shirts, coats, and sportswear. Only one non-maquiladora producing “regular clothing” (inthis case jeans) was found. Thus one productgroup dominates production much less in Cd.Juárez than in El Paso, and the composition ofthe industry is highly varied internally and verydifferent from that of the U.S. city.

Linkages within the RegionalGarment Industry

It has become clear that the garment industriesof El Paso and Cd. Juárez are quite different.

Not only is the composition of the industrydifferent in terms of types of companies, butthe types of products produced by the com-panies differ substantially between the cities.The bulk of companies in El Paso producejeans, whereas the industry in Cd. Juárez pro-duces a broader range of products, rangingfrom women’s wear to uniforms, with littleemphasis on jeans. This seems to indicate alimited compatibility of the industries on eitherside of the border.

Notwithstanding these differences, an exam-ination of linkages between companies on bothsides of the border is interesting because ofthe compelling cost-based logic of a division oflabor between the apparel sectors in these twocities. Such an examination at the local level isalso useful in this context because it is gener-ally accepted that strong and multiple linkagesbring about a competitive edge for the compa-nies involved in them (Markusen ; Rabel-lotti ; Crewe ). The importance ofinterfirm local or regional linkages is closelyrelated to other concepts: local embeddedness

:

.. Typology of Companies in the El Paso–Cd. Juárez Sample

Total No. No. in No. in Group Type of Company Companies El Paso Cd. Juárez Size Main Production Activities

I Small subcontractors 6 6 — 1–9 Cutting, sewing, markingII Small and medium-sized 15 12 3 10–99 Cutting, sewing

(sub)contractorsIII Large contractors 6 6 — �100 Design, cutting, sewingIVa Independent producers 16 8 8 1–99 Design, cutting, sewing,

embroidery, finishingV Branch plants and 13 3 10 �100 Design, cutting, sewing,

maquiladoras finishingVIb Finishers 4 4 — — Finishing

Source: Research, El Paso–Cd. Juárez, February–May .

Note: Italic indicates activities performed by most companies in the samples.

aThe fourth group (IV) are the small and medium-sized independent producers. The group consists of sixteen companies and is, atfirst sight, the most heterogeneous, containing two producers of designer high fashion, two producers of sports clothing, two produc-ers of wedding dresses, five producers of uniforms, one wholesaler, one embroiderer, and three “independent” garment producers(including the only nonmaquiladora producer of regular clothing encountered in Cd. Juárez). Most companies in this group are“niche” firms since they serve relatively small markets.

bThe last formal group (VI) are the finishers, of which there are four in the sample. They form a group on their own, regardless oftheir respective numbers of employees. (Three finishers employ fewer than employees while one has employees.) The smallfinishers are all single-plant companies, while the big finisher is part of a multiplant company.

and industrial districts. An embedded firm isa firm that has many backward and forwardlinkages within its regional industrial environ-ment. Such linkages, especially between smalland medium-sized firms, when based on geo-graphical proximity, sectoral specialization,and vertical disintegration (the process inwhich manufacturers abandon in-house per-formance of certain production activities inthe chain) are also thought to provide the basisof the competitive advantage of industrial dis-tricts (Schmitz ; Nadvi ). These par-tially overlapping concepts are useful in thiscontext, because, as Louise Crewe (, )notes, in a globalizing world economy “thebases for competitive advantage are often in-tensely local, hinging on a unique social, cul-tural and political milieu.” Both concepts cangive an indication of the relative importanceand quality of this local milieu for the successof the apparel firms located in El Paso and Cd.Juárez. In analyzing these issues, I use thecommodity chain as an analytical tool. Thesubsequent focus on the production processprovides a suitable way to interconnect theabove-mentioned issues at the local level andto connect the developments at the local levelto the dynamic in the North American gar-ment industry and the ongoing reconfigura-tion of the North American commodity chainas a whole.

In the analysis, the presence and importanceof intraindustry linkages at the local and re-gional level will be examined and interpretedas an indication of the local embeddedness ofthe firms and the industrial-district character-istics of the region. Different types of link-ages within the regional garment industry areexamined. Of primary importance in this re-gard are the subcontracting relationships andsupplier-producer linkages in the region; thepresence and importance of regional sub-sidiaries and clients and other aspects of in-dustrial districts are also briefly included inthe discussion.

Regional Subcontracting Relationships

Despite the general advantages associated withsubcontracting relationships, and especiallyregional subcontracting relationships,7 in theEl Paso–Cd. Juárez region these relationshipsare limited in number. Only twenty-six com-panies in the sample ( percent) use subcon-tractors, and only twenty of these companies,or one-third of all sample companies, use re-gional subcontractors. There does not seem tobe a significant difference between the twocities, nor between the different types of firms,regarding the overall use of subcontractors. InCd. Juárez the wedding-dress makers workwith home workers, and the uniform produc-ers work with small subcontracting companies,which are used mostly to enhance productioncapacity during peak periods. In El Paso one-third of the sample companies have businessrelationships with subcontractors, and the dif-ferent types of companies all engage in theserelationships to a similar degree.

By far the most notable characteristic ofregional subcontracting is the almost completeabsence of cross-border subcontracting agree-ments. Contrary to the hypothesis described atthe beginning of this chapter, companies in ElPaso do not use relatively cheap contractors orsubcontractors in Cd. Juárez as a way of low-ering their own costs, thereby possibly gaininga competitive edge relative to companies lo-cated further from the border. No companiesin El Paso use only subcontractors in Cd.Juárez, while only two companies in the Texascity use subcontractors in both El Paso and Cd.Juárez. This is a rather puzzling discovery,given the short distance and significant wagedifferential between the two cities. One maqui-ladora in Cd. Juarez uses a subcontractor in ElPaso. This maquiladora produces jeans andcontracts out to a laundry in El Paso for fin-ishing, since prior to NAFTA laundry had tobe done in the United States in order to com-ply with the regulation.

Regional Supplier-Producer Linkages

In quantitative terms, regional relationshipsbetween suppliers and producers are found tobe relatively important; percent of the re-gional producers buy some of their suppliesfrom suppliers in the region. Cross-bordersupply relationships are more limited in num-ber: None of the companies in El Paso boughtfrom suppliers in Cd. Juarez. This contrastssharply with the importance of suppliers in ElPaso for companies in Cd. Juárez. For Cd.Juárez, percent of the suppliers were lo-cated in El Paso while only percent werelocal, and the remaining percent were lo-cated outside the region. The importance of ElPaso as the primary source for Cd. Juárez’sinputs can be attributed to the fact that sup-pliers of certain inputs are much more readilyavailable in El Paso because of the greater rel-ative importance of the garment industry tothat city’s economy.

In evaluating the apparent importance ofregional supplier-producer linkages, oneshould note the difference between regionalsales offices and suppliers.8 As many as per-cent of regional suppliers are sales offices ofsuppliers, and only chemicals used in laundriesand labels for jeans are made locally. This rein-forces the general conclusion that supplier-producer linkages cannot securely embed com-panies in the regional industry because of thesales office nature of the suppliers.

Regional Subsidiaries

The main reason for discussing local sub-sidiaries is that under the program manyU.S. companies set up assembly plants in Mex-ico, the so-called maquiladoras. Since the sthe linkages between U.S. manufacturers andtheir subsidiaries have become one of the mostimportant transborder linkages. Also, a greaternumber of local subsidiaries could result in ahigher degree of local embeddedness among

multiplant companies and possibly a higherpropensity to collective action in the district.

Except for the branch plants and maquilado-ras, a relatively small number of companiesacross all groups in the sample have regionalsubsidiaries. Ten branch plants or maquilado-ras have subsidiaries in the El Paso–Cd. Juárezregion. However, the embeddedness of thesecompanies in the regional economy is ques-tionable because these big companies have abroad scope in terms of where they choose tolocate their subsidiaries. The biggest of thesecompanies, such as Levi Strauss and VF Cor-poration, see the entire world as their marketas well as their potential production site. Theyare “footloose”9 and do not seem to have tightlinks to the garment industry in the region.This is also exemplified by their limited use oflocal subcontractors, a characteristic for whichmaquiladoras especially are notorious (Sklair; Gereffi ). In the case of the ma-quiladoras, the subsidiaries in El Paso to whichthey are linked are almost without exceptionwarehouses and administrative plants (vanDooren and van der Waerden ). The ma-quiladoras are not linked, either through sub-contracting or through intrafirm linkages, to“upstream” or “downstream” aspects of thecommodity chain in the areas of cutting andfinishing. Again, this is surprising, as compa-nies still prefer to perform these activities inthe United States in order to avoid duties. (Fin-ishing capacity in the Mexican border region isstill limited but has increased since .) Onlyeighteen companies in the El Paso–Cd. Juárezregion, ten of which themselves are branchplants or maquiladoras, have linkages to re-gional subsidiaries.

Clients

Regional clients do not play a very importantrole in the garment industry in Cd. Juárezand are even less important to the industry inEl Paso. The garment industry of El Paso is

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geared almost entirely toward the U.S. marketbecause almost all nonregional customers arelocated in the United States; there is only oneproducer in El Paso that has a customer in theMexican interior. The Mexican market is nota target of the garment industry in El Paso.

For Cd. Juárez, regional customers arespread over both cities, although the majorityare on the Mexican side of the border. This islargely due to the autonomous nature of manyproducers in Cd. Juárez and their orientationtoward the local market. It is also important tobear in mind that because of the nature of theproduct that the uniform and wedding-dressmanufacturers make, their customers are finalconsumers (in the case of the wedding dresses)or industrial plants—mostly automotive ma-quiladoras—for which the uniforms are merelya noncritical input (van Dooren and van derWaerden ; Chapter in this book). Forthe maquiladoras, by contrast, only percentof their customers are located in the region.They produce almost solely for the U.S. mar-ket, through clients whose head offices arelocated in major U.S. cities. Thus, despite thefact that local customers are more important tocompanies in Cd. Juárez than to companies inEl Paso, local customers generally are not veryimportant to the garment industry of theregion.

Minimal Linkages, Little Embeddedness

Instead of one regional garment-orientedindustrial district bound together by cross-border linkages, it would seem more accurateto speak of two local garment industries in theEl Paso–Ciudad Juárez region. Overall, theindustries in both cities exhibit a roughlyequal and limited degree of local linkagesthrough relationships with subcontractors,suppliers, subsidiaries, and clients. The vari-

ous groups of companies seem to be similarlylimited in their local embeddedness, and nei-ther of the two cities displays clear industrial-district characteristics.

In light of insights from the global com-modity chain approach, one of the clearestobstacles to the development of multiple inter-firm linkages in the region is the overridingimportance of the assembly links of the chain.No significant activities in the areas of design,textile production, marketing, or even distri-bution are being undertaken in the region, andlinkages are limited to some cutting and fin-ishing. Consequently, the scope for true back-ward and forward linkages in the region is lim-ited and competition between the companies inthe region is fierce.

When one considers the characteristics ofthe region from the perspective of the indus-trial-district literature, one has to concludethat, despite geographic concentration andsectoral specialization, neither the region noreither of the two cities displays the multitudeof interfirm linkages that would indicate anindustrial-district type of development. Notonly has the dominance of large-scale manu-facturers probably been one of the main obsta-cles to the development of linkages,10 but insti-tutional support for the industry in the regionis limited, and even assumptions of a similarsociocultural background for the actors in theindustry are questionable.11 Thus the concen-tration of large and relatively footloose com-panies in El Paso and Cd. Juárez, intensecompetition in a limited number of productsin El Paso, and an overall concentration onthe assembly link of the production chainappear to be the most important barriers to anindustrial-district type of development in theregion.

The evaluation of the absence of cross-border linkages reaffirms the need for a morenuanced view of labor in new internationaldivision-of-labor theory (see also Elson ;

Scheffer ). This study found only limitedevidence of the expected cross-border divisionof labor. Although this finding may appear tochallenge the new international division-of-labor theory, it more accurately underscoresthe importance of the availability of low-costlabor in determining the relocation of labor-intensive production activities and therebyin constantly constructing new internationaldivisions of labor. Not only should the avail-ability of a large reserve of cheap labor begiven more importance than is generally done,but labor costs should be related to alternativelocations. The limited nature of cross-borderlinkages can thus be attributed partly to thefact that the local business climate in Cd.Juárez—characterized by high labor turn-over, a tight labor market, and relatively highwages—is not ideal for the production of gar-ments for the U.S. market, particularly whencompared to other locations in Mexico.

The Linkages That Do Exist

Two types of nonregional linkages are exam-ined in this section: () linkages that connectcompanies in El Paso to production in theMexican interior and () the linkages of ma-quiladoras in Cd. Juárez with U.S. headquar-ters located outside El Paso.

The cities of Torreón, Coahuila, and Gó-mez Palacio, Durango; Aguascalientes; andTehuacán, Puebla, are significant sites for gar-ment production in Mexico, and especially forlinkages with U.S. firms, because the industryis relatively more important in these cities thanalong the border. This has resulted in the avail-ability of an experienced labor force and pro-duction capabilities that extend beyond theassembly activities.12 Also, wages and laborturnover are generally lower in these citiesthan in the border region (from personal inter-views, conducted in the course of fieldwork in

, with Cor Zwezerijnen, technical direc-tor of a large manufacturer in El Paso; JesseRomero, a garment broker in El Paso; andBlanca Santoyo, director of the GarmentDevelopment Center in El Paso). It is impor-tant, however, to emphasize the slow develop-ment of linkages between U.S. companies andfirms in the Mexican interior: When thisresearch was conducted in , only per-cent of companies in the El Paso region hadsubsidiaries in Mexico at all, and only per-cent used Mexican contractors outside Cd.Juárez. Subsequent research carried out in nevertheless indicates that an increasingnumber of linkages between El Paso and theMexican interior are developing.

Subsidiaries and Contractors in the Interior

El Paso manufacturers have been somewhatcautious about investing in Mexico, and it isonly since that the rate of investment haspicked up speed. In the first months of ,

eleven companies in the El Paso–Cd. Juárezregion had invested in production in the Mex-ican interior. Branch plants and especially ma-quiladoras are most extensively linked to pro-duction in Mexico, which indicates that thepropensity to invest in Mexico increases withexperience. Some big contractors and even asmall and a medium-sized contractor have alsoinvested directly in the Mexican interior.

The major destination of investments bycompanies in the El Paso–Cd. Juarez region isthe urban area of Torreón/Gómez Palacio.(For a more detailed analysis of this area, seeChapter in this book.) Almost all companieswith linkages to the interior have investedthere. This phenomenon can be attributed tothe location and orientation of the variousMexican garment cities. As Jesse Romero putit: “In Torreón I would venture to say that‒% of the factories are set up to do foreign

:

work. . . . In Aguascalientes and Puebla thesepercentages are lower because the distances tothe US market are larger and the cities are moreoriented to the Mexican market in MexicoCity” (personal communication, May ).This conclusion is endorsed by Cor Zwezerij-nen, the technical director of a large manufac-turer, who estimates that as many as percentof the companies in Torreón/Gómez Palacioproduce for the U.S. market—the majority ascontractors but others as joint-venture part-ners of a U.S. company.

Subcontracting is often seen as an initialstep, allowing the firm to acquire a feel fordoing business in Mexico while avoiding long-term commitments. But it is also done by com-panies that have gained a lot of experience withcontractors over a long supply relationship andnow have substantial confidence in the qualityof their products. The geographic concentra-tion of contracting relationships is largely thesame as that of direct investments and is alsocentered in the Torreón/Gómez Palacio areain northern Mexico. Only four companies inEl Paso have linkages to contractors in theMexican interior. As an example of such link-ages, Figure ., based on fieldwork data,depicts one of the companies, which success-fully complemented its domestic productionwith a mix of direct investment and contract-ing in the border region and an extensive con-tracting network in the Mexican interior. Ihave called this company Verde.

In , Verde owned four plants in El Paso,two in Cd. Juárez (another opened in ,

after the research was conducted), and onein Ojinaga, a Mexican border city east of ElPaso–Cd. Juárez. The plants in El Paso diddesign, cutting, and distribution, while all thesewing was done in Mexico. The head of man-ufacturing at Verde said that owning plants inMexico had a number of advantages: Produc-tion was easier to manage and coordinate be-

tween plants, resulting in increased control,flexibility, and reliability. Despite these advan-tages, the company expected to maintain a sta-ble number of Verde plants in Mexico ratherthan increase them because it wanted to con-centrate on design, marketing, sales, and ser-vices while having reliable contractors whowere responsible for production.

Verde’s good experiences with contractorswere based on the consistent nature of demandfor jeans, which has allowed the firm to provideits contractors with steady work all year. Theexperience it gained over the years led Verde toadd linkages with three contractors in Chi-huahua and between eight and ten in Torreón.These contractors produced percent ofVerde’s total production. Verde has had bothlong-term (as long as ten years with some) andshorter-term relationships with these contrac-tors. The distribution of orders in the low sea-son depends on the seniority of the contractorand the quality and services it offers.

The company has found the right balancebetween domestic and Mexican productionactivities and between owned plants and con-tractors, and it intends to keep this balanceunchanged, at least in the near future. The geographic distribution of Verde’s link-ages to other actors in the garment industryand the activities performed by these actorsare represented in Figure ..

Despite the potential gains, by onlyeleven companies researched had foreign directinvestment in the Mexican interior, and fourcompanies in El Paso and no companies in Cd.Juárez had taken advantage of the possibilityof contracting in Mexico. In , however,branded manufacturers expanded their pro-duction in Mexico through contracting link-ages, at the expense of production in El Paso.In , Levi’s announced the closure of anumber of its El Paso plants; Sun Apparel alsoclosed a plant, and a number of other large-

scale producers have followed suit or indicatedtheir plans to do so (see Chapter in this book).These and other companies are extensivelyand increasingly involved in subcontractingarrangements with Mexican producers.

Linkages of Companies in Cd. Juárez

Only the maquiladoras in Cd. Juárez have ex-traregional production linkages, and their localembeddedness and extraregional Mexican link-ages generally appear to be quite limited. Anumber of the maquiladoras in the sample havesubsidiaries located elsewhere in Mexico. Thesesubsidiaries seem to produce in isolation fromone another, each maintaining its own linkagesto its headquarters and other relevant actors inthe United States. Two maquiladoras of a largeapparel-producing corporation, which I willcall Rojo and Azul, provide an example of atypical maquiladora linkage pattern.

Both Rojo and Azul produce ladies’ jacketsand suits, for which they receive design, fab-ric, accessories, and decorations from the head

office in Philadelphia. The maquiladoras dealdirectly with a thread supplier in Dallas in-stead of ordering thread from the sales officeof this same supplier in El Paso. All otherinputs are shipped directly from Philadelphiato Cd. Juárez. The jackets and suits are fin-ished in Cd. Juárez, after which they areshipped to El Paso, Nashville, or Philadelphiato be distributed. Rojo and Azul do not haveany linkages to local suppliers or subcontrac-tors, nor do they have productive linkages witheach other. Their local linkages are thus verylimited. The geographic distribution of thelinkages of the group with other actors in thegarment industry and the activities performedby these actors are represented in Figure ..

The pattern of linkages between the maqui-ladoras and other companies in Mexico andthe United States is shaped by the pro-gram. The regulations of the regime limitthe productive scope of maquiladoras to as-sembly activities. As a result, all garmentmaquiladoras, even those belonging to thesame company, could serve as functionally

:

.. Supply Chain for Verde

equivalent substitutes for one another. Theirnoncomplementary character eliminates anyreason for linkages between them. The regu-lations of the program are designed toretain all nonassembly activities in the UnitedStates, which is why the linkages that existedin were all directed north of the border.Although it may seem advantageous to per-form other production activities in the U.S.border region, this was hardly the case in .

This is currently changing, especially since theelimination of duties on cutting in Mexicowere lifted in .

Naturally, under NAFTA the restric-tions no longer apply to cross-border relation-ships between firms in the apparel industry.However, the development of linkages be-tween maquiladoras and other actors in thelocal or regional industry seems questionable,if not improbable, in an environment such asCd. Juárez. Prospects for the emergence ofsuch linkages and the development of locallyintegrated production seem brighter in one ofthe more traditional centers for garment pro-duction, which have local production capabil-ities in nonassembly activities.

Conclusion

The analysis presented here leads to severalconclusions. First, the garment commoditychain in both El Paso and Cd. Juárez is limitedto only a few types of production activities. InEl Paso production is heavily concentrated incutting and sewing activities and, to a lesserextent, in laundry and finishing. In Cd. Juárezthe maquiladoras, which dominate the sectorin terms of both production volume and em-ployment, still perform only sewing activitiesand a limited degree of finishing. Designing,textile manufacturing, distribution, and mar-keting activities do not take place in the region.Linkages to other actors in the cities are lim-ited in number. Firms are not deeply embed-ded in their local business environment andthus are probably not very committed to itssurvival or to designing a cooperative strategyto increase its competitiveness.

The virtual absence of cross-border link-ages between the industries in El Paso and Cd.Juarez—which also indicates the neglect of apotential way to retain a competitive advan-tage in the region—is due largely to the char-

.. Supply Chain for Rojo and Azul

acteristics of the relatively tight labor marketin Cd. Juárez, where garment companies haveto compete for employees with electronics andautomobile plants that offer higher wages.Although the wage differential between thetwo border cities is significant, it apparentlyis not large enough to offset the attraction ofeven lower wages elsewhere in Mexico.

As a consequence, the linkages necessary tocomplete the garment production process—namely, linkages to design, textile manufactur-ing, distribution, and marketing capabilities—“skip” the border in favor of extraregionallocations. Overall, the patterns of existing link-ages seem to point to the importance of NorthAmerican networks over regional or local pro-duction networks, a trend likely to intensifyunder NAFTA. Bearing in mind the impor-tance of these production networks for theNorth American garment industry’s competi-tiveness, as noted by Gary Gereffi (b), thiscase illustrates both some of the losses to beencountered by segments of the North Amer-ican garment industry in shaping productionnetworks and the still-footloose character of theassembly link in garment production networks.Large manufacturers, as organizing agents ofthe production networks, despite their over-whelming presence in El Paso have hardly beenable or willing to draw small and medium-sizedregional producers into their networks. Since,for such companies that do not produce for alocal niche market, the ability to tap into thesenetworks has proven to be of vital importanceto their survival, the vast majority has gone outof business over the past couple of years. Fur-ther, the presence of numerous branded man-ufacturers’ plants in El Paso may no longerguarantee the position of that city as what Ger-effi (a, ) calls “a coordinating hub of theNorth American apparel commodity chain,”since recent closures have proven that thesemanufacturers are willing to leave El Paso.These closures have already left unemployed

an enormous number of workers, who for var-ious reasons will have difficulty finding alter-native employment, and this trend is likely tocontinue.

By contrast, the maquiladoras in Cd. Juárezseem hardly affected by the liberalizationunder NAFTA in the short and medium term,although they may lose in the long run. Withits tight labor market and the competitionbetween production facilities in many indus-trial sectors, Cd. Juárez is not an ideal hub fora North American garment production net-work. Better opportunities are offered by inte-rior locations such as Torreón/Gómez Palacio,Aguascalientes, and Tehuacán.

Epilogue

In , five years after the initial researchpresented here on the U.S.-Mexico border, thetrends underway appeared to have completedtheir course. The garment industry in El Pasohas almost entirely collapsed; its current posi-tion as support and distribution hub for NorthAmerican garment production is only a bleak(and possibly temporary) reminder of its for-mer status of “Jeans Capital of the World.”On the other side of the border, El Paso’s painhas clearly not been Cd. Juárez’s gain. As wasexpected, the industry in the Mexican bordercity has remained stable and relatively iso-lated. More surprising may be the fact thatalthough some of the weaknesses of the indus-try in El Paso have been largely overcome inMexico’s “Jeans Capitals of the World” (suchas Torreón), these cities may yet be headed ina similar direction (van Dooren and Smakman; van Dooren ).

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Notes

. I use a narrow definition of the garment in-dustry, excluding the nonclothing subgroups of theStandard Industrial Classification (SIC) apparelgroup. This is especially relevant in Cd. Juárez,where many of the apparel maquiladoras producenonclothing items such as upholstery for the autoindustry, curtains and bedding, belting, and the like.

. The data presented in Table . are based onSIC codes to , since these are the subgroupsthat form part of the garment definition used inthis research. The subsectors “fur goods,” “miscel-laneous apparel and accessories,” and “miscella-neous fabricated textile products” are thus notincluded in these tables.

. The definition of the clothing industry inMexico used in this research is based on the statis-tical data provided by INEGI under subsector ,

“Confección de prendas de vestir.”. A clear overview of the various garment com-

panies and their positions within the industry isprovided by the U.S. International Trade Commis-sion (, ).

. The distinction between contractors and sub-contractors is somewhat theoretical, especially sincedistinctions between types of companies have be-come blurred as different types of firms have startedto combine sourcing strategies to reduce costs andrisks.

. An aspect not shown by Table . is that com-panies in Cd. Juárez, with the exception of the in-dependent producers for the local market, are notinvolved in cutting. This is due to the regula-tions mentioned earlier.

. Generally, contracting is seen as a means toreduce costs, reduce investment risks, enhance pro-duction flexibility, and allow for small-batch pro-duction. Short delivery times and effective supplyresponse, low transportation costs, conveniencein access and control, and cultural similarity aresome of the additional advantages of regional sub-contracting.

. Local suppliers produce locally, while localsales offices sell supplies made outside the region.Sales offices of suppliers are relatively footloose andnot closely integrated in the regional business envi-

ronment. They are attracted to a localized concen-tration of industry but cannot serve to attract com-panies to or embed them in the local environment.

. Whereas, formerly, the demand for “Made inthe U.S.A.” products, public opinion, and the effecton their image of large numbers of layoffs may havedeterred these companies from relocating freely,these companies currently seem less able to with-stand competition from and the attraction of pro-duction in low-cost locations, as exemplified by therecent closures of many plants owned by companiessuch as Levi Strauss and Sun Apparel in El Paso(see Chapter in this book).

. Traditionally the industrial-district litera-ture has emphasized the importance of the sectoralspecialization and geographic concentration ofsmall and medium-sized companies (Schmitz ).With few exceptions (Scott ; Schmitz ),the role of large-scale producers in districts hasreceived much less attention.

. During the research it was found that biasesand prejudices about doing business in Cd. Juárezare still prevalent in El Paso. This might be an indi-cation that the common cultural and social back-ground of garment actors in both cities, one of thecharacteristics of industrial districts, is not strongenough to link them together. One basic dissimilar-ity is that whereas large companies in El Paso weregenerally run by Anglo-Americans, the shop floorsand the smaller-scale companies were dominated byHispanics.

. This may also imply that the initial poten-tial for full-package production is greater in thesetraditional garment centers than in the border cities,where the garment sector is much more dominatedby maquiladoras. Integrated production and full-package capabilities may, as noted by Gereffi(b), be of decisive importance for the future ofgarment manufacturing in Mexico.

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Commodity Chains and Industrial

Organization in the Apparel Industry

in Monterrey and Ciudad Juárez

Introduction

Since the mid-s, Mexico’s economy hasdeveloped in a context that is substantiallydifferent from its former import-substitutionindustrialization model.1 The opening of theeconomy to international competition has mod-ified the modes of conduct of both the govern-ment and private firms, as well as their mutualrelations. This change has been important notonly for Mexico but also for its nearest andmost important neighbor, the United States,which upon the ratification of the North Amer-ican Free Trade Agreement (NAFTA) formal-ized its status as Mexico’s most important tradepartner.

Mexico’s unilateral trade opening preced-ing NAFTA produced macroeconomic imbal-ances and social tensions among firms. One ofthe most frequently expressed fears was thatMexico’s small and medium-scale enterpriseswould be left unprotected against an avalancheof foreign imports. This situation was forecastespecially for industries such as apparel, wherethe trade opening took place very rapidly: In

, percent of Mexican clothing pro-duction was protected by import licenses thatwere done away with in , while the aver-age tariff on garments fell from percent inthe second half of to percent byDecember . Other protectionist measureswere reduced or eliminated in textiles as well(Mendoza and Pozos ). The trade open-ing, according to the pessimists, would sharpencompetition to the point that the survival ofmany Mexican small and medium-sized enter-prises would be threatened.

Nevertheless, even now, in the early twenty-first century, it is difficult to assess the outcomeof the trade opening for the Mexican garmentindustry in clear-cut terms. At the beginning ofthe opening, a significant drop occurred in bothemployment and number of firms in the indus-try. Textile and apparel’s joint share of Mexi-can gross domestic product in manufacturingfell from . percent in to . percentby . These industries’ share of manufac-turing employment also fell significantly, from. percent in to . percent in .

From to the real value of textile and

apparel output fell by percent. Since thebeginning of , however, macroeconomicdata show a substantial increase in both pro-duction and exports in the Mexican apparelindustry. In exports grew by percent,and the trade balance for apparel in

showed a surplus of $ million (Dussel ;

Bair ). Similarly, substantial growth hasoccurred in garment maquiladora employ-ment, which increased from , workers in to , in and , in

(INEGI , ). This growth has takenplace principally in nonborder areas, whereemployment grew from , workers to, between and . In contrast,along the border employment in garment ma-quiladoras increased by only about , jobs,from , in to , in . Rapidexpansion of garment maquiladoras has alsomeant that the percentage of total maquiladoraemployment in Mexico accounted for by theapparel industry has increased from . per-cent to . percent in just five years.

These positive trends at the national levelwere a direct consequence of the peso devalu-ation that occurred at the end of and thederegulation of trade in garments and textilesenacted with the implementation of NAFTA.According to some analysts, NAFTA is facili-tating a particular division of labor in whichthe United States textile industry supplies rawmaterials to garment-producing firms locatedin Mexican territory that now have unre-strained access to the lucrative U.S. market.This schema varies, however, by both the spe-cific type of garment under consideration andthe site of its production in Mexico. In fact,the trade opening has not produced a single,uniform effect on textiles and garments inMexico. Although thousands of businessesfailed, many survived and many new enter-prises were created.

An important research task, therefore, is toconsider the strategies adopted and the com-

petitive advantages possessed by firms that haveeither remained in the industry or recentlyentered it. Some firms have transformed them-selves into distributors of foreign goods. Oth-ers have taken advantage of their ability toimport inputs in order to sew garments in smallestablishments. Certain communities in theBajío (a region in central Mexico), for example,have become maquiladora garment districts(Vangstrup ). Other authors have de-scribed a plethora of production situations andhighlight the tenuous distinction that existsbetween formal, informal, and clandestineshops (Suárez and Rivera , ). One fac-tor that contributes to the opening of newplants in Mexico as well as to the expansion ofproduction in existing plants is the strategy oflarge retail chains in Mexico (e.g., ComercialMexicana) to increase the proportion of pur-chases they make from domestic suppliers inthe face of rising prices for goods from Asiaand other countries outside the North Amer-ican market. Similarly, U.S. branded manu-facturers such as Levi Strauss and Companyhave begun to contract a significant proportionof their global production to Mexican maquila-doras (Mendoza and Pozos ).

In this chapter we set out to examine thisdiversity of Mexican garment-production sit-uations through an analysis of a sample of en-terprises located in two northern cities: Ciu-dad Juárez, Chihuahua, and Monterrey, NuevoLeón. In conducting our analysis, we adopt acommodity-chain perspective. Since the lates the development literature has demon-strated the need to examine the links betweensuppliers and clients in specific industrial re-gions instead of focusing exclusively on indi-vidual enterprises or on specific branches ofindustry (Becattini ; Castillo ‒;

Gereffi , ; Gereffi and Hempel ).This approach permits us to track the compet-itive advantages (or disadvantages) accruing toa good at different points along its production-

, ,

distribution chain. In addition, it allows us tounderstand how a region or a city is integratedinto the productive fabric of its own and othercountries.

This chapter is organized into three sec-tions. In the first section we explain themethodology of our study and discuss thecharacteristics of the garment industry in eachcity, including the restructuring it has under-gone over the last few years. In the second sec-tion we analyze how production chains arestructured by distinct types of interfirm net-works operating in each city. Finally, we reflecton the study’s findings and their implicationsfor the further evolution of the garment indus-try in Mexico.

The Restructuring of the GarmentIndustry in Monterrey and Ciudad Juárez

Our analysis focuses on two cities in northernMexico that have followed quite distinct pathsto industrialization. Monterrey, capital of thestate of Nuevo León, has been a center forindustrial growth in Mexico since the begin-ning of the twentieth century. Its developmenthas been led by several large industrial gruposbased there, such as ALFA and VITRO.2 Ciu-dad Juárez, by contrast, is a border city in thestate of Chihuahua whose development hasbeen more recent, occurring in conjunctionwith the rise of the maquiladora industry sincethe s.

During the s the large industrial groupsin Monterrey, in spite of some difficulties,managed to restructure their enterprises inorder to compete successfully on the interna-tional stage while preserving their dominancein specific domestic markets (Pozas ;

Pozos ). In the macroeconomic crisis thatbegan in , Monterrey’s industrial compa-nies underwent a dramatic restructuring that

involved significant plant closures and layoffsbrought on by the large dollar-denominateddebts they had taken on at the end of thes. One of the most important closures wasthat of Fundidora Monterrey, long a symbolof the city’s industrial strength, which em-ployed eleven thousand direct-productionworkers in . The ALFA and VITROgroups laid off seventeen thousand and eleventhousand employees respectively (Pozas ).

Nevertheless, with the help of a debt-restructuring plan designed by the federal gov-ernment,3 Monterrey manufacturers managedto extricate themselves from the most acutephase of the financial crisis in which they weremired. Later, by means of a series of newrestructuring moves that included the acqui-sition of technologies, improvements in man-agement techniques, and the formation ofstrategic alliances with foreign companies, theMonterrey groups found themselves amongthe most internationally competitive produc-ers of beer, cement, and glass (Aguilar ).Thus VITRO teamed up with Whirlpool andbecame the majority shareholder in AnchorGlass (Aguilar ; Pozas ; Pozos ).Other industrial groups, such as CEMEX,acquired the leading cement producers inMexico, as well as four U.S. cement compa-nies. CEMEX became the main producer ofcement in Mexico, accounting for percentof the country’s exports of this product.

Several factors explain the depth of therestructuring of Monterrey industry in spiteof the difficulties that it experienced during thes. First, the corporate structure that theindustrial bourgeoisie of Monterrey developedis based on the intertwining of family ties, busi-ness interests, and political influence. Theenterprises of the grupos are vertically inte-grated to a large extent, meaning that all ormost suppliers of components or parts neededto manufacture the product belong to the grupo,and this has helped them achieve important

economies of scale, although this tight inte-gration can be a source of rigidity in periodsof crisis like that of the s. Second, Mon-terrey’s industrial sector maintained stronglinks with the local and national financial sec-tor. Third, Monterrey industrialists have beeninnovative and have dedicated considerableresources to research and development (Pozos, ). Fourth, in spite of recurrent con-flicts with the federal government, Monterreyindustrialists have repeatedly demonstratedtheir indispensability to the health of thenational economy. In fact, the overall policiesof opening and deregulation undertaken by thefederal government in response to the scrisis coincided with many of the industrial-ists’ demands. Likewise, strategic institutionssuch as the Instituto Tecnológico y de Estu-dios Superiores de Monterrey have partici-pated in and influenced the government’s eco-nomic planning and programming since themid-s. Finally, in periods of economicopening, Monterrey’s industrial groups havereadily applied their considerable resources andtalents to forging dynamic strategies that per-mit them to compete effectively in interna-tional markets, especially when compared withother regional bourgeoisie in Mexico and LatinAmerica (Pozos ).

The economic history of Ciudad Juárez hasbeen quite different. Juárez’s industry grew asa result of tendencies in the world economy inwhich U.S. enterprises—and later those fromAsia—searched for new forms of competitive-ness by moving production to Mexico’s north-ern border. Proximity to U.S. corporate head-quarters, the cheap cost and docility of theirlabor force, tariff advantages, and improve-ments in industrial infrastructure converted theMexican border cities into a major site fordirect foreign investment in Mexico. For thisreason, in contrast with Monterrey, local entre-preneurs have dedicated themselves principallyto the development of the industrial parks in

which maquiladoras may be located. Of great-est interest here is that textile production ratherthan garment assembly was the subbranch thatdeveloped the most in Ciudad Juárez.4

The textile-apparel complex also has differ-ent relative importance in the two cities. InMonterrey it is one of the six most importantmanufacturing industries (Aguilar ). Thetextile and garment industry in Monterrey wasfounded in the early twentieth century withlocal capital, especially from certain familiesof Middle Eastern origin (Martínez Sánchez). Some of these garment factories con-verted themselves into maquiladoras after thetrade opening.

With regard to Ciudad Juárez, the govern-ment of the state of Chihuahua considers theclothing industry to be one of several “clus-ters” to be promoted as part of its industrialpolicy.5 NAFTA will permit the transfer ofcertain operations from El Paso, Texas, to cen-tral and southern Chihuahua due to its advan-tages in availability of water and lower laborcosts. Thus, Chihuahua could develop induce-ments to direct investment by garment firms inrural areas with an abundant labor supply. Thisis reinforced by the importance of elementssuch as “just-in-time” production, key to themarketing of clothing, which offers opportu-nities to Chihuahua owing to its location on theborder with the United States (DRI/McGraw-Hill and SRI International ). Neverthe-less, not everyone agrees on the importance ofproximity to the border. For example, a recentstudy notes the scarcity of productive linksbetween textile and garment firms in CiudadJuárez and El Paso. This study suggests, more-over, a probable decline in the industry alongthe border in Juárez as more productionemerges in the cities further into the Mexicaninterior (Verkoren ). In fact, as the Chi-huahua government study itself recognizes,the development opportunities for the textile-garment cluster may be thwarted by a series of

, ,

competitive threats from the Asian countries,the United States, and other Mexican statesthat are seeking to attract foreign investment.

Thus the textile-garment sector is importantin both cities. In Monterrey it is important asone of the city’s traditional industries that grewsignificantly during the s. In Ciudad Juárezits importance derives from the advantages ithas gained since the signing of NAFTA.

Research Questions andMethodological Considerations

We must ask ourselves just how similar the gar-ment industry is in these cities. In both cities,is it oriented toward the same market niches?Are we talking about firms dedicated to theproduction of fashion or highly standardizedgarments? What types of interfirm networkshave developed as a function of product type?On what basis does competition occur?

These are some of the questions that we setout to answer in our study of twenty-five firms,fourteen in Monterrey and eleven in CiudadJuárez. Our strategy consisted of identifyingmajor garment industry employers in each cityand conducting formal interviews with theirplant managers. Our main goal was to inter-view enterprises that had “backward linkages”in order to gain a greater understanding of thedirect impact of such linkages on enterprisesin aspects such as working conditions, com-petitiveness, and firm trajectories based onlocation, number of employees, and a givenfirm’s position within local networks.

By using this strategy we were able to iden-tify both the direct and indirect suppliers oflead firms with a minimum number of inter-views and thus efficiently map the varioustypes of interfirm networks operating in eachcity’s textile-garment complex. In addition,the strategy allowed us to compare resultsamong individual firms in the entire sample as

well as among firms in particular network posi-tions. The principal limitation of our sampleis that it is not statistically representative forthe industry, either in terms of the two citiesin question or for the set of suppliers of eachfirm that was interviewed. A crucial factorimpeding the gathering of a random sample offirms was the absence of any list of firms thatcontained information on the relationshipsamong different establishments.

Profile of Individual Firms in the Sample in Each City

In this section we present the principal socioe-conomic characteristics of the firms coveredin our study and the types of productive link-ages they have established. Of the fourteenenterprises studied in Monterrey, six werededicated to the production of inputs such asthread, cloth, and poplin, while the other eightmanufactured various types of garments. Onlyone of the firms in Ciudad Juárez producedcloth; the rest manufactured finished goods,mainly uniforms, although one of them pro-duced T-shirts and two manufactured pants.

In our sample, eight of the fourteen Mon-terrey firms and all but one of those in CiudadJuárez were “small to medium-scale enter-prises”—that is, firms that had from to

employees, using the official Mexican govern-ment classification system. The remainingplants were large-scale establishments with

or more employees. Nevertheless, taking all theplants together, the average number of employ-ees per plant in Monterrey was , while inJuárez it was (compared to the averagenumber of employees in garment maquila-doras nationwide) (CIEMEX-WEFA ).

Most employees were direct-productionworkers. While at the national level only

percent of employees in manufacturing plantsare direct-production workers, in the plants

we surveyed nearly percent were engaged indirect production in each city. In spite of thehigh percentage of direct-production workers,around percent of employees were engineersor technicians, a figure comparable to the na-tional average, while administrative employeesaccounted for only percent of plant em-ployees in both Monterrey and Ciudad Juárez.In both cities about half of direct-productionworkers in the plants sampled were women ( percent in Monterrey and percent inCiudad Juárez). The proportion of femaleworkers is more or less percent lower thanthat of garment maquiladoras and lower thanthat of garment plants producing for the Mex-ican domestic market as well.6 Most jobs in theplants we surveyed were permanent. In spiteof this, employee turnover rates were high inboth cities—especially in the Juárez plants,where average turnover was over percentper month. (In Monterrey it was a more man-ageable percent.) These figures are never-theless lower than the . percent rate foundin for the maquiladora sector as a whole(Carrillo ). According to the plant man-agers we interviewed, this decrease in turnoverrate is a reflection of the current economic cri-sis in Mexico and the corresponding rise inreal unemployment.

On average, Monterrey plants began oper-ation twenty-five years before our research,whereas the average Juárez plant had openedfourteen years before. It is interesting toobserve that around a third of the plants inour sample had been founded between

and and nearly half had opened priorto . Here we find important differencesbetween Monterrey and Ciudad Juárez, how-ever. The Monterrey plants were older, onaverage, than the plants identified in CiudadJuárez. In Monterrey only four of the four-teen plants studied had been founded since thebeginning of the s, and of these only onehad opened in the s. Meanwhile, in Ciu-

dad Juárez only two of the eleven plants sur-veyed had opened prior to .

With regard to plant ownership, three pointsare important to consider. Around half of theplants we surveyed were owned by a Mexicanfirm, around a third were privately held, andthe rest were subsidiaries of U.S. companies.Here we also see an important difference be-tween the two cities. While in Monterrey morethan three-quarters of the plants were subsidi-aries of another firm (the remainder were ownedby private individuals), in Juárez the majorityof plants were owner-operated. Reflecting ourpurposive oversampling of suppliers, over three-quarters of firms were majority Mexican-owned,and the average proportion of total capital in-vested in each plant by Mexicans was nearly percent. In Monterrey most firms were

percent Mexican-owned, while in Juárez aroundtwo-thirds were controlled by Mexican invest-ors with an average of nearly percent of cap-ital investment from Mexican sources.

The average amount of capital investedin each establishment in was around$,. Finally, with regard to gross salesand exports, average sales were U.S.$.

million, while exports reached $. million onaverage. Sales figures did not vary markedly bycity, with average sales of U.S.$. million inMonterrey and $. million in Juárez. Thesignificance of exports did diverge consider-ably, however, with around percent of Juárezplants’ sales deriving from exports, comparedto under percent for their Monterrey coun-terparts. The relatively low proportion ofexports by the Monterrey firms places them ina vulnerable situation in the face of fluctua-tions in the internal market. In Ciudad Juárez,American maquiladoras are the only firms thatexport, while the Mexican firms are smallshops that sell their finished products—indus-trial uniforms—to the maquiladoras. Finally,although the small size of our sample means wemust interpret such figures with caution, we

, ,

observe that the average value of exports perplant in our sample has grown at an annual rateof over percent between and .

There is no clear product specializationamong the firms in our sample. In the case ofMonterrey, seven of the fourteen firms westudied were suppliers to the producers of fin-ished garments: Three firms produced thread,two manufactured poplins, one wove fabric,and another made cardboard boxes. Among theremainder that produced finished garments,three were dedicated to the manufacture ofmen’s shirts, one of the garments that has beentraditionally produced by Monterrey’s indus-try. There were also two plants producinguniforms (one specializing in secretarial uni-forms and the other in industrial uniforms),one producing men’s briefs, and another thatproduced baptismal gowns. In Ciudad Juárez,industrial uniforms (mainly robes) predomi-nated, although one of the firms we studiedalso manufactured school and sports uniforms.Other types of garments are also produced:Three firms manufactured pants and shirts,one made T-shirts, one made gloves, anothermade cloth and flannel, and one even producedladies’ underwear. Research conducted after ourstudy has noted that garment shops in CiudadJuárez are quite flexible—that is, they are ableto switch products in accordance with seasonalfluctuations in demand (Morales ).

The principal customers of the plants westudied tended to be located in the same cityas the plants, especially in the case of Mon-terrey. Three-quarters of the plants we stud-ied in that city and half of those in CiudadJuárez reported that their principal client waslocated in the same city.

With regard to competitiveness, only a thirdof the enterprises surveyed indicated that theirsituation has improved since the beginning ofthe s. About one-half of the plant man-agers we interviewed reported their market sit-uation as stable, while the rest stated that their

situation has been deteriorating. This percep-tion contrasts with the more optimistic assess-ment reported in a study of auto-parts andelectronics maquiladoras.7 In Monterrey,

percent of plants reported no change in theircompetitiveness while percent stated that it had improved in the s. This contrastswith the situation facing plants in CiudadJuárez, where only percent reported anotable improvement in their market situation,a third detected some improvement, and nearlyhalf ( percent) stated that their competi-tiveness had worsened during the decade.

The principal competitive advantages re-ported by Monterrey plants were the “highquality” of their products and “low costs.” InJuárez, the principal advantages mentionedwere the quick delivery of orders, “low costs,”“high-volume production,” and “new productdevelopment.” The pressures that obligatedMonterrey firms to change their competitivestrategies were mainly limited to “cost reduc-tion”; two plants reported “reduction in deliv-ery time.” In Ciudad Juárez the order of thesepressures was reversed: More than half theplants surveyed reported pressures to reducedelivery times, and the remainder noted pres-sures to lower costs.

The main competitors of the firms we vis-ited were for the most part located in Mexico(around percent of the firms in Monterreyand a little more than percent of those inJuárez). Only six plants reported that theirprincipal competition was located in the UnitedStates, while two plants placed their main com-petitors in Central America and the Caribbeanand one plant located them in Asian countriesoutside China and Japan. The location of thesecompetitors reflects the overall trends in theapparel industry internationally, where Asianand Central American countries play an impor-tant role. These findings also suggest that anintense competition for market share existsamong Mexican enterprises themselves.

The main problems facing Monterrey plantswere the lack of credit, low profit margins, andexcessive competition. Meanwhile, the mainobstacles reported in Juárez were “problemswith red tape” at the border, “excessive com-petition,” and “lack of clients,” in that order.One of the major problems affecting profit-ability is difficulty in receiving payment fromclients. In the case of the plants producing uni-forms in Ciudad Juárez, for example, clientshave up to ninety days to pay and remit theamount owed in pesos. The uniform produc-ers, however, must meet short deadlines fordelivery and are obliged to use imported cloth(paid upon receipt in U.S. dollars). Employeeturnover is another significant problem for theJuárez firms, with many workers moving intoother sectors where wages are higher andemployment is more stable.

The findings can be synthesized into an“index of global competitiveness” for eachplant in our sample.8 The average global com-petitiveness index for the sector was nega-tive (�.), somewhat worse in Monterrey(�.) than in Ciudad Juárez (�.). A sim-ilar finding occurs with regard to the level ofplant modernization, which we measured withan “index of modernization” that also took onnegative values in all the plants we visited,whether they exported or not.9 Nevertheless,in Monterrey the average modernization indexscore was slightly positive, whereas in CiudadJuárez it was negative (�.). The index ofemployment quality also showed negativeresults: �. in Monterrey and �. in Ciu-dad Juárez.10 With the exception of the mod-ernization index, these results coincide withexternal certification of quality-control pro-cesses: None of the Monterrey plants had beenInternational Organization for Standardiza-tion (ISO) certified, and just two hadbeen certified by the J. C. Penney Corpora-tion, considered a leader in the apparel indus-try in setting quality standards. For its part, in

Ciudad Juárez one plant was certified as meet-ing ISO standards and three were certi-fied by organizations following procedures sim-ilar to those of JCPenney.11

The situation looks better when we exam-ine the plans of these plants for the future. Inour study we found that three-quarters of theMonterrey plants planned to expand theircapacity; more than percent expected toincrease their exports and add new products totheir line; around percent hoped to opennew plants; and percent planned to enterinto strategic alliances with foreign or domes-tic partners. Although in general these per-centages are greater than those of the plants inCiudad Juárez, the plans for growth are alsosubstantial in the other city: Over half of thefirms we visited expect to expand their capac-ity; nearly half plan to increase their exports;over half will add new products; nearly one-fifth will open new plants; and up to a thirdexpect to enter into strategic alliances with for-eign or domestic partners.

Our sample consists principally, then, ofmaquiladora and nonmaquiladora plants thatface serious economic problems, have difficul-ties with both competitiveness and modern-ization, and mainly serve the domestic mar-ket. It is interesting, therefore, that even inNorthern Mexico’s export zone there exists arelatively backward garment sector that, inspite of being linked to direct or indirect ex-ports (by way of the maquiladoras), is notenjoying the benefits of the trade opening andindustrial integration with the United States.

Types of Interfirm Networks inMonterrey and Ciudad Juárez

Monterrey: Three Types of Linkages

Within the textiles branch in Monterrey wehave identified three types of networks: () tra-ditional networks, based on vertically integrated

, ,

enterprises selling to the domestic market; () original equipment manufacture (OEM) net-works, revolving around export-oriented leadfirms; and () original brand manufacture(OBM) networks, also based on vertically inte-grated firms selling to the domestic market.The first of these networks exhibits the great-est degree of vertical integration among par-ticipants. The Monterrey plants with pre-dominantly local supplier-client relationshipsbelong to Mexican parent companies and havebeen active in the city for several decades.

. The traditional network: A local grupo serv-ing the domestic market. The most completetextile-apparel network we discovered in Mon-terrey was composed of four establishmentsbelonging to the same parent company (seeFigure .). The grupo began in with twoplants whose main products were poplin, gab-ardine, and satin fabrics. These plants had twoclient firms that were also part of the grupo.The poplin was used by one of the client firmsin the production of men’s shirts. The othercustomer of the two “upstream” firms wasinvolved mainly in the manufacture of uni-forms for school and industry. Nevertheless,

the textile-garment network we describe hereis not limited to these four supplier-clientfirms, since the manager of the shirt factory isalso the owner of seven other garment firms,six of which are located in Monterrey.

The information obtained from our inter-views makes it possible to piece together theprincipal features of the group and the rela-tionships that exist among its several enter-prises. In general we found the group to behighly integrated into the local communitywith regard to suppliers and clients, and evencompetitors. Managers of these plants per-ceive that their principal competition comesfrom other Monterrey firms. There are, how-ever, some indications that these plants areintegrated into markets beyond the Monterreymetropolitan area. Perhaps the most interest-ing of these is the fact that one of the plantsthat weaves cloth, founded in , began pur-chasing cotton from a Texas supplier at thebeginning of the s. The other “outside”suppliers that this group used are located inChihuahua and other regions in Mexico andsupply the plant that manufactures uniforms.Nevertheless, although in principle there is anample local supply of fabrics and accessories

U.S.A.

Mexico

U.S. supplierlocated in Texas

Mexican manufacturer

Mexican supplier(owned by grupo)

Mexican supplier(not owned by grupo)

.. Traditional Interfirm Networks in Monterrey

such as thread and buttons, plant managersstill spoke to us of problems with obtainingneeded inputs in a timely manner from sup-pliers that could meet their quality and costrequirements.

In general, the enterprises composing thisgroup are of a traditional type, with little useof automated equipment and a workforce thatis valued mainly for the quality of its manualskills. Something has changed, however, inrecent years. Our findings show that the twomeasures most frequently implemented to im-prove competitiveness since the s havebeen downsizing of personnel and introduc-tion of certain production techniques such asjust-in-time production, statistical process con-trol, and total quality management.12 Theseorganizational techniques have not been ac-companied by technological upgrading exceptin the case of one of the fabric suppliers,

percent of whose machinery was automated.Laying off workers has led to changes in the re-maining workforce such that workers are nowyounger and better educated but have lesstenure with the firm. Managers complain of ashortage of trained workers and a lack of workethic in the local labor market. In addition, one

of the managers we interviewed complained ofproblems with his workers’ union.13 Hence weobserve here a local network that has modern-ized to some extent yet continues to be depen-dent largely on the Mexican domestic marketand particularly on the local Monterrey mar-ket. As such, in spite of the relatively impor-tant size of the group and its component enter-prises, this cluster is still far from competingeffectively in a global market for apparel.

. Original equipment manufacture (OEM) net-works. The second type of garment produc-tion network we identified in Monterrey in-volved original equipment manufacturing for anumber of brand-name clothing companies, in-cluding Rinbros14 and Calvin Klein. The man-ufacturer in Monterrey is a maquiladora whoseheadquarters is located in the United States.This maquiladora is doubly linked to the localmarket in Monterrey (see Figure .). Its sup-plier of fabric is another subsidiary of the sameU.S. parent firm. In turn, the fabric supplierpurchases its textile fibers from an indepen-dent local firm. These inputs are consumed bythe maquiladora in the production of men’s un-dergarments. All plants in this network have

, ,

U.S.A.

Mexico

Retaildistribution: Rinbros, Calvin Klein

U.S. parent company

Mexican maquiladora

Mexican supplier

Mexican supplier owned by U.S. parent

Retail distribution(department stores)

.. Original Equipment Manufacturing Networks in Monterrey

Mexican suppliers, whether in Monterrey itselfor in central Mexico. The lead firm in the net-work also manufactures undergarments forMexican department-store clients such as CasaLey and Eagles.

. Original brand manufacture (OBM) net-works. The last type of garment productionnetwork we identified in Monterrey is one inwhich local manufacturers produce garmentsunder their own brand name and sell to large-scale merchandisers primarily in Mexico (Fig-ure .). The main items manufactured bythese firms are: () finished ladies’ outerwear,such as dresses, blouses, casual shirts, women’ssuits, and skirts; () uniforms; and () clothand fibers such as thread.

The suppliers of the enterprises in this thirdtype of network, unlike those in the other twotypes, are located in central Mexico as well asin Monterrey itself. Their principal clientswere department stores operating in Mexico,such as Soriana, Coppel, Tiendas del SolUnimax, Prestige, and Wal-Mart (which nowhas stores in several Mexican states). A secondtype of client they identified were distributorsof brands such as Wilson, and in third place,

two groups of local buyers of secretarial uni-forms, such as Grupo Confía and Lamosa.

To summarize, the Monterrey metropolitanarea has three types of interfirm networks inthe garment industry that have two principalcharacteristics in common: () the purchase ofinputs from local suppliers or suppliers locatedin central Mexico and () a high degree of spe-cialization in the type of goods produced thatcorresponds to the special needs of clients withparticular characteristics (brand-name distrib-utors, department stores, or firms that requiresecretarial uniforms). The process of productspecialization among Mexican companies thathave traditionally been oriented to the domes-tic apparel market has allowed the garmentindustry to continue to develop in Monterrey.The export-oriented OEM-type network haspermitted certain OBM plants to survive thecurrent economic crisis in Mexico by usingtheir excess capacity to export under anothercompany’s brand name, thus gaining knowl-edge of overseas markets. Finally, the enter-prises linked to the OBM-type network havemanaged to supply department-store chainsthat have multiplied since Mexico’s trade open-ing in the late s and early s.

U.S.A.

MexicoRetail distribution(department stores): Soriana, Coppel, Wal-Mart

Non-retaildistribution: Wilson, Confía, Lamosa

Mexican manufacturer

Mexican supplier

Retail distribution(department stores)

Non-retail distribution(brand distributors and local buyersof uniforms)

.. Original Brand-Name Networks in Monterrey

Ciudad Juárez: Two Models of Vertical(Dis)integration

. International subcontracting without locallinkages: The traditional maquiladora model.This model is represented by garment maqui-ladoras operating with foreign capital, suchas Converters, Contract Apparel, Boss, andeven some joint-venture operations such asFrederick de México. These enterprises aresubsidiaries of foreign firms that operateplants in both the United States and Mexico.Their establishment in Juárez to serve the U.S.market dates back to the early s. Theseare plants that export percent of their pro-duction and have no suppliers anywhere inMexico, not even in Juárez itself. They selldirectly to U.S. stores such as JCPenney, Mar-shall’s, and Philadelphia Company. As a con-sequence they must have either ISO orJCPenney certification. Their status as sub-sidiaries ties them to decisions made in U.S.corporate headquarters with regard to tech-nology, investments, and suppliers. In thissense a traditional vertical relationship existsbetween parent company and subsidiary.

These plants import all their inputs, such asfabric, thread, and accessories (zippers, plasticpieces, reinforcements, etc.), either becausethere are no Mexican suppliers of these itemsor because those that do exist are unable tosupply the necessary quality in a timely andreliable manner. They are generally medium-sized plants, with sales that range fromU.S.$. million to $. million. Plants mayhave as much as $ million invested in them.They assemble a variety of products, the mostimportant of which are ladies’ clothing (un-dergarments such as brassieres, girdles,blouses, and tights), pants, robes, gloves, andsheets. They compete with other foreign firmsin Mexico and Central America. In fact, exces-sive competition is their principal problem,aside from coping with the Mexican state bu-

reaucracy, especially with regard to its customsprocedures.

In response to competitive pressures, some ofthese plants are forming strategic alliances, lay-ing off workers, developing new products, andplanning to expand operations away from thenorthern border. In the meantime these plantshave already adopted modern managementpractices to guarantee flexibility, quick turn-around, and high quality. Finally, these areenterprises that employ a sizable number ofwomen (although not in all the plants), payingwages that range from U.S.$. to $ per day.

In sum, here we are talking about typicalexport-oriented maquiladora plants, with nolocal linkages, that produce directly for depart-ment stores, which in another publication wehave termed “first-generation maquiladoras”(Carrillo and Hualde ). Their exclusiverole is garment assembly. The value added thatthey generate is much less than that generatedby the product development and marketingthat occur in the United States. The interfirmnetworks in which these plants are enmeshedare binational and do not seem to be changingtheir pattern of geographic dispersion and lackof vertical integration (Figure .). Accordingto the Asociación de Maquiladoras de CiudadJuárez, by there were seventeen garment-producing maquiladoras in the city, employingaround forty-four hundred workers (Morales, ).

. International subcontracting with local link-ages: Indirect suppliers. Unlike the previousmodel, here we find small-scale, domestic en-terprises that supply maquiladoras not withinputs but rather with uniforms and robes fortheir employees who work on production linesin the electronics and auto-parts sectors. Themain objective of these suppliers is to availthemselves of a particular niche in the localmarket created by the great cluster of maqui-ladoras in Ciudad Juárez. As such, they are

, ,

“indirect suppliers” (in contrast with directproviders of inputs or production-specificservices). These plants employ mainly women,although some owners prefer to hire men.Worker incomes range from U.S.$ to $ perday, comparable to wages paid by large-scaleenterprises locally. All the capital invested inthese plants, which have been operating sincethe mid-s, is from Mexican sources.

Most of the owners of these plants areJuárez residents who are carrying on their fam-ilies’ tradition in the garment industry. Typi-cally, they worked at another job in the indus-try before opening their own shop with moneyfrom personal savings or received from otherfamily members. These entrepreneurs oftenown more than one small plant. Annual salesper plant range from U.S.$, to $,,

and the amount of investment sunk into eachplant ranges from U.S.$, to $,.

The principal production inputs purchasedby these small, locally based plants are fabric,flannel, thread, and buttons. They supplythemselves with these items directly fromstores either in Juárez or immediately acrossthe border in El Paso, Texas (where they arebilled in dollars). Their clients include some ofthe largest maquiladoras in Juárez, such asFavesa (Lear Seating Co.), Autoelectrónica(Yasaki), RCA (Thompson), Delphi (GeneralMotors), and Delmex (International Tele-phone and Telegraph).15 These clients gener-

ally pay in Mexican pesos ninety days afterorders are delivered, meaning that the uniformproducers, most of whose capital resources arequite limited, are effectively obliged to extendcredit to their transnational-corporation clients.This problem is compounded by the fact thatno local suppliers can compete in terms ofprice and speed of delivery, which obligesfirms to purchase inputs in dollars acrossthe border in El Paso. Thus these producersare negatively affected by the peso-dollar ex-change rate. In addition, the uniform produc-ers are totally dependent on the types of clothand colors available from local merchandisers(including those in El Paso), who frequentlymust special-order items they do not have instock. This can be the source of considerabledelays.

Some of the shops we studied were ISO certified, but this certification was inci-dental, owing to the fact that their main clientswere important parts suppliers of the threelargest U.S. automakers. Because they aresmall and independently owned and operated,all production decisions are made autono-mously. Their principal competitors are smalllocal manufacturers like them. Because themaquiladoras insist on ever lower costs andquicker turnaround time, this competitionmeans plants face strong pressures to complywith clients’ demands. In the face of this pres-sure the small plants’ strategy has been to

U.S.A.

Mexico

Mexican maquiladora

U.S. parent company

.. Traditional Maquiladora Networks in Juárez

specialize in certain products and make theneeded adjustments in machinery and shop-floor layout to make the most efficient use oftheir resources and to be able to fill clients’orders quickly.

As mentioned earlier, customs procedures,lack of credit, and problems with governmentofficials are among the main difficulties facingthese small garment shops in Juárez. Operat-ing in their favor we find their low costs andorganizational flexibility, which allow them tomeet their customers’ needs quickly. Thus wefound that these plants have implemented tech-niques to improve quality and, most important,guarantee a quick turnaround of orders. Al-though they do not have any grand plans for thefuture, some managers we interviewed expectto open another plant and enter into allianceswith other small firms in the industry.

In sum, we can say that these garmentplants are very different from those examinedabove: They are not maquiladoras, they do notexport, and they serve a strictly local marketniche. Their operation is tightly linked to and

dependent on a dynamic export-oriented indus-trialization model. Unfortunately, they stillface severe limits to their growth, increasingtheir value added, and achieving higher lev-els of vertical integration. These limits are im-posed by lack of credit, cash-flow problemsresulting from customers who are slow to pay,and having to purchase inputs with dollarswhile receiving payment in pesos. Thus wehave a model that, in spite of establishing pro-ductive backward linkages, nevertheless facesserious obstacles to increasing profits, invest-ing in human resources, and realizing highervalue-added activities (Figure .). Figuresfrom the Cámara Nacional de la Industria dela Transformación indicate there were manymore firms in this sector of the local garmentindustry—around forty—than there were inthe maquiladora sector, but average plant sizewas only around ten employees, meaning thatthe total workforce of the sector—fewer thanfour hundred workers—was far smaller thanthat of the garment maquiladoras (Morales, ).

, ,

U.S.A.

MexicoU.S. supplierlocated in Texas

Mexican manufacturer

Mexican supplier

Mexican maquiladora

Non-retail distribution(maquiladoras)

.. Interfirm Networks in Juárez: Vertical Disintegration with Local Linkages

Conclusions

The form taken by local interfirm linkages dif-fers between the two cities we have examined.Moreover, within each city we find differenttypes of interfirm networks. In Monterrey weidentified three types of networks. The kindsof linkages that prevail are related not only toorientation toward the domestic versus theforeign market but also to the type of clientserved and where that client is located. In thisway the most vertically integrated and mostsolidly organized firms that rely on domesticsuppliers of inputs are, somewhat surprisingly,the most vulnerable to the vagaries of thenational market. By contrast, exporting firms,which generally enter the foreign market as away of using excess capacity, produce undercontract for brand-name retailers and receivelower profits but, in exchange, gain access to amarket that is more stable and expanding morerapidly than the Mexican market. Finally, wefound a few enterprises that have been able tosell their own products with their own brandnames on the domestic market, relying ondepartment stores and retail chains for distri-bution. We still do not know if these types ofnetworks also display significant differences interms of their competitiveness and short-termbusiness strategies.

In Ciudad Juárez we identified two types ofinterfirm networks in the textile-apparel com-plex, one with local linkages and one linkedwith firms outside the local community. Themore locally linked network has auto-parts andelectronics maquiladoras as its major clients.This network is based on an intersectoral rela-tionship where the customer (a subsidiary of aforeign auto-parts or electronics firm) hooksup with local Mexican suppliers of uniformsand other products from textile manufacturers.In the second type of interfirm network, plantsproduce exclusively for export. Here we aremainly talking about foreign-owned maquila-

doras with little product specialization thatsupply department stores and other name-brand apparel markets.

Export maquiladoras in Ciudad Juárez ex-hibit market behavior that is similar to othersectors, namely, they are internationally com-petitive; rely on U.S. firms to market theirproducts; and base their competitive strategieson price, quality, and quick, reliable delivery.There also exists another segment that is muchmore dependent and vulnerable and has littlepotential to develop greater value added.These small nonmaquiladora firms produceindustrial uniforms, robes, and the like forlarge-scale auto-parts and electronics maquila-doras, but they lack security in the market-place. Such enterprises are seriously limitedgiven that () they purchase imported inputsin stores in Juárez or directly in El Paso, Texas(where they pay in U.S. dollars); () they arepaid by clients in pesos (in spite of the factthat these clients are, by and large, subsidiariesof U.S. companies); and () in effect they areobliged to extend credit to their maquiladoraclients insofar as they are paid up to ninetydays after delivery of an order. When theseproblems are added to low profit margins, alarge number of competitors, the unavailabil-ity of credit, and the constant pressure fromclients to lower costs, the combined effect is tomake these plants among the most unprotectedin the industry along the border. These indi-rect suppliers are convinced that increasedinterfirm collaboration is the only way toovercome the limitations associated with theirsmall size. Unfortunately, no plans exist, eitheron the part of firm owners or on the part of thegovernment, to promote mergers or alliancesamong firms in this sector that would allowthem to achieve economies of scale that couldimprove their competitiveness.

In this sense, we have two completely differ-ent textile-apparel industries in Ciudad Juárezand Monterrey, not only in terms of the market

they serve but also in how they connect withtheir respective markets. The distinct types ofinterfirm networks that we have found in thegarment industry in two Mexican cities allowus to conclude that even among manufactur-ers of similar products, important differencesexist not only in terms of the structure of es-tablishments but also in terms of their poten-tial for upgrading and expansion.

In conclusion, we note how the complexityof industrial processes can confound develop-ment theory. The maquiladora model (under-stood as third-party international subcontract-ing) is supposedly more vulnerable to economicfluctuations than the model of vertical integra-tion. Our results demonstrate the opposite—namely, that in a situation of economic open-ing and integration, it is the maquiladoras thatare more stable. In the same way, and accord-ing to the logic of organizational development,the maquiladora model purportedly generatesless value added and does a poorer job of pro-moting local industrial development than mod-els based on OEM or, especially, OBM. Theresults from Monterrey suggest that OBMfirms have had to abandon their own labelsand convert themselves partially or totally intomaquiladoras. In other words, instead of hav-ing upgraded and converted themselves intoOBM firms for the international market, theyhave “devolved” and become internationalsubcontractors that nevertheless have improvedtheir competitiveness and profitability for hav-ing done so. In addition, we find that the nichefor locally owned and operated garment shopsin Ciudad Juárez is directly dependent on themaquiladora sector of the auto-parts and elec-tronics industry there.

During the s, Mexico tried to developefficient industrial agglomerations in the formof interfirm networks, production and mar-keting collaborations (empresas integradoras),and industrial clusters.16 This was done withthe direct support of all levels of government

as well as of local institutions that participatein these types of initiatives, such as educationalinstitutions, trade associations, and consultingfirms. The main objectives were to developsuppliers and to increase value added in thesector through industrial upgrading in specificregions of the country. In spite of importantadvances made in some localities such as Mon-terrey and Ciudad Juárez, policy makers haveheretofore given too little attention to the de-velopment of existing production niches occu-pied by local firms. Such development, unfor-tunately, is not and has not been a priority forlocal and sectoral policy makers. Moreover, thecompetitive pressures introduced by NAFTAand Mexico’s world trade policies present newchallenges to the survival of many domestic gar-ment producers. It remains to be seen whethernew industrial policy initiatives will be able torescue these firms and the niches they occupyfrom extinction.

Notes

Acknowledgments. The authors thank David Spe-ner, Gary Gereffi, and Jennifer Bair for their care-ful reading of earlier drafts of this chapter. Trans-lated from Spanish to English by David Spener.

. The “import-substitution industrializationmodel” refers to a set of policies widely adopted inLatin America from the s through the sand s (depending on the country). The mainobjective of the model was to foster industrializationby producing domestically goods that would other-wise be imported. Imports were discouraged througha variety of tariff and nontariff barriers, and thestate played a major role in directing the industri-alization process and picking the “winners,” that is,the sectors and firms that benefited most from thesepolicies. See Villarreal ().

. A grupo is a set of closely related firms thattypically belong to several related families. Not onlyare the related firms integrated into the grupo, butthe bigger grupos also often own large shares in

, ,

banks. ALFA consists of twenty-two enterprisesdedicated to diverse production activities, includingiron and steel; wood, paper, and cellulose; petro-chemicals; and textiles. VITRO is composed offorty-nine enterprises and five joint ventures thatproduce various types of glass, plastics, and non-metallic minerals, as well as several service enter-prises (Pozas ).

. The plan was known as FICORCA, or Fidei-comiso para la Cobertura de Riesgo Cambiario(Exchange Rate Risk Trust Fund).

. According to the Censo Industrial de Chi-huahua, without taking into account maquiladoras,employment in branch , production of textilematerials, grew in Ciudad Juárez from ,

employees in to , in , while in gar-ment assembly employment declined slightly, from, to , employees.

. The government’s industrial policy project isknown as Chihuahua Siglo XXI (DRI/McGraw-Hill and SRI International ).

. Since our sample was not drawn strictly at ran-dom, the relatively high incidence of men workingin these plants should not be taken as representativeof the gender distribution of garment employmentas a whole in either Monterrey or Ciudad Juárez.

. Carrillo, Mortimore, and Estrada () re-port that of the seventeen maquiladoras they stud-ied in (five television maquiladoras in Tijuanaand twelve auto-parts maquiladoras in various bor-der cities), managers at percent of the plantsindicated that their plant competitiveness had im-proved from to .

. We constructed the global competitivenessindex using a factor analysis that included per capitasales, the sales growth rate, capital investment perworker, percent of production exported in ,

and the export growth rate. Values for the indexrange from � to �, such that � is perfectlyuncompetitive and � is perfectly competitive.

. The modernization index was constructedusing percent of equipment that is automated, per-cent of expenses dedicated to research and devel-opment, certification processes, and use of special-ized work organization techniques.

. The employment index was constructed bycombining previous indexes, using in this case fourvariables: wages, union density, training hours, and

turnover. Higher wages, higher levels of unioniza-tion, more training hours, and lower turnover indi-cate better employment quality. Values for the indexrange from � to �, such that � denotes theworst employment quality and � the best.

. If these percentages seem low, we mustremember that we are talking about small- tomedium-scale enterprises, the great majority ofwhich are domestic (eight of eleven in Juárez andall fourteen in Monterrey). There exists a clear ten-dency in the electronics and automobile industries,and to a lesser degree in the garment industry, tocertify quality-control processes. These certifica-tions represent a great commitment on the part offirms to standardize their quality-control processesand enter into continual upgrading. Certificationhas an important impact on work since all membersof the organization are obligated to participate inthis process.

. “Statistical process control” (SPC) is amethod for checking the quality of products througha random sampling process generated by computer.Originally tested in the United States during thes, the technique later was successfully adoptedby Japanese firms. “Total quality management” is aphilosophy and set of practices developed by Japa-nese firms to ensure that high levels of quality char-acterize the final product, the manufacturing pro-cess, and the employee’s contribution to that process.

. Some of these enterprises also produce forservice-sector businesses. These plants make othergarments such as pants, shirts, and overalls, but foranother type of client.

. Rinbros is a well-known brand in Mexico.. These maquiladoras produce TV sets and

auto parts such as seat covers, wire harnesses, andelectronic sensors.

. By “clusters” we here mean linkages amongfirms in the same sector in the same geographicregion (Humphrey and Schmitz ).

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Part IVInterior Mexico

Gary Gereffi, Martha Martínez, and Jennifer Bair

Torreón: The New Blue Jeans

Capital of the World

The Maquiladora Debate in Mexico

The North American Free Trade Agreement(NAFTA) has dramatically increased the ex-port dynamism of the Mexican apparel indus-try. The sheer increase in the country’s cloth-ing exports to the United States, from $.

billion in to almost $. billion in , isimpressive evidence of this claim. NAFTA hasalso promoted the consolidation of apparelexport-production centers. This chapter con-centrates on one of these production centers,the Torreón region, which has been called thenew blue jeans capital of the world.

Torreón is a dynamic industrial cluster offive hundred thousand people located in thenorthern Mexican state of Coahuila, about fourhours by car from the Texas portion of the U.S.border. It is located in the heart of La Lagunaregion, well known for its cotton and dairyproducts. Torreón’s apparel industry as dis-cussed in this chapter is actually a cluster ofthree cities, as it straddles the nearby munici-palities of Gómez Palacio and Lerdo in theneighboring state of Durango. Following aneconomic recession in the early s, Torreónhas been one of the main beneficiaries of Mex-

ico’s recent export boom. Although Torreón isalso home to other export-oriented manufac-turing sectors, such as auto parts and machin-ery, the apparel and textile industries have beenthe star performers in terms of export growthand job creation.

Despite these undeniable gains, a verdict onthe consequences of NAFTA for both Torreónand Mexico has yet to be reached. Much of thedebate about NAFTA in academic and policy-making circles on both sides of the border hasaddressed the question “Is NAFTA good pol-icy, and if so, for whom?” The maquiladoraform of production occupies center stage inthis debate. Maquiladoras are factories thatassemble products for export from importedcomponents that enter the country duty-free.Proponents of the maquiladoras assert that thesystem is a valuable source of export revenueand job creation for Mexico. The program’s crit-ics, however, see it as the ultimate example of a“new international division of labor” that trapsdeveloping countries in the dead-end role of pro-viding cheap labor for low-value-added assemblyoperations. Because the vast majority of inputsassembled into final products in the maquila-doras are imported,1 the maquiladoras do notstimulate growth in the rest of the economy.

This debate rests implicitly on three as-sumptions: () that the change in Torreón (andin other Mexican production centers) fromlocal production to export manufacturing is adirect consequence of NAFTA; () that theunavoidable consequence of the free-tradeagreement is the maquilization of Mexico; and() that maquiladora production does not pro-mote development. These assumptions concealand oversimplify the dynamics of export in-dustrialization and regional development inMexico. The question should not be whetherNAFTA promotes Mexican development butrather under what conditions particular regionsin Mexico benefit from free trade. Is NAFTApromoting the maquilization of Mexico, and ifso, which factors could be expected to lessenthis effect? What role does foreign capital playin establishing favorable or unfavorable condi-tions for local firms? How do local institutionsand conditions mediate this process?

Before answering these questions, it is nec-essary to identify what it is about the maquila-dora production system that creates undesirabledevelopmental outcomes. Mexico’s maquilado-ras are foreign- or domestically owned factoriesthat traditionally have been geared toward as-sembling products for export from importedcomponents. These inputs are imported toMexico duty-free, and when the assembledproducts are exported after assembly, only aminimal duty is assessed on the value added inMexico, chiefly labor. Maquiladoras exist in anumber of manufacturing sectors, although themain products assembled in maquiladoras areautos and auto parts, consumer electronics, andapparel. Although the maquiladora system be-gan with the U.S.-Mexico Border Industrial-ization Program in , most of the growth inmaquiladora production has occurred since themid-s. The program initially applied onlyto in-bond factories located along Mexico’s nor-thern border, but this geographic restriction hassince been eliminated and maquiladoras cur-

rently are located throughout the country. Be-cause of the labor-intensive, low-value-addednature of maquiladora production, critics arguethat this system promotes almost no industrialupgrading or technology transfers, createsminimal linkages to the local economy, andgenerates very little wealth that can be retainedin the country.

In contrast to this traditional view of themaquiladoras, a revisionist perspective aboutthe significance of this export-oriented sectorfor Mexican development emerged in the lates and early s. Researchers began tocall attention to a so-called second generationof maquiladoras. Although local inputs to theproduction process remained low, the mix ofactivities being performed by Mexican work-ers in the maquiladoras became more diverse,expanding beyond low-value-added assembly.The empirical focus of this research includedproduction of auto parts in northern Mexico,televisions and other electronics in Tijuana,and computers in Guadalajara. In each of theseindustries, scholars argued, the maquiladoraswere maturing from assembly sites based oncheap labor to manufacturing and even profitcenters whose competitiveness lay in a com-bination of high productivity, good productquality, and wages well below those prevailingnorth of the border (Shaiken ; Gereffi; Carrillo ).

NAFTA presents yet another twist in theongoing maquiladora debate. Because NAFTAremoves most of the restrictions on backwardand forward linkages between the maquila-doras and national firms, the enclave nature ofthe maquiladoras could change as export-oriented plants become more integrated intothe rest of the economy. In effect, NAFTAlevels the playing field and allows all compa-nies to set up the same kinds of cross-borderproduction networks that traditionally charac-terized only the maquiladora sector.2 Thesedevelopments present two scenarios, which are

, ,

reflected in the literature on the maquiladorasector in the era of NAFTA. Some see re-gional integration as an opportunity for a widearray of Mexican firms to attain the produc-tivity and quality levels associated with thecountry’s leading maquiladoras and thereforeto increase their competitiveness in foreign(primarily U.S.) markets. Others argue thatNAFTA further exacerbates the existing asym-metries in Mexico’s industrial landscape, withlarge U.S. firms standing to obtain all the mainbenefits that NAFTA provides. Instead ofexpecting the maquiladora sector to becomeintegrated with the rest of the Mexican econ-omy, this camp predicts the “maquilization ofMexico,” whereby the entire country is con-verted into a site for low-value-added export-oriented production for the U.S. market, to thebenefit of foreign capital and the detriment ofnational firms and Mexican workers (DusselPeters ; Tardenico and Rosenberg ).

Our own research suggests that Mexico ingeneral and Torreón in particular appear to bemoving away from typical maquiladora manu-facturing toward a more integrated form offull-package production. Instead of just doingassembly, firms in Torreón are performing allthe other required manufacturing activities,including the purchase and production of rawmaterials, cutting, laundering, finishing, and,to a lesser extent, distribution. This new full-package system differs from maquiladora pro-duction in terms of both external linkages andlocal linkages. As apparel production in theTorreón region moves from maquiladora tofull-package manufacturing, we expect to seea transformation in the relationships betweenTorreón suppliers and their American clients.Linkages among local firms, which are nonex-istent under the maquiladora system, shouldbecome more salient. Full-package productionforces local firms to develop ties with suppli-ers and subcontractors (both local and foreign)in order to satisfy the demands of marketers

and retailers, which generally do not engage inany production activities.

Although in an era of globalization bothlocal and external linkages are vital for thesurvival of firms, there is no integrated frame-work that analyzes their interplay. The globalcommodity-chains literature, with its distinc-tion between producer-driven and buyer-drivencommodity chains (Gereffi ), suggestsmultiple models of export-oriented industrial-ization. Development outcomes depend largelyon the type of industry and the type of leadfirm coordinating the international trade andproduction networks that are dominant duringa particular phase of a country’s developmentstrategy (Gereffi and Wyman ). In thesame way, the movement of a country or a firmfrom one segment of the commodity chain toanother explains changes in profit margins,quality of jobs, and technology transfers, amongother factors. While producer-driven chainshave received significant scholarly attention inresearch on large, integrated multinational cor-porations, the dynamics of buyer-driven chains,such as the ones responsible for Torreón’s rapidgrowth as a jeans-production center, are lesswell understood despite their growing impor-tance in terms of Mexico’s export-orientedstrategy.

The importance of local linkages is ad-dressed by the industrial-districts literature.The original industrial-district model wasbased on the Emilia-Romagna region—the so-called Third Italy—where small and medium-sized enterprises with a craft tradition in prod-ucts such as footwear and apparel organizedinto geographically concentrated and sectorallyspecialized clusters. The advantages providedby participation in the clusters allowed thesesmall-scale manufacturers to compete success-fully in global markets on the basis of highquality and flexible specialization. Features ofthis model include high wages for a local work-force with strong skills, significant horizontal

:

networks between firms within the clusterbased on cooperative competition, and sup-portive government policies and institutionalinfrastructure. The ability of industrial dis-tricts to succeed in global markets despite highlabor costs led to the conclusion that theseclusters represented a “high road to competi-tiveness” for firms and workers in developedcountries (Piore and Sabel ; Pyke and Sen-genberger ; Humphrey ; Markusen).

The global commodity-chains and indus-trial-district frameworks are complementary.While the former concentrates on the powerdynamics created by global production systemsand the consequences of having a particularlocation within these systems, the latter fo-cuses on the local linkages that can be used tocreate competitive advantages in a global econ-omy. Development outcomes depend not onlyon the dynamics of the global economy but alsoon the local resources (social, material, finan-cial, or institutional) that are available or can becreated. A change of the maquiladora systemwould necessarily imply transformations inboth internal and external linkages in order tomove toward higher-value activities and po-sitions. The rest of this chapter attempts toshow how Torreón’s blue jeans firms have beentransformed from producers for the domesticmarket to maquiladora exporters, then to full-package exporters and, possibly in the future,to lead firms. Particular attention is placedon comparing the network arrangements, bothlocal and international, related to the Torreónregion under the maquiladora system and un-der the new model of full-package produc-tion. Finally, once we have established howmuch Torreón’s production setup differs fromtypical maquiladoras, we discuss the conse-quences of such a system on key developmen-tal variables: local linkages, technology trans-fer, employment, wages, working conditions,and rural-urban disparities.

Methodology

We conducted our fieldwork in Torreón inJuly and July .3 Open-ended strate-gic interviews with Mexican-owned, U.S.-owned, and joint-venture firms, industry asso-ciations, and local government organizationswere coupled with plant visits and the use ofsecondary materials to document recentchanges in the industry. Our initial contactswith major export firms in Torreón weremade through earlier interviews with U.S.-based textile manufacturers, apparel compa-nies, and retailers. This strategy enabled us toidentify and interview the majority of Tor-reón’s leading textile and apparel manufac-turers, as well as a number of their second-tiercontractors.

Our sample included nine apparel compa-nies and two textile mills. Although around different apparel firms operate in theTorreón area, the nine companies included inour sample directly produce or coordinatearound one-third of the total production ofthe region. Given the disproportionate roleplayed by leading firms in the sector and ourinterest in understanding the power dynamicsthat exist in the industry, our oversampling oflarge and foreign firms is justified. We shouldnote, however, that additional research isneeded to complement our findings in termsof wages and working conditions in the fac-tories that occupy the lowest tier of Torreón’shierarchical production and subcontractingnetworks.

This method is superior to random sam-pling techniques for two reasons. First, a rel-atively small number of firms in the UnitedStates are driving the restructuring of theNorth American apparel commodity chain,and our approach allows us to identify thesefirms and the companies they work with inspecific sites such as Torreón—in terms ofboth their main suppliers or partners in the

, ,

local cluster and the tiers of smaller subcon-tractors that are not linked directly to the U.S.market. Second, this approach guarantees usbetter access to these firms since we do notcontact them “cold” but rather are referred tothem by a company we have already inter-viewed higher up on the commodity chain,another local firm in the cluster, or the localchamber of apparel manufacturers.

Interviews were conducted primarily inSpanish on-site with the company’s plantmanager, director of foreign operations, orowner, depending on the firm, and they lastedan average of two hours. The interviews werefollowed by a tour of the production facilities.In Torreón these included, in addition to thetraditional sewing factory associated withapparel production, textile mills; laundries;finishing plants where the garments arepressed, inspected for quality, and packed; anda distribution center. As well as providing anopportunity to evaluate the working condi-tions and industrial relations, these tours per-mitted us to speak with additional informants,such as production trainers and line supervi-sors, whose perspectives on the operationcomplement the data collected in the initialinterview.

We conducted strategic interviews with leadfirms in the United States as well as with ourinformants in Torreón. The strategic inter-view is a semistructured interview format anddiffers from a traditional survey-style inter-view in that there is no standardized ques-tionnaire. Rather, the interviewers use a pro-tocol that lists key questions as a template toensure that critical issues are addressed witheach respondent. The questions listed in theprotocol are open-ended, and the protocol isnot intended as an exhaustive list of the top-ics the interview will address. Instead, thesequestions are used as probes that help theinformant understand the kind of informationthe interviewer is interested in.

Torreón’s Emergence as the NewBlue Jeans Capital of the World

At the time of our fieldwork in July , theTorreón area was producing an average of million pairs of jeans a week. In contrast, El Paso, Texas—a major production center forLevi Strauss and Company and Torreón’spredecessor as the blue jeans capital of theworld—produced only million pairs of jeansa week at its peak in the early s. To keeppace with this dramatic increase in production,employment in Torreón’s approximately

apparel factories had also grown considerablyfrom twelve thousand jobs in to sixty-fivethousand in .

There are several reasons for Torreón’s ex-port success. Although not located along thenorthern border where the country’s in-bond,export-oriented maquiladora sector has his-torically been strongest, Torreón is still closeand well connected to the United States. Thisgives it a distinct advantage over other pro-duction sites in the interior of Mexico, partic-ularly since quick turnaround time and reliabledelivery of even basic apparel products such asblue jeans (which are not generally consideredto be high-fashion items) are critical for U.S.retailers and manufacturers. The Torreón areahas a significant cotton textile tradition, whichis allowing the site to emerge as a model ofintegrated manufacturing, with denim pro-duction and apparel assembly occurring in thesame Mexican cluster.

This dynamism in the export of jeans is arelatively new phenomenon in the Torreónregion. In , Torreón produced only fivehundred thousand pairs of jeans a week, mostof them under the provisions of the ⁄

maquiladora program4 and mostly limited toassembly activities. Apparel export manufac-turing became important for the region onlyin the mid-s. Prior to that time, apparelproduction was almost exclusively dedicated

:

to the domestic market. The blue jeans indus-try in Torreón since has undergone a series ofshifts: from local production to maquiladoraexporting to full-package manufacturing. Fourhistorical factors have driven this evolution:

. the peso devaluations;. the implementation of NAFTA and the

subsequent elimination of tariffs and tradebarriers;

. the presence of new organizational buyers,especially retailers and brand marketers;and

. the existence of local capital and expertiseapplied to apparel production.

The effects of each these factors are explainedin the subsequent sections.

The Peso Devaluation Effect

The Torreón region has a strong tradition inthe apparel and textile industry. Textile millshave been located in the region since the latenineteenth century. During the s ands companies such as Fábricas El Venado,Fábricas de Ropa Manjai, Metro, and Gua-diana were founded to satisfy the need of thenational market for work clothes, particularlyfor rural settings. These companies specializedin the production of jeans and other denimitems. During subsequent decades, as jeansevolved from being “work clothes” to an objectof fashion and moved from rural communitiesto the streets of cities, local companies devel-oped their own brands (e.g., Jesús, MedallaGacela). Under the import-substitution strat-egy, which prevailed in Mexico from the sthrough the s, there was little interna-tional competition, and Mexican suppliersdominated the domestic market.

The Mexican peso crises in , , and and the subsequent hyperinflation changedthe environment for these companies. Since theywere totally dependent on the local market, the

reduction in buying power and the related con-traction of local demand jeopardized their in-come. However, inflation affected these com-panies in a more fundamental way. The jeansindustry requires the availability of workingcapital to acquire the raw materials and labornecessary for production; this working capitalis recovered by selling the jeans (plus a profit),and then the production cycle begins again. Butjeans manufacturers must wait a period of time(generally a month) to receive payment for theirproducts. Under conditions of hyperinflation,the money received for a pair of jeans produceda month ago may not be enough to make a newpair of jeans now, which left manufacturingunprofitable and impossible to sustain.

The only viable option for the survival ofthese companies was to redirect their effortsfrom a stagnant local market to the more solidU.S. market. Export prices are set in dollarsand therefore are not affected by the changesin a volatile economy. However, this shift inorientation had its downside for Torreón com-panies. Although these firms performed allproduction activities related to the manufac-turing of jeans (assembly, cutting, laundering,finishing, marketing, and design), they discov-ered that their quality was not up to interna-tional standards. Torreón firms were unable tooffer full-package production with the qualityrequirements of the American clients. For thisreason the few companies that managed to sur-vive had to specialize in assembly and becamemaquiladora subcontractors for American man-ufacturers such as Sun Apparel, Levi Straussand Company, and Farah. This transformationmeant, in reality, a de-skilling and a reductionin the value added by Torreón firms.

Although this reorientation toward the inter-national market signified an increased depen-dency on American manufacturers and brokers,the basis for an export boom in the region wasbeing created. Even though they concentratedon sewing, Torreón firms learned how to man-

, ,

ufacture quality products and deliver them ina timely fashion. Lead firms such as Sun Ap-parel played an active role in “pushing” Mex-ican suppliers to meet international standardsand to increase their production capacities,which helped them to become full-packageproducers.

The Mexican peso devaluation crisis inDecember , after three years of relativestability, had mixed effects on the blue jeansindustry. The exchange rate jumped from .

pesos per dollar in December to . pesosper dollar in January (IMF ). For

the apparel industry the immediate conse-quences of the devaluation were an increase inthe number of U.S. clients interested in theTorreón region, an increase in the number ofMexican apparel assembly plants, and anincrease in the production capacity of alreadyexisting firms. Table . shows that prior to only four U.S. manufacturers—Farah,Sun Apparel, Wrangler, and Levi Strauss andCompany—had a significant presence in theregion. By the number of clients hadgrown to more than two dozen. At the sametime the number of jeans manufactured in the

:

.. Main Clients for Torreón Apparel Exports

Type of Clients 1993 1998

Manufacturers Farah (M) Sun Apparel–Jones of NY (BM, M)Sun Apparel (M) Aalfs (M)

Kentucky Apparel (M)Grupo Libra (M)Siete Leguas (M)Tarrant (M)Tropical Sportswear (M)Red Kap (M)

Brand Marketers Wrangler (BM,M) Wrangler (BM,M)Levi Strauss and Company (BM,M) Levi Strauss and Company (BM,M)

Action West (BM,M)

Polo (BM)Calvin Klein (BM)Liz Claiborne (BM)Old Navy (BM)Tommy Hilfiger (BM)Donna Karan (BM)Guess? (BM)Chaps (BM)

Retailers Gap (BM,R)The Limited (BM, R)

Kmart (R)Wal-Mart (R)JCPenney (R)Sears (R)Target (R)

Note: Firms aligned to the right are hybrids.

M, Manufacturers; BM, Brand Marketers; R, Retailers.

region jumped eightfold, from , to million pairs per week (see Table .).

The NAFTA Effect

The maquilization of apparel activities in theTorreón region was primarily due to the Mex-ican peso devaluations and not to NAFTA.What, then, was the effect of NAFTA on theindustry? The most elementary consequencewas a change in the rules of the game for pro-ducers in Mexico. For the apparel industry,NAFTA meant the progressive elimination ofU.S. tariffs and nonmonetary barriers to allapparel production activities, including laun-dering, cutting, and finishing, as well as theuse of Mexican inputs such as textiles (denim),buttons, labels, and so forth. For the globalapparel industry, NAFTA meant a transfor-mation, at least potentially, of the cost struc-ture of production. For the first time activitiesother than assembly could be performed in

Mexico without the restrictions created by thequota system or the ⁄ program. Thecost reductions that NAFTA made possibleprovided a rare window of opportunity toobtain a competitive advantage. Companiesthat decided to move their operations to Mex-ico around or shortly after the implementationof NAFTA would enjoy lower productioncosts than other companies.

Figure . shows how these new condi-tions reoriented production activities in theTorreón region. In the region was dedi-cated exclusively to apparel assembly. By

Mexican-made denim, trim, and labels wereused for blue jean exports, and laundering andfinishing were also carried out in Mexico. By cutting and distribution were establishedin the region as well. However, Figure .

indicates that marketing and retail, the mostprofitable activities in the apparel industry,are still exclusively performed in the UnitedStates. This deepening of the apparel com-

, ,

.. Apparel Industry Indicators for La Laguna Areaa

Variables 1993 1998

Apparel Employment 12,000 65,000

Output of Jeans (pairs per week) 500,000 4 million

Output per Company (pairs per week) Max. 50,000 Max. 230,000

Mexican Denim in Export Production 1–2% 5%

Assembly Price per Piece U.S.$0.90–1.10 U.S.$1.20–2.05

U.S. Retail Price U.S.$10–40 U.S.$10–80

Activities with Mexican Ownership Assembly AssemblyLaundryCuttingFinishingTextilesTrim and LabelsU.S. Sales Offices

Types of Companies Specialized Apparel Firms Diversified Corporate Groups andTextile Exportersb

Regulation of Work Conditions Mexican Legislation Mexican Legislation and Foreign Buyers’ Codes of Conduct

aTorreón is the center of La Laguna, a highly integrated economic region formed by two additional cities, Gómez Palacio and Lerdo,and several rural communities. Although each city is a distinct political entity, together they form an integrated production zone.

bExamples of these new companies are Grupo Lajat, Grupo Soriana, and textile producers such as Parras-Cone and Textiles Lajat.

modity chain in Mexico suggests that NAFTAhas allowed Mexico to develop full-packageproduction capabilities, where not only assem-bly but all other required manufacturing activ-ities, including the production and purchaseof raw materials, are performed within thecountry. It is important to note, however, thatthe capability to carry out all manufacturingactivities in the making of a pair of jeans doesnot by itself constitute full-package produc-tion. An additional activity, which is usuallydifficult to locate in a value-added chain, is thecoordination of all production activities in orderto offer clients a finished product. This raisesa new factor that has intensified the coordina-tion functions in the Torreón region: the ex-plosive growth in the volume of orders placedby U.S. retailers and brand marketers.

New Organizational Buyers and the Move to Full-Package Production

The ⁄ model of export production be-fore NAFTA was linked to large U.S. apparel

manufacturers that provided the inputs forMexican assembly. The possibility of lower-cost full-package production after NAFTA en-ticed U.S. retailers and marketers to considerMexico as an alternative to Asia for their sourc-ing needs (Gereffi ). Table . not onlyshows an increase in the number of U.S. clientswith operations in the region but also high-lights the entrance of new kinds of players:brand marketers (who develop distinctivelabels, such as Nike, Tommy Hilfiger, and LizClaiborne) and retailers. Both retailers andmarketers require full-package supply becausethey dedicate themselves to design, distribu-tion, and marketing rather than to productionactivities.

Besides creating demand for full-packagesupply, retailers and marketers have trans-formed Torreón’s production patterns in threefundamental ways. First, they introducedhigh-volume orders to the region. In thebiggest firms could assemble a maximum of, pairs of jeans per week. In , SunApparel and its subcontractors produced

:

Textiles Trimand

Labels

Cutting Assembly Laundryand

Finishing

Distri-bution

Marketing Retail

U.S.A.

Mexico

1993

Textiles Trimand

Labels

Cutting Assembly Laundryand

Finishing

Distri-bution

Marketing Retail

U.S.A.

Mexico

1996

Textiles Trimand

Labels

Cutting Assembly Laundryand

Finishing

Distri-bution

Marketing Retail

2000U.S.A.

Mexico

Activity notperformed

Activityperformed

.. Apparel Commodity Chain: Activities and Location

, pairs per week in Torreón alone, justunder half of Sun Apparel’s total jeans pro-duction in Mexico. Despite this tremendousjump in capacity, Torreón firms are still expe-riencing pressure to keep growing. For exam-ple, Original Mexican Jean Company (OMJC)and Siete Leguas are two of the jeans manu-facturers in the region, and they both dedicatemost of their production (all of it in the caseof OMJC) to manufacturing jeans for JCPen-ney’s private-label Arizona brand. With a jointproduction capacity of , pairs of jeansper week in , both companies plan to dou-ble their production capacity in the near future.

The second transformation is the manufac-turing of more-expensive and higher-qualityjeans. In the maximum retail price of apair of jeans assembled in the region fluctuatedaround U.S.$; this price increased to $ in. Since the piece rates for local as-sembly have risen in part because of the in-creased demand but also because of the pro-duction of jeans with higher retail prices.

The third factor is the introduction ofbranded apparel. One important characteristicof the leading firms is that they base their com-petitive advantage on the power of their brandsand the images they create. Companies such asLiz Claiborne, Calvin Klein, and Donna Karan,and even retailers such as JCPenney, Kmart,and Sears, try to distance themselves from theoften exploitative conditions in maquiladoraproduction because they are concerned abouttarnishing their image among consumers (seeGereffi, Garcia-Johnson, and Sasser ).

As a result of these factors, production inthe Torreón region has dramatically changed.Table . offers several indicators of this trans-formation in the region. In the Torreónarea produced million pairs of jeans per week,with at least percent being full-package pro-duction. Although no accurate estimate can beprovided, the rest of production is moving towhat is locally known as “half-package”—thatis, the assembly, cutting, laundering, and fin-

ishing of jeans is performed locally but theinputs, such as denim, trim and other materi-als, are provided by the U.S. client.

The Role of Local Capital and Knowledgein Torreón’s Development

All three factors mentioned above are to a cer-tain degree external to the Torreón region.However, local industrial development, evenafter the implementation of NAFTA, is alsodependent on the resources and characteris-tics of the Torreón cluster, as well on thestrategies and decisions taken by specific localfirms. Brand marketers and retailers have“pushed” American manufacturers to movetheir operations to Mexico, but due to anexplosive demand they have also “pulled”Mexican firms to increase their productionvolumes and their range of activities. The exis-tence of local knowledge and capital has al-lowed Torreón firms to take advantage of theopportunities created by the demand for full-package production.

Torreón firms after the s crisis wentthrough a process of recovery. Although thelegislation that made maquiladoras possible hadexisted since , firms in Torreón had usedthis export system only when the local marketconditions were unfavorable. In a historicalcontext, the reorientation toward maquiladoraproduction meant a momentary relapse for theregional industry. Mexican firms lost status andcontrol, and they were also forced to reducetheir value added. The knowledge acquired inmore than thirty years of apparel productionstopped being useful to them during thisperiod. However, NAFTA and the related en-trance of new organizational buyers made itpossible for the few traditional companies thatsurvived the turbulent times to use the expert-ise developed during their years of makingapparel for the local market. Grupo Libra andSiete Leguas are two examples of companiesthat were established decades before NAFTA,

, ,

when Mexico was still pursuing an import-substitution strategy. Both managed to survivethe turbulent s, emerging as full-packagesuppliers for U.S. clients.

Grupo Libra has demonstrated great flexi-bility in adapting to changing environments.By the late s and early s, Libra wasbeginning to see the potential in the interna-tional market. When the crisis of hit theMexican economy, percent of Libra’s cus-tomers were American firms. By , Librawas already offering full-package productionin addition to its assembly services. GrupoLibra benefited greatly from the export boom.It has become the second largest manufacturerin the Torreón area, with a local productioncapacity of two hundred thousand pairs ofjeans per week. Since the firm has dedi-cated itself exclusively to full-package pro-duction and has developed distribution sys-tems to manage and replenish the stock ofsome of its U.S. clients. Libra is perhaps theonly Mexican firm seriously to consider buy-ing or developing its own brands in order todirectly enter the American jeans market.

Siete Leguas represents a similar successstory. Founded in as a producer of jeansfor agricultural workers, the company did notreorient itself to the export market until .

Although it had always been a relatively smallcompany (producing , to , jeansper week in ‒), by its productioncapacity was reduced to , pairs per week.The company’s first American customer wasAction West, although this association lastedonly for three months. At that time SunApparel arrived in the Laguna region andoffered a better deal. During its associationwith Sun Apparel, Siete Leguas not onlylearned international quality standards but alsoincreased its production from , to ,

pairs of jeans per week. No longer in asso-ciation with Sun Apparel, the firm has con-structed its own facilities for cutting, launder-ing, and finishing jeans. With a production

capacity of , pairs of jeans per week,Siete Leguas is widely recognized as the oneof the best and most innovative apparel pro-ducers in the Torreón region.

Besides local expertise in the apparel indus-try, an important characteristic that has allowedMexican firms and communities to take advan-tage of free trade is the existence of significantsources of local capital. The Torreón regionhas highly diversified corporate groups that,although limited in number, are attracted to theapparel industry. Diversified Mexican compa-nies are able to bring capital to the partner-ships, while the U.S. firms bring experienceand knowledge of the American market and itsrequirements for export success. Although it istoo early to assess the extent to which theserelationships will result in skill and knowledgetransfer to Mexican companies, the major in-dustrial groups involved in the Torreón ven-tures are wealthy and sophisticated enoughto potentially buy out their U.S. partners andassume control of the interfirm networks thatlink the Torreón cluster to U.S. buyers.

Together these four factors—the peso de-valuations, the implementation of NAFTA,the entrance of new lead firms, and the exis-tence of local resources—are reshaping theTorreón apparel cluster. How different is full-package production as developed in the Torre-ón region from the traditional maquiladoramodel? A review of network structures in

and provides a good indicator of how muchthe production relationships have changedsince NAFTA.

Pre-NAFTA Maquiladora Production Networks

Many of the disadvantages of the typical ma-quiladora model can be explained by the typesof relationships it fosters among firms. Figure. represents the networks typically formedbetween Torreón suppliers and the U.S. com-panies that placed their orders in , under

:

the provisions of the ⁄ program. Thesimplicity of the model points out exactly whatthe problem is: A few manufacturers and bro-kers provide the orders for a large number ofMexican assemblers. The asymmetry in therelationship is reinforced by several factors.First, the most important survival factor forassembly plants is achieving a continuous flowof orders from U.S. clients, which allows themto maintain constant operations during thewhole year. For U.S. companies, by contrast,one of the main purposes of subcontractingassembly in Torreón under the maquiladoraprogram was to handle seasonal “peaks” indemand, which would make permanent rela-tionships with firms difficult or undesirable.Second, all subcontractors offered the sameservice: assembly. Without the possibility ofdifferentiating themselves from their competi-tors, Torreón subcontractors were easily re-placed. U.S. firms could give orders to certainsubcontractors in April and move them to otherfirms or even different regions in Mexico byMay. Third, the subcontractors have few or nohorizontal ties between them, so no coordina-tion mechanisms are in place to regulate com-petition or to mitigate the consequences of this

unbalanced power distribution. The lack ofhorizontal coordination facilitates the mobilityof the companies placing the orders, allowingthe American firms to “pressure” their sub-contractors in order to obtain lower prices.

Another important problem for Torreónsubcontractors is only partially addressed byFigure .. The network diagram concen-trates on the Mexican firms and their contactswith U.S. clients, particularly manufacturersand brokers. However, the diagram does notshow the firms and networks to which Mexi-can firms do not have access. On the U.S. sideof the border a complex set of activities, firms,and relationships form the structure of the bluejeans industry, especially its high-priced fash-ion segment. A major source of power for theU.S. firms placing the orders was that theymonopolized access to the most profitablenodes in the American market. A handful ofmanufacturers and brokers benefited by serv-ing as a point of contact between the otherwiseunconnected Mexican subcontractors and theirAmerican clients, in particular brand marketersand retailers.

This “structural hole” (Burt ) in thejeans supply chain is based on two dimensions.

, ,

U.S.A.

Mexico

Full-packagenetworks(orders)

Assemblynetworks(cut parts)

Subcontractors

Assembly plants(U.S.- andMexican-owned)

U.S.Manufacturers

U.S.Broker

.. Pre-NAFTA Blue Jeans Assembly Networks

First, there is an absence of skills. By provid-ing only assembly services, Mexican firms wereunable to deal directly with brand marketers andretailers because these companies were lookingonly for full-package suppliers that had theability to manage textiles, cutting, laundering,and finishing. Second, the gap is not only tech-nical but also relational. Torreón subcontrac-tors simply lacked the knowledge of the NorthAmerican apparel supply chain and its mainactors required to generate new options. MostMexican firms, with the exception of GrupoLibra, which was searching for more clientsand had opened sales offices in the UnitedStates, were dependent on the few U.S. manu-facturers or brokers that were actively lookingto subcontract their assembly in Mexico.

Post-NAFTA Full-Package Networks

Four years after the implementation of NAFTA,the network configurations created by the ma-quiladora model and the strategies of U.S.

firms regarding their Mexican subcontractorshad been profoundly transformed. Figure .

indicates just how much network configura-tions in the Torreón region were altered in afew years. Changes occurred in the capabilitiesof the network as well as in the characteristicsof the actors and the structure of the rela-tionships between them. Perhaps the mostimportant feature of the post-NAFTA orga-nizational arrangement is that the part of thenetwork located in Mexican territory is offer-ing full-package production. Under the coor-dination of manufacturers in Mexico, textileproduction, cutting, laundering, and finishingare carried out in order to deliver finishedproducts to U.S. retailers and manufacturers.Some companies, such as OMJC, distributethe jeans directly to American stores and man-age their inventory information.

Although full-package production repre-sents an undeniable improvement in capabil-ities that go well beyond the maquiladora mod-el, a structural gap still exists between the

:

U.S.A.

Mexico

Full-packagenetworks(orders)

Assemblynetworks(cut parts)

Subcontractors

Assembly plants(U.S.- andMexican-owned)

JCPenney Gap

Textile Mills

OMJC

(Joint Venture)

Siete Leguas

.. Post-NAFTA Full-Package Networks in Torreón

networks located in Mexico and those acrossthe border controlled by the U.S. buyers plac-ing the orders. Marketing and design, the twomost profitable segments in apparel, remaincompletely under the control of U.S. compa-nies. Of the largest Mexican-owned apparelfirms in the area, only Grupo Libra andKentucky-Lajat (a U.S.-Mexican joint ven-ture) have sales offices in the United States.No Mexican firm has its own brand in the U.S.market. The next big step for firms located inthe Torreón region is thus to create or acquiretheir own brands so that they can target andcontact prospective U.S. clients directly.

Another salient transformation in local net-works is in the characteristics of the firmsforming the networks. Although the majorityof assembly operations comprised small Mex-ican firms in , a new set of organizationalactors has emerged. American manufacturersthat did not have any significant operations inMexico before the implementation of NAFTAhave moved to Torreón. At the same time,because of the new activities and higher profitmargins of full-package production, diversi-fied Mexican corporate groups are developingan interest in the apparel industry. Both trendshave promoted the creation of new joint ven-tures. For example, one of the firms shown inFigure ., OMJC, the third largest manu-facturer in Torreón in terms of output,5 is ajoint venture between Aalfs, a U.S. apparelmanufacturer, and a Mexican family (theMartín family) that has interests in retail,restaurants, dairy farming, bakeries, andbanks. A more unorthodox joint venture wasformed by Grupo Lajat (which owns LP Gas,a major supplier to Mexico City) and Ken-tucky Apparel in . Kentucky-Lajat waslaunched as a joint venture with production inboth Mexico and United States, in which eachpartner owned percent of the business inboth countries. In July , Grupo Lajatbought out its U.S. partner, and in November

of the same year Kentucky Lajat’s U.S. man-ufacturing operations were shut down.

Grupo Lajat also exemplifies the entrance ofa new kind of player into the Torreón region:textile firms oriented to the export market. Atthe same time that the Kentucky-Lajat jointventure was being established, Grupo Lajat,which has significant investments in cottonproduction in several regions of Mexico, de-cided to establish a textile mill. Textiles Lajatmade around million yards of denim permonth in . Most of this production(around to percent) was destined forproducts exported to the United States. Themill at the time had a total of six or sevenclients; the two other major customers, in addi-tion to Kentucky-Lajat (which bought only

percent of its sister company’s production),were VF Corporation’s Lee and Wrangler.6

The second major textile manufacturer thatproduces much of the denim used in jeans mar-keted under major U.S. brand names is Parras-Cone. This textile mill represents a collabora-tive effort between North Carolina–based ConeMills and one of Mexico’s oldest and largesttextile companies, Compañía Industrial deParras, S.A. de C.V. Their new denim mill,which produced around , yards of denimper month in , is located in the town ofParras, about two hours outside Torreón.

Besides attracting new actors to apparel pro-duction, the fundamental changes that tookplace in the late s have forced companiesthat were established in the region before

to reconfigure their structures and strategies.For some Mexican firms the new conditionshave meant moving up the ladder of apparelmanufacturing. Those local firms that are ableto develop high-quality production and in-crease their capacity and the variety of activi-ties they perform become “hot commodities”for American clients. But what about theAmerican manufacturers that used to hireassembly firms in the region? For them the

, ,

growth in demand and in the number of cli-ents has reduced their control over subcon-tractors and has increased assembly prices.Sun Apparel, Wrangler, and Levi Strauss andCompany have responded to these new chal-lenges not by moving their operations out ofTorreón but by consolidating them.

Sun Apparel responded to the challenge ofreduced control and higher prices by injectingdirect investment into the region and con-structing its own assembly and launderingplants. Although in it still had thirty-onesubcontractors in its supply network, SunApparel directly assembled , pairs ofjeans and laundered , jeans per week(around percent of its exports to the UnitedStates) through its subsidiary, Maquilas Pami.Likewise, Wrangler changed from occasionalsubcontracting to the construction of a high-technology hub and a series of assembly plantsin Torreón’s neighboring rural communities.7

Although Levi Strauss and Company hasavoided setting up its own plants in Mexico, ithas faced the new competitive environmentby dramatically reducing the number of itssubcontractors in Mexico from in to in , even though production capacitywas kept at million pairs of jeans per monthby increasing the size of orders with the re-maining subcontractors. One of Levi’s biggestsuppliers in the Torreón region, Fábricas deRopa Manjai, constructed a new, highly auto-mated sewing, cutting, and laundering facilityin order to meet the demands of high-volume,high-quality production for Levi Strauss andCompany.

The nature of interfirm networks has alsobeen reorganized. First, the emergence ofmore segments of the apparel commoditychain in the Torreón area allows for greaterlocal linkages, as Mexican producers of denim,trim, labels, dyestuffs, chemicals for launder-ing, and so forth are supplying the export-oriented industry. Second, higher demand and

a larger number of possible clients have re-lieved some of the pressures of dependency.Although exclusivity is still important for thesurvival of Mexican firms, particularly in thecase of small assembly contractors, Americanclients are now competing to get the servicesof the best assemblers and manufacturers. Forthe first time Mexican firms can begin tochoose their clients.

Consequences for Local Development

The ultimate critique of the maquiladora isand has always been the exploitation of cheaplabor. Do the new relationships and opportu-nities for Mexican firms that we identify abovetranslate into real advantages for Mexicanworkers? We believe that the full-package sys-tem has clear advantages over maquiladoraproduction. Labor-related benefits of the newsystem can be classified into six different areas:employment; wages and benefits; working con-ditions; upgrading of personnel; unions; andrural communities.

Employment

Between and apparel employmentin the Laguna region where Torreón is locatedincreased percent, while employment incommerce and services grew only percent;construction, percent; and the auto indus-try, percent. The general dynamics of em-ployment in the region can be summarized asfollows:

• Total employment in the region has grownsignificantly ( percent from to ).

• Most of this growth has been concentratedin manufacturing ( percent of new em-ployment created from to repre-sents manufacturing jobs).

:

• Apparel and textiles have become the mostimportant source of employment in theregion.

• As a consequence of this growth, unem-ployment in the city of Torreón decreasedfrom . percent in February to .

percent in December .

In addition to the expansion of employmentopportunities in the Torreón apparel cluster, itis equally important to note that activities asso-ciated with the strengthening of the supplychain—such as textile production, laundering,and cutting—are bringing new types of jobs tothe region to complement the growing num-ber of sewing jobs. These new jobs include notonly basic production activities, such as cuttingfabric, but also the supervisory and technicalpositions needed to maintain highly auto-mated, capital-intensive operations like Tor-reón’s new textile mills. The growth of textileproduction in Torreón is particularly signifi-cant in terms of employment, since textile jobstypically pay more than apparel jobs. Forexample, average hourly labor costs inthe Mexican textile industry were $. anhour, as compared to $. in apparel (WernerInternational, Inc. ).

Wages and Benefits

Workers in the industry are paid according toa piece-rate system whereby they receive a basewage, which is typically a multiple of the localminimum wage, plus additional earnings “perpiece” when they achieve certain productivitylevels or fulfill set production quotas. It iswidely agreed that Mexico’s minimum wage,which varies by geographic region, is not a liv-ing wage, and consequently many companiespay a multiple of it, such as . times thelegally allowed minimum. When we completedour fieldwork in Torreón in July , the localminimum wage was pesos per week. Base

wages in the companies we interviewed gener-ally ranged between and pesos a week,but most workers earned more due to the piece-rate system. Maximum average salaries rangedfrom pesos to pesos a week. The ex-change rate in July was approximately .

pesos to the dollar, meaning that the minimumwage was equivalent to U.S.$. per weekand the maximum salaries ranged betweenU.S.$. and $. a week.

High turnover and a tight labor market inTorreón have been driving wages up in theregion’s apparel plants, and this trend has notgone unnoticed by the factory’s owners. Highand persistent turnover was repeatedly cited inour interviews as the most pressing problemTorreón’s employers face. In the summer of the employers initiated discussions amongthemselves in an effort to find a “solution” tothe problem of wages rising as a result ofTorreón’s increasingly tight labor market. Theemployers particularly wanted to address thepractice of companies pirating away eachother’s workers with wage increases, but at thetime of our fieldwork their efforts in thisregard had not been successful.

Working Conditions

The presence in the region of visible clientswith high investments in their brand namesprompts improved working conditions. Largeretailers and marketers do not want their brandsassociated with the exploitation of workers orwith unsafe working conditions. Companiessuch as the Gap and JCPenney have createdand imposed detailed codes of conduct relatednot only to the final quality of the product butalso to the quality of the process. Any plant orcompany that fails to fulfill these requirements,including compliance with local labor laws,safety practices, and even the conditions of thebathrooms, is in danger of losing its contracts.In addition, since most plants and factories

, ,

have been constructed since , they weredesigned to provide a safe working environ-ment, with proper ventilation, lighting, ergo-nomic equipment, and the like. In general theworking conditions of many of these Mexicanplants are better than those offered by localcompetitors and often are better than those insimilar factories in the United States.

Upgrading of Personnel

The analysis of this dimension is complicatedby the characteristics of the local labor marketand of the industry. Highly competitive labormarkets have forced many companies to slasheducational requirements to a minimum, withsome companies not even asking for basic writ-ing and reading skills. In general U.S. com-panies are more likely to require a minimumeducational level (typically completion of ele-mentary school) than are their Mexican coun-terparts. Given the greater technological com-plexity of textile production, the area’s textilemills are more demanding than the region’ssewing factories, requiring a high school edu-cation for all their workers. Companies pro-vide limited options for upward mobility andrelatively few positions for skilled workers andprofessionals. However, the low educationalrequirements can be seen as favoring the mostimpoverished stratum of Mexican society.Wages are not tied to education but to pro-ductivity, offering an opportunity for the mostdisadvantaged workers in Mexico to earn a de-cent wage. Furthermore companies frequentlyprovide opportunities for workers to continue(or even begin) their education.

Unions

In tandem with the liberalization of the econ-omy, the Mexican government has reduced thepower of unions to a minimum. The role ofunions in the apparel industry in the Torreón

region has been limited in many cases to help-ing the firms and their managers deal withthe workers. Effective representation and col-lective bargaining are virtually nonexistent.Instead, workers exercise their power by mov-ing from one company to another fairly often.They use their mobility as a source of bar-gaining to obtain small wage increases andnonmonetary benefits such as transportation,free lunch, classes, raffles, and prizes. How-ever, this is an advantage contingent on a con-tinued high demand for labor.

Rural Communities

A few manufacturers are evading the turnoverproblem in Torreón by relocating productionto outlying rural areas. Many of the collectivefarms that were a centerpiece of Mexico’s agri-cultural program for decades and that wereprivatized under the administration of Mexi-can president Carlos Salinas de Gortari arelocated around Torreón in the Laguna region.The privatization of these cooperatives, knownas ejidos, has created a supply of landless ruralworkers with few employment opportunities.Consequently, rural communities have becomea dependent periphery, with wages percentlower than in urban areas. Furthermore, ruralcommunities often perform only assemblywork and have no access to the technologicaladvances mentioned above.

Although concerns may be raised about theproletarianization of this formerly agriculturallabor force with the arrival of sewing factories,such objections must be evaluated in light ofthe limited employment and industrializationopportunities available to these communities.8

At the time of our fieldwork, the practice ofrelocating apparel production to these areaswas limited. Around percent of apparel jobsare located in rural communities, while therural labor force represents percent of thetotal labor force in the greater Torreón region.

:

Conclusions

The main conclusion that can be drawn fromthe Torreón case is that the apparel industryin the region is far removed from the standardmaquiladora model. Although the number ofassembly firms has grown considerably in Tor-reón since the implementation of NAFTA in, new developments challenge the “maqui-lization of Mexico” scenario. A comparisonbetween the region today and in , whenthe maquiladora model was dominant, showshow the network linkages, both external andinternal to Torreón, have been profoundlytransformed in less than five years. New typesof organizational actors have emerged, pro-viding additional resources and a wide varietyof organizational strategies and structures.Finally, the combination of full-package net-works, the explosive growth of demand forTorreón’s exports, and the emergence of newactors has contributed to an amelioration inthe conditions for workers. Since these shiftsare quite apparent, two questions become per-tinent: First, if not maquiladora, then whatexactly is the production model in the Torreónregion? Second, is this kind of transformationlikely to occur in other regions of Mexico?

Answering the first question returns us tothe global commodity-chains and industrial-district approaches. Since external as well asinternal linkages have been created in the Tor-reón region, both literatures are relevant forthe description and explanation of changes inproduction relations. In at least one sense,however, the commodity-chains literature bet-ter describes the process and the driving forcesof the transformation to full-package supply inTorreón. (See Bair and Gereffi for a moredetailed analysis of these issues.) The estab-lishment of direct linkages with a variety oflead firms, particularly retailers and brandmanufacturers, has been the engine runningthe growth and transformation of the Torreón

region. The strategic needs of these lead firmsled them to transfer diverse activities to Mex-ico. The economic forces unleashed in the ap-parel supply chain have attracted new invest-ments, created pressures for growth, andpromoted the transfer of technologies. Thetransformation process is thus explained bythe power and ability of these actors to takeadvantage of the opportunities that NAFTAhas created.

Even if external actors are the main driversof change, we should not underestimate theimportance of local factors. Local expertise,capital, and entrepreneurial vision have con-tributed significantly to the shape and struc-ture of the apparel industry in the region.However, Torreón is far from being an indus-trial district. If what characterizes a district isthe formation of effective institutions as wellas cooperative mechanisms among firms, theseelements appear to be in short supply in theLaguna region. If certain firms in Torreónhave acquired the role of network coordina-tors, their relationship with small firms tendsto be hierarchical and unequal. Horizontalcooperation between firms is rare. Networksare created to fulfill volume demands, andstandardization is the norm. Neither the firmsnor their clients frequently seek flexibility andadaptability. Furthermore, any institutionaldevelopment seems to be two steps behindexternally driven changes. For example, it wasonly after NAFTA that the local industry asso-ciation was created, and even in its scopeand influence were limited. Although the in-dustry association tries to create a forum toaddress common issues confronting local firms,the main ones being labor shortages and risingwage rates, few specific measures have beenimplemented.

This argument is closely related to our sec-ond question: Is this kind of developmentlikely to occur in other regions of Mexico?Both the peso devaluations and the imple-

, ,

mentation of NAFTA are events with nationalimplications. The unsustainability of produc-tion for the local market, the attractiveness ofexport production, and the potential advan-tages of exporting by way of NAFTA are fac-tors that have affected not only the Torreónregion but the rest of Mexico as well. How-ever, we believe that the expanded U.S. mar-ket access provided by new lead firms and theavailable local resources have been key factorsin preventing the “maquilization” of Torreón.Furthermore, these factors are subject toregional variations.

Continued growth and expansion of theTorreón apparel cluster are not guaranteed.Follow-up fieldwork conducted in re-vealed that a slowdown in the U.S. economyhad negatively impacted on the region, andU.S. clients were placing fewer orders withlocal apparel manufacturers (Bair and Gereffi). Industry experts estimated that jeansproduction had declined by as much as per-cent between October and May ,

compared with the previous year. During thesame period, an estimated eight thousandTorreón apparel workers lost their jobs. Thisvulnerability to consumer demand north ofthe border is the unfortunate consequence ofincreased dependence on the U.S. market.9

The risks caused by a high level of con-centration on one export market apply to allapparel-exporting clusters in Mexico. Thedecline in demand from U.S. clients that hashurt the Torreón cluster has undoubtedlyaffected virtually all apparel-producing regionsin Mexico. Compared to these other exportingregions, the overall prospects for Torreónremain bright. The Torreón case makes clearthat being able to attract the right kind oflead firms to a particular region is a prereq-uisite for Mexican communities to move awayfrom maquiladora production toward a moredevelopment-oriented, full-package manufac-turing model. These new lead firms create

opportunities for Mexican suppliers to gobeyond the typical maquiladora role, but theycreate only “opportunities,” not guarantees ofsuccess. The presence of local capital, skills,entrepreneurial drive, and other resourcesare necessary but not sufficient conditions tostrengthen the position of Mexican firms inthe apparel commodity chain. The demon-stration effect that lead firms have created mayencourage more U.S. manufacturers to movetheir operations to Mexico, but this must becoupled by the efforts of savvy Mexican entre-preneurs to upgrade their operations or to startnew export firms. Thus, even though externalforces drive the changes in Torreón, local fac-tors mediate this process.

Since the conditions that foster full-packageproduction and a more favorable position forMexican firms are local, the possibility foruneven consequences of NAFTA among dif-ferent regions of Mexico is high. Due to laborshortages and relatively high wages, somemanufacturers (even the new big Torreónmanufacturers) are moving their assemblyoperations to rural communities aroundTorreón or to the southern part of Mexico(e.g., the Yucatán and Campeche). What thesemanufacturers are trying to do is partially toreplicate the conditions of the maquiladoramodel. By establishing factories or subcon-tracting work with small plants in rural com-munities with few alternative sources of em-ployment and limited access to lead firms, theyseek to retain the high degree of control overcheap production that we associate with themaquiladora model. If NAFTA has not re-sulted in the maquilization of Mexico as awhole, it may still result in the maquilizationof rural and southern Mexico (Tardanico andRosenberg ).

The role of regional policy under the newconditions created by NAFTA is clear. Re-gional and local governments should createincentives to attract U.S. buyers (retailers,

:

brand marketers, and manufacturers) to theirlocations and provide support for Mexicanfirms so that they can satisfy the needs of thesedemanding clients. This experience provides abasis for Mexican firms to move up the apparelcommodity chain into higher-value-added ac-tivities themselves. Without this process, themaquilization of many communities may bethe unavoidable outcome of NAFTA.

Notes

. Historically only to percent of these inputshave been produced locally within Mexico.

. For example, the duty-free importation ofU.S.-made inputs for assembly in Mexico—the pri-mary advantage of the maquiladora program—isnow generally available for all firms with cross-border trade and production networks, not just themaquiladoras. While the full phase-in of NAFTAimplied the official end of the maquiladora programin January , “maquiladoras,” defined as com-panies that perform mainly assembly operations forthe export sector, will continue to exist.

. All three authors participated in the July

fieldwork, while Jennifer Bair and Gary Gerefficarried out the July fieldwork. For a moredetailed discussion of the latter research, see Bairand Gereffi ().

. In the United States the maquiladora pro-gram is also referred to as the program, for thenumbered clause of the U.S. trade law that de-scribed this type of cross-border production shar-ing. The numbering of the relevant clause was laterchanged to , so it is commonly referred to inthe literature as ⁄ production.

. OMJC produces about , pairs of jeansa week for clients such as JCPenney, Levi Straussand Company, and Tommy Hilfiger.

. Textiles Lajat was sold to Parras by GrupoLajat in December .

. Wrangler is a subsidiary of VF Corporation,a major U.S. apparel manufacturer whose brandsinclude Lee, Vanity Fair, Jansport, and Healthtex.(See Chapter in this book for a discussion of VF.)Wrangler was formerly the largest division of the

Blue Bell Corporation, which was acquired by VFin November , and it remains the largest com-pany within VF Corporation. Wrangler has a highdegree of autonomy vis-à-vis its parent company,and decisions about where to locate production fa-cilities such as the one in Torreón are made at thedivisional level.

. The incorporation of these regions into full-package networks may even be creating ownershipopportunities for workers. At least one Mexicanmanufacturer whose subcontracting network in-cludes a number of factories located in the formerejido areas was instrumental in establishing thesefactories as worker-owned companies controlled bythe employees living in the community.

. Heavy reliance on the U.S. export market is ageneral feature of the Mexican economy. In

the United States received percent of Mexico’stotal exports, up from percent in (INEGI).

References

Bair, Jennifer, and Gary Gereffi. . “Local Clus-ters in Global Chains: The Causes and Conse-quences of Export Dynamism in Torreon’s BlueJeans Industry.” World Development , (No-vember): ‒.

Burt, Ronald S. . Structural Holes: The SocialStructure of Competition. Cambridge, Mass.: Har-vard University Press.

Carrillo, Jorge. . “Third Generation Maquila-doras? The Delphi-General Motors Case.” Jour-nal of Borderlands Studies , (Spring): ‒.

Dussel Peters, Enrique. . Polarizing Mexico: TheImpact of Liberalization Strategy. Boulder, Col.:Lynn Reinner.

Gereffi, Gary. . “The Organization of Buyer-Driven Global Commodity Chains: How U.S.Retailers Shape Overseas Production Networks.”In Commodity Chains and Global Capitalism, ed.Gary Gereffi and Miguel Korzeniewicz, pp. ‒

. Westport, Conn.: Praeger.———. . “Mexico’s ‘Old’ and ‘New’ Maquila-

dora Industries: Contrasting Approaches to NorthAmerican Integration.” In Neoliberalism Revis-ited: Economic Restructuring and Mexico’s Polit-

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ical Future, ed. Gerardo Otero, pp. ‒. Boul-der, Colo.: Westview Press.

———. . “Global Shifts, Regional Response:Can North America Meet the Full-PackageChallenge?” Bobbin , (November): ‒.

Gereffi, Gary, Ronie Garcia-Johnson, and ErikaSasser. . “The NGO-Industrial Complex.”Foreign Policy (July–August): ‒.

Gereffi, Gary, and Donald L. Wyman, eds. .

Manufacturing Miracles: Paths of Industrializa-tion in Latin America and East Asia. Princeton,N.J.: Princeton University Press.

Humphrey, John, ed. . Special issue on “Indus-trial Organization and Manufacturing Compet-itiveness in Developing Countries.” World Devel-opment , (January).

Instituto Nacional de Estadística, Geografía, e In-formática (INEGI), Banco de Información Eco-nómica. . Data available at <http://www.inegi.gob.mx>. Site consulted in July.

International Monetary Fund (IMF). . Interna-tional Financial Statistics. Washington, D.C.: IMF.

Markusen, Ann. . “Sticky Places in SlipperySpace: A Typology of Industrial Districts.” Eco-nomic Geography , : ‒.

Piore, Michael J., and Charles F. Sabel. . TheSecond Industrial Divide. New York: Basic Books.

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Industrial Districts and Local Economic Regenera-tion. Geneva: International Institute for LabourStudies.

Shaiken, Harley, with Stephen Herzenberg. .

Automation and Global Production: AutomobileEngine Production in Mexico, the United States,and Canada. Monograph Series . La Jolla:Center for U.S.-Mexican Studies, University ofCalifornia, San Diego.

Tardanico, Richard, and Mark B. Rosenberg, eds.. Poverty or Development: Global Restructur-ing and Regional Transformations in the U.S. Southand the Mexican South. New York: Routledge.

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:

Enrique Dussel Peters, Clemente Ruiz Durán,and Michael J. Piore

Learning and the Limits of

Foreign Partners as Teachers

Recent Economic Trends

The garment industry is being hailed as theoutstanding success of the North AmericanFree Trade Agreement (NAFTA), at least fromthe Mexican point of view. Garment exportsto the United States have expanded from lessthan $ million in to $. billion in. Moreover, since , when the agree-ment actually went into effect, that rate hascontinued to increase as more and more pro-ducers move facilities from other parts ofNorth America and the Caribbean Basin toMexico. But NAFTA is the culmination of theprocess of opening the Mexican economy totrade, a process that began in the mid-s,and the increase in imports from Mexico asso-ciated with that process has also been dramatic.As shown in Table ., in the period leadingup to NAFTA (‒) the annual increasein real imports averaged . percent. Tables.‒. additionally reflect that maquiladoraexports have been the driving force in Mex-ico’s garment industry. Specifically, temporaryimports to be reexported (i.e., imports that aretransformed temporarily, without payment oftariffs or taxes and without value added,through programs such as the maquiladora

program) remain the core of garment exports(Alvarez Galván and Dussel Peters ).

Independent of the recession in Mexicanexports since , the import figures reflectin part that the Mexican garment industry isincreasingly a subcontracting operation, anextension of the pattern of development ini-tiated under the maquiladora program whereaccess to U.S. markets is mediated by foreigncompanies that design the product, supply thematerials (in garments, often in the form ofcut pieces), specify the production process, andthen take over the final output for sale abroad.The annual increase in imports for plants oper-ating under this program in ‒ averaged percent.

But the import figures also reflect a darkerside of the structural changes occurring in theMexican economy. The opening has had a dev-astating impact on traditional producers; thecountry has increasingly lost its domestic mar-ket to imported foreign goods. It is hard toidentify this loss precisely, because figures forthe industry as a whole mask the division be-tween the expanding and contracting sectors,and so many of the losses have been in smallfirms in the informal sector that the officialfigures do not capture at all. The magnitude of

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Mex

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Exp

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, Im

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rade

Bal

ance

,

‒

a

Cum

ulat

ive

Cha

nge

1990

–19

94–

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2001

1990

–93

2001

U.S

.$ M

illi

ons

Gar

men

tsb

Exp

orts

7852

482

299

91,

500

2,52

03,

557

5,41

76,

430

7,56

38,

427

7,83

645

,674

2,42

443

,250

Impo

rts

361

667

1,06

21,

124

1,47

41,

737

2,30

93,

208

3,62

53,

517

3,47

23,

323

25,8

783,

213

22,6

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�28

2�

142

�24

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126

2678

31,

248

2,20

92,

805

4,04

64,

955

4,51

319

,796

�79

020

,586

Tot

al E

cono

my

Exp

orts

26,8

3842

,687

46,1

9551

,832

60,8

3379

,823

96,0

0011

0,38

011

7,50

013

6,70

316

6,42

415

8,54

21,

093,

757

167,

552

926,

205

Impo

rts

32,8

0251

,724

64,2

1367

,548

79,3

7472

,475

89,4

6910

9,79

812

5,24

614

2,06

317

4,47

316

8,27

51,

177,

460

216,

287

961,

173

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5,96

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9,03

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15,7

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18,5

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6,53

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7,74

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9,73

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0.29

1.23

1.78

1.93

2.47

3.16

3.71

4.91

5.47

5.53

5.06

4.94

4.18

1.45

4.67

Impo

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1.10

1.29

1.65

1.66

1.86

2.40

2.58

2.92

2.89

2.48

1.99

1.97

2.20

1.49

2.36

Gro

wth

Rat

e (P

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nt)

Gar

men

tsb

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—56

9.5

56.7

21.5

50.2

68.0

41.1

52.3

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17.6

11.4

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17.9

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322

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.512

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Tot

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—59

.18.

212

.217

.431

.220

.315

.06.

516

.321

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14.1

14.7

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217

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22.7

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this effect is suggested by one estimate for ‒

, when official imports in garments, not in-cluding maquiladoras, rose percent; whenused and contraband clothing are included, theincrease was percent (according to infor-mation provided by one firm interviewed forthis study). In real terms the value of produc-tion in garments increased by only . percentover the period.

These figures changed dramatically after thedevaluation of the peso in December . In imports of garments, excluding maquila-doras, declined by a startling percent. But agood part of that decline reflects the suppres-sion of Mexican domestic demand and cannot

be sustained over the long run. In fact, in

imports of garments began to rise again—by percent—wiping out over percent of theimport decline in the previous two years. Thelosses in the domestic market to imports areparticularly surprising given that Mexico’scomparative advantage should lie precisely inthese low-wage, labor-intensive industries.Considerable adjustment is to be expected inthe face of newly emergent foreign competi-tors. It is not clear, however, why that adjust-ment should involve a loss of the domestic mar-ket. In principle, if Mexico can be competitiveon the international front, it should be able tocompete on the domestic front at least as well.

This chapter reports the findings of a studydesigned to explore why comparable competi-tion on the international and domestic frontshas not been the case in Mexico. The findingsare based on material gathered in the periodfrom to as part of a larger projectstill continuing on the adjustment of Mexicanfirms to the opening of the economy to trade.While the focus here is on the clothing indus-try, the study on which it draws is focused ontraditional industries more broadly, and mate-rial from shoes, furniture, and ceramics sup-plements that drawn directly from the cloth-ing industry in developing the argument.

The findings moreover have potential im-plications extending beyond these industriesto the Mexican manufacturing sector as awhole. The dichotomy we observe in the gar-ment industry between the larger, more capital-intensive firms that are prospering under thenew trading regime and the smaller, more labor-intensive firms that are not replicates a patternreflected in the broader aggregates for Mexi-can manufacturing. Indeed, the most success-ful Mexican industries in recent years havenot been those where one would have expectedthe country’s comparative advantage to lie butrather capital- and skill-intensive industries as-sociated with relatively advanced technologies

.. Mexico: Export Structure,‒a

1998 1999 2000 2001

U.S.$ MillionsGarmentsb

Total 6,404 7,554 8,427 7,831Temporary 6,090 7,318 8,196 7,625Definitive 313 236 232 206

TotalTotal 117,442 136,703 166,424 158,547Temporary 97,518 114,814 137,251 131,429Definitive 19,924 21,889 29,173 27,118

Percentage (Garment Total � 100)Garmentsb

Total 100.00 100.00 100.00 100.00Temporary 95.11 96.87 97.25 97.37Definitive 4.89 3.13 2.75 2.63

Percentage (Over Respective Total)Garmentsb

Total 5.45 5.53 5.06 4.94Temporary 6.25 6.37 5.97 5.80Definitive 1.57 1.08 0.79 0.76

Source: Authors’ estimates based on Bancomext ().

aIncludes maquiladora activities.

bRefers to chapters (articles of apparel and clothing acces-sories, knitted or crocheted) and (articles of apparel andclothing accessories, not knitted or crocheted) of the Harmo-nized Tariff Schedule.

..

Maq

uila

dora

Exp

orts

of

Gar

men

ts in

Mex

ico,

‒

a

Cum

ulat

ive

Cha

nge

1990

–19

94–

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2001

1990

–93

2001

Gar

men

tsF

irm

s29

035

039

339

941

252

265

078

690

710

3511

1995

87,

821

1,43

26,

389

Em

ploy

men

t42

,677

48,7

5957

,972

65,9

7382

,513

107,

015

147,

196

183,

241

219,

079

262,

994

286,

584

234,

800

1,73

8,80

321

5,38

11,

523,

422

Tot

al Fir

ms

1,78

92,

013

2,12

92,

143

2,06

42,

267

2,55

32,

867

3,13

03,

436

3,70

33,

450

31,5

448,

074

23,4

70E

mpl

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ent

439,

474

486,

146

510,

035

546,

588

600,

585

681,

251

799,

347

936,

825

1,04

3,48

31,

195,

371

1,30

7,98

21,

081,

526

9,62

8,61

31,

982,

243

7,64

6,37

0

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ver

Res

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Tot

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16.2

117

.39

18.4

618

.62

19.9

623

.03

25.4

627

.42

28.9

830

.12

30.2

227

.77

24.7

917

.74

27.2

2E

mpl

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9.71

10.0

311

.37

12.0

713

.74

15.7

118

.41

19.5

620

.99

22.0

021

.91

21.7

118

.06

10.8

719

.92

Gro

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men

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20.7

12.3

1.5

3.3

26.7

24.5

20.9

15.4

14.1

8.1

�14

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.212

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16.8

15.6

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such as automobiles and electronics. Exportsare furthermore concentrated in a relativelyfew large firms. Illustrative of this pattern, for‒ the principal three hundred exportingfirms and maquiladoras were responsible, onaverage, for percent of Mexican exports.1

The pattern creates two fundamental prob-lems, one of macroeconomic management andthe other of social cohesion. The problem ofmacroeconomic management results from thefact that as the country loses its domestic mar-ket, the propensity to import increases as aresult of growth in the gross domestic product(GDP); expansion produces a growing deficitin the country’s balance of trade that must besustained by an inflow of foreign capital. Thismakes the country highly vulnerable to thethreat of capital flight and periodic foreign-exchange crises of the kind that erupted mostrecently and dramatically in December .

These crises are managed by severe cutbacks indomestic demand and rising unemploymentthat, in turn, threaten social coherence.

The changing structure of industry also hasa direct effect through its impact on opportu-nities for social mobility. This is particularlytrue in clothing. The traditional garmentindustry is a cascade of operations, each ofwhich can be, and in practice is at one time oranother, separated off and subcontracted, cre-ating almost a continuum of firms arranged ina hierarchy of skill, power, and profitability.At the bottom of that hierarchy are firms thatdo simple sewing on the cheapest garments,often as home workers. Toward the top are arange of firms that actually design the gar-ments and cut the material into pieces that aresubcontracted for sewing, again arranged in ahierarchy of price and quality. At the peak arefirms that wholesale and retail the garments,often in combination with design. In the UnitedStates the latter tend to be large companies ofthe kind that are now entering into maquila-dora production in Mexico, but in Mexico, as

in France and Italy, many small producersown, or at least owned, a couple of retail out-lets. When all the elements of the structureexist in close geographic proximity, it is possi-ble to start at the bottom as an unskilled homeworker sewing cheap garments and work one’sway up the hierarchy, gradually acquiringmore skills and business sense and contactswith progressively higher levels on the chain.In our interviews in Mexico City we encoun-tered several family firms that were the prod-ucts of this process: The proprietors had be-gun their working lives helping their motherswith piecework at home.

The new kinds of subcontracting relation-ships between Mexican producers and foreignbuyers typically cut off the chain of subcon-tracting in Mexico at both ends: The span ofcontrol along the subcontracting chain is con-sidered too long for the quality and reliabilitythey are seeking, and they limit production tothe Mexican partners’ own facilities. At thesame time, they absorb the design and market-ing links of the chain. The result is to create asharp divide between workers and contractorsthat can be bridged only by people with accu-mulations of capital and industrial expertisethat a typical worker could never hope to ac-quire on the job. As Mexican firms lose designand marketing capability they also becomeincreasingly dependent on foreign partners,and in that sense mobility, even for those withcapital and expertise, is limited as well.

Methodology

The study is organized around the concept ofa commodity chain (Gereffi ), or, as it iscalled by other authors, a production chain orsupply chain (Fine and Whitney ). A com-modity chain consists of a series of linkagesstretching from raw-materials production atone end through manufacture and assembly to

wholesale and retail distribution at the otherend, and it generally encompasses importantsegments of a limited number of interdepen-dent industries. The process of industrial trans-formation can be understood in terms of therelationships along these chains. On any par-ticular chain certain points constitute leader-ship positions, and organizations that occupythese positions formulate strategy and drive thetransformation process. Leadership, however,varies over time and across industries. In auto-mobiles, manufacturing has historically driventransformation. In recent years retailers havedriven transformation in the traditional indus-tries that are the focus of this study (Gereffi). In this study we sought to map out thechains and the transformation process throughopen-ended interviews with key actors.

Because of their strategic importance in thegarment industry, we began interviewing retailmanagers, particularly managers in the dis-count retail chains that have proliferated inMexico at the turn of the twentieth century.We focused in these interviews on their expe-rience with local sourcing. The discount chainsare linked directly or indirectly to foreign com-panies that purchase in bulk throughout theworld. They thus constitute superhighways forthe entrance of foreign merchandise into theMexican economy, but they could as well serveas export channels for Mexican goods goingabroad. We then moved to interview Americancompanies buying from Mexican producers; arange of the Mexican producers, includingcompanies producing for exports as maquilado-ras and on their own account as well as com-panies focused exclusively on the domesticmarket; government agencies and nongovern-mental organizations (NGOs) concerned withthe promotion of the Mexican garment indus-try; and various other individuals and firmsoffering ancillary services to the industry.

The sample is in no sense random. Respon-dents were selected because of the strategic

importance of the place they occupied alongthe supply chain. Where possible, we used per-sonal contacts to obtain access. Although, as itturned out, that access was obtained in overhalf the cases through cold calls, respondentsclearly agreed to talk to us in many casesbecause of our credentials and the belief thatwe had useful contacts with government offi-cials or with potential customers. The closestour study came to a generally random selectionprocess was in Mexico City, where we selectedthe tallest building in the garment district,took the elevator to the top floor, and system-atically went from shop to shop seeking inter-views. The reception there was mixed, rang-ing from a three-hour interview in one shop toa three-minute exchange in another. We of-fered all our respondents confidentiality andanonymity; few, however, seemed to put muchcredence in that offer.

Overall, in the period from to ,

we interviewed managers in three discountretail chains that had recently opened in Mex-ico; three U.S. companies actively engaged inupgrading Mexican partners; nineteen Mexi-can clothing producers, five of which wereoperating as maquiladoras and two that de-signed for and sold directly to the internationalmarket; and one international consulting firmengaged in training personnel for “green-field” sites (i.e., investments in new plants,machinery, and equipment) in Mexico. Inaddition, we spent two days at a fair in Can-cún organized by Bancomext (Banco Nacionalde Comercio Exterior) to introduce U.S. buy-ers to Mexican garment producers. A total ofthirty U.S. companies and thirteen Mexicanproducers attended this event. We talked withmost of them informally and, in addition, ob-served one-on-one meetings between buyersand potential suppliers in which the formerevaluated the latter’s collections. We also metwith groups of local producers in Puebla andAguascalientes, which were essentially group

, , .

interviews. We met with leaders of the indus-try associations and state economic-develop-ment officials in both Puebla and Aguas-calientes, with federal officials in Mexico City,and with two NGOs working on upgradingsmall garment producers in different parts ofthe country. We also conducted, as explainedbelow, a separate study of empresas integra-doras. Material on garments is supplementedwith material collected separately from othertraditional industries.

Principal Findings

All the traditional industries, but especiallyclothing, are sensitive to fashion. This givesMexico the particular advantage, relative toother low-wage developing countries, of prox-imity to the U.S. market. The advantage iseven greater when producers are using U.S.materials that must be shipped into Mexicobefore the finished goods can be shipped out.(This advantage should be even greater still inthe domestic market.) The magnitude of thatadvantage is suggested by one brand-nameretailer who reported that shipment fromMexico to its Texas warehouse took four days,compared to thirty days from Korea. Anotherbrand-name retailer, a U.S. shoe company,estimated total time to market, from initialorder to receipt of the finished goods, at sevento eleven weeks in Mexico compared to four-teen to fifteen weeks in Hungary or Italy, eigh-teen in Portugal, and twenty-three to twenty-five weeks in Brazil, China, or Indonesia.

Against this advantage, the discount retailchains and American companies purchasing inMexico all identified a common set of obsta-cles to sourcing in Mexico. Mexican produc-ers were unable to meet quality standards; theycould not produce in sufficient volume; theirproduction cycle (or turnaround time) was toolong; and they failed to meet promised deliv-

ery schedules. These were all viewed as pro-duction problems, the legacy of the shelteredmarkets in which Mexican producers have tra-ditionally operated. They are distinct from theinexperience of Mexican companies with thecommercial practices and procedures involvedin selling internationally, which have been aproblem for Mexican companies seeking toexport for the first time. The American firmswe interviewed were all prepared to handle thecommercial problems for their Mexican sup-pliers, and commercialization was obviouslynot a problem in dealing with discount retailchains in Mexico itself. Therefore the centralquestion to emerge from the interviews is:Why haven’t Mexican producers been able tolearn how to meet international productionstandards? Or, since some Mexican producerscan meet these standards, how might Mexicanproducers be induced to learn faster or inlarger numbers?

The Nature of the Learning Process

An answer to this question is suggested by theexperience of American companies that havetried, with varying degrees of success, to de-velop Mexican sources. We interviewed sev-eral companies about this process. The com-panies were selected in an opportunistic fashionand not on the basis of a systematic survey.But we believe that companies actively en-gaged in upgrading their suppliers in Mexicoare relatively unusual. Mexican firms do nottypically engage in the practice of upgradingtheir suppliers themselves.

The impact of maquiladoras on the rest ofthe Mexican economy has been extremely lim-ited.2 The most extensively studied have beenthe automobile assembly plants (see, for exam-ple, Shaiken and Herzenberg ; Robinson). The plants of U.S. companies import

virtually all the parts that they use. Japanesecompanies have encouraged their home sup-pliers to locate around them in Mexico; thesesuppliers have not developed a second tier ofMexican contractors. Recently, as the cost ofproduction in Japan has increased, a specialeffort has been made to increase sourcing inMexico, but it has consisted almost exclusivelyof enhanced efforts to identify qualified Mex-ican producers, not to upgrade them. Infor-mation on other industries is more limited butis consistent with the automobile findings:Neither foreign firms operating in Mexico norMexican firms themselves have been particu-larly active in upgrading their supplier net-works. In this sense the discount retail chainsare typical.

The companies we interviewed, which didmake efforts to upgrade Mexican contractors,all managed brand names and all sourcedworldwide, purchasing in the United Statesand in a number of different developing coun-tries. They made it clear that in Mexico, as inmost countries in the world, few producers canmeet their standards initially. They thus madea substantial effort to develop new sources. InMexico this typically involves, first, compara-tive shopping in Mexico itself to find pro-ducers whose products meet some minimumstandards of quality at the outset. The U.S.company then visits the producer and inter-views the management to see whether thecompany has interest in and is capable ofupgrading its quality and producing in the vol-umes and time constraints that American pur-chasers typically require. This is a two-stageprocess that begins with an initial half-dayvisit. It is then followed by a whole-day eval-uation that serves as a diagnostic tool as wellas the basis for a business decision.

If the parties agree to go forward, the Amer-ican partner then undertakes to teach the Mex-ican company how to meet its standards. Thisinvolves a series of exchanges in which Mexi-

can personnel are virtually tutored by theirAmerican counterparts—sometimes in theMexican plants, sometimes at the facilities ofthe American customer in the United States,often in both places. One large shoe company,for example, when it began sourcing in Mex-ico, opened an office in Mexico City and hastwo engineers working out of that office per-manently assigned to each sourcing plant. Alarge clothing retailer reported that it takes atleast one and often one and a half years fromthe time it starts working with a potentialMexican partner to the time it receives its firstorder. To illustrate this, one retailer revieweda typical case: The process began with severalpreliminary visits of its personnel to Mexicoand of the potential partner to company head-quarters in the United States. Once upgradingwas begun in earnest, the process involved sixtrips of a three-person U.S. team to Mexicoand eight visits of a similar team of Mexicansto the United States, then heavy involvementof U.S. personnel in the initial productionruns in Mexico.

The learning process here involves what isknown in the literature variously as practical,implicit, or tacit knowledge. Its essential char-acteristic is that it is difficult to transmit ver-bally or in written instructions and instead itis taught by demonstration on the job as pro-duction is carried out. The U.S. garment firm,for example, in a process reminiscent of whatin England is called “sitting by Nellie,” has itsown people work side by side with the inspec-tors and watch what they are doing, picking upthe faults that the new inspectors miss andpointing out to them, case by case, what iswrong with the garment.

Historically, managerial theory and ad-vanced management practice have paid littleattention to knowledge of this kind. For Amer-ican manufacturing in particular, a sharp dis-tinction was made between formal and infor-mal engineering, and management looked only

, , .

to the former for improvement. But since themid-s, under the pressure of heightenedcompetition, particularly from Japan, thepriority accorded to formal knowledge hasbeen abandoned. A number of the techniquesborrowed from the Japanese or developed inresponse to the pressures of Japanese com-petition, such as total quality control and thekanban system of on-time delivery,3 are es-sentially ways of deliberately managing tacitknowledge, making it explicit, subjecting it todebate and discussion, and forcing progressiveimprovements in production processes (No-naka ). Part of what Mexican firms arerequired to do is thus not so much to learn astandard set of practices as to catch up with amanagerial revolution that has been occurringin industrialized countries only recently andeven there is far from complete.

In other ways this new emphasis on tacitknowledge is a competitive advantage for Mex-ico. It places an enormous premium on expe-rience in the industry. It values the knowledgethat comes out of growing up within an indus-try. As a result the existing skill within the tra-ditional industries of Mexico constitutes aconsiderable human capital. That skill is, how-ever, an asset specific to the industries in whichit resides; it will be lost if those industries failto make the transition and the resources aredispersed elsewhere in the economy. More-over, to make the transition and become com-petitive in world markets, this existing capitalneeds to be combined with modern managerialtechniques. Finally, the process of introducingthose techniques clearly involves a substantialcommitment on the part of both the Mexicansuppliers and their U.S. customers; it takesresources and its takes time to upgrade Mex-ican facilities. The latter seems to range froma year to a year and a half.

Because it takes time and resources, theprocess of upgrading is clearly an investment.But the investment is basically one of skill

transfer of a particular kind. The transfer mustbe made directly from the foreign client to theMexican contractor. Once transferred, the skillsare embedded in the ongoing practices of theorganization; they reside in the contractor, andif the contractor walks away from the relation-ship, he or she takes the skills along. Unlikeplant and equipment expenditures, there is nophysical asset that can be used to secure theinvestment and reprocessed if the contractorreneges on any agreed-upon payments. To theextent that the skills are particular to a givenclient and of no use in other contracting rela-tionships, there is little reason for the contrac-tor to walk away. But most of the skills are quitegeneral; there is inevitably a specific compo-nent, but typically the skills increase the capac-ity of the contractor to produce quality goodsefficiently for any client or, for that matter, forsale directly on the market. Thus the Mexicanfirm, once upgraded by its foreign client, hasevery incentive to jump ship and sell its newlyacquired skills to the highest bidder.

We encountered two cases in our interviewswhere the Mexican partner had apparentlydone this. One blue jeans contractor had beentrained by an American company with whomhe initially had an exclusive agreement, butwhen we interviewed him, he had abandonedthat relationship to work for a number of dif-ferent U.S. companies and was about to launchhis own brand. In the second case a U.S. shoecompany reported that it had acquired one ofits Mexican contractors by persuading the firmto leave the company originally responsible forupgrading its facility. In several other plants wevisited the company was obviously thinkingabout taking off on its own. Why, then, wouldclients ever make investments in upgradingcontractors in Mexico?

One possible answer is that the contractorrepays the client-tutor by charging pricesbelow the market value for the goods that itprovides during the learning period. This is

not generally true. In the cases we studied, nomerchandise was exchanged until after thecontractor had learned how to produce to theclient’s standards. But it is possible that someupgrading arrangements are financed in thisway. The transactions here are so complex,however, that it is possible that they aresecured in other ways. The upgrading is notnecessarily limited to tutelage. The Mexicanpartner is sometimes required to make com-plementary investments in plant and equip-ment. In several cases the American customersrequired their contractors to set up physicallyseparate facilities for the export portion of thebusiness in order to segregate exports from theoverhead associated with commercialization ofmanufacturing production in Mexico itself.The partnership generally includes access tomaterial supplies at favorable credit terms andoften to credit itself, which is a considerableadvantage to Mexican producers given thehigh interest rates and general shortage of cap-ital that have accompanied the opening of theMexican economy. Indeed, at real interest ratesranging as high as percent, this backdooraccess to the U.S. short-term credit marketmay be the most valuable part of the relation-ship for the Mexican partner and the biggestdeterrent to jumping ship.

If arrangements of these kinds were ableto solve the investment problem, one wouldexpect tutelage to be widespread, whereas it appears, as noted above, to be extremelylimited. Whatever forms of security can beworked out in these ways, they are evidentlynot enough to diffuse the tutelage arrange-ments broadly. What is it about the companieswe encountered that enabled them to overcomethe problems that seem to deter other firms?

We offer several conjectures on this score.4

The most plausible is linked to the character-istic that appears to distinguish these compa-nies from others engaged in outsourcing inMexico. The American companies we inter-

viewed are all brand-name producers with aworldwide sourcing strategy. Brand identifica-tion enables them to sell their product at pre-mium prices and thus generates an economicrent. That rent can be shared with contractorsin the form of favorable fees, thereby bindingthe contractors long enough to enable the com-pany that provides training to earn a return onits investment. A global sourcing strategygenerates further returns. In these strategiesMexican sourcing serves to diversify risk. Inaddition, the short turnaround time relative toother foreign locations enables the U.S. com-pany to balance its product line by includinga high-fashion component that attracts cus-tomers who then purchase other parts of thecollection. Without a nearby supplier the turn-around time would be too long to keep up withthe market. These returns are also a kind ofeconomic rent that can be shared to bind thecontractors to the tutoring company.5

The second conjecture rests on the fact thatthe knowledge about how to upgrade produc-ers in low-wage economies is a relatively recentinnovation. The companies we interviewed inMexico were all pioneers in global sourcing.Their strategy in this regard is new, developedover the last ten to fifteen years to take advan-tage of the low wages prevailing in developingnations in order to service the markets of ad-vanced industrial countries without becominghostage to the political and commercial risks ofthe extended supply chains this entails. Othercompanies sourcing in Mexico, to say nothingof Mexican companies that buy from local con-tractors, simply may not have the skills re-quired to upgrade their supply networks, andthe skills may not be generally available on themarket. This, rather than the difficulties ofsecuring the investment, may explain why par-ticular companies and not others are engagedin upgrading contracting networks.

Still another possible explanation is thatwhat those companies offer to their suppliers

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is not a single set of techniques but rather con-tinuous access to state-of-the-art manufactur-ing production as it evolves over time. Again,their global sourcing strategy should put themin a unique position to do this. It enables themsystematically to benchmark and compare prac-tices across a wide variety of producers, to or-chestrate a competition among them, to selectthe best practices, and to diffuse these rapidlyacross their contracting network. Such tech-niques for the management of supply networksare part of the repertoire of techniques for themanagement of tacit knowledge that have de-veloped toward the end of the twentieth cen-tury and that are now widely applied in ad-vanced industrial countries. But they are notuniversal even in the United States and West-ern Europe, let alone in relationships that spanborders and countries at very different levelsof economic development. Some of the prac-titioners of these new techniques encouragetheir contractors to work with several clients,even competitors, thereby stretching the con-tractors’ capacities and generating a wider rangeof approaches to feed into the fund of alter-natives that the mother company is able sys-tematically to compare in order to generatecontinual improvements over time. Thus theapproach does not necessarily require Mexicancontractors to work exclusively for the clientswho initially upgraded their facilities, and oneof those clients whom we interviewed confirmedthat it did not seek exclusive relationships.

If this is what is going on in the companiesupgrading Mexican facilities, however, thecapacity of a Mexican firm to compete inter-nationally once it does jump ship must deteri-orate progressively over time unless it man-ages quickly to hook up with a new foreignpartner. The practices observed in the onecontractor that had become cut off from hisoriginal American partner suggested that thismight be the case. This is also suggested bythe fact that the American partners whom we

interviewed continue to station their own per-sonnel in the Mexican partners’ facilities evenafter the initial training period and regularlysend additional personnel for random qualityinspections at the production site.

Minimum Order Size

In principle the problem of quality and effi-ciency within productive establishments canbe separated from the issue of minimum ordersize, which many clients and particularly thelarge discount retail chains cited as reasonswhy they did not source locally. To solve thesecond problem, many of our respondentssuggested association arrangements in which anumber of producers pooled their resourcesto take on a large order.

The government has recently created a newinstitutional structure, empresa integradora,designed to house such arrangements and facil-itate their development. This seems a promis-ing approach to the problem of minimum ordersize, but this organizational form has been slowto take off, and few such integradoras actuallyexist in Mexican manufacturing. To find outwhy, we conducted an in-depth study of twelveempresas integradoras in Cuernavaca, Puebla,Jalisco, Mexico City, and Tijuana. Regionalcultural factors, the education and training ofthe entrepreneur, and the availability of finan-cial resources were all found to be critical tointegradora success. Established cooperativerelationships between manufacturers and thedecentralized division of labor among manu-facturers also appeared to facilitate success.One integradora grew out of an association thatfor years had worked together at trade fairs andbought fabric together. The division of laboramong manufacturers involving marketing, in-spection, and other tasks serves to decentralizeauthority and to enhance trust among mem-bers of the integradora.

Although some small producers have formedempresas integradoras, these efforts have facedmany obstacles and relatively few such associ-ations exist in Mexico. Among the most im-portant challenges faced by integradoras arebuilding a culture of trust, gaining access tocredit, and overcoming bureaucratic barriers.Many small producers are reluctant to enterinto such associations and generally share lit-tle information about their sources of fabricand other production issues. Accountability isalso an important issue. A particularly dra-matic example of this problem was one largeintegradora outside Puebla. As one home-basedmanufacturer explained, each producer paidthe salary of a coordinator who later ran offwith all the money.

Empresas integradoras also encounter diffi-culty in gaining access to credit and findbureaucratic obstacles when they seek toexport. Like other garment manufacturers,integradoras face extraordinary interest ratesand payment cycles that lag behind loan sched-ules. The integradoras often compound ratherthan simplify credit problems because of thereluctance of financial institutions to lend tosuch associations. As one manufacturer ex-plained, “There were complications in lendingto five long-standing businesses. Someonewould have to put up their house and becomethe leader, which we didn’t want.” Finally,integradoras have experienced delays in gettingexport authorization because of the lack ofcoordination of government programs.

In the garment industry, however, the focuson the limits of the government’s integradoraprogram may be misplaced. It is after all stan-dard practice, not only in Mexico but through-out the world, for a “jobber” to meet largeorders through a network of subcontractors.The jobber is, in other words, already func-tioning as a kind of integradora. Thus the job-ber could upgrade its suppliers in the same waythat some foreign retailers work with larger

suppliers. If it is possible to upgrade these job-bers’ networks and maintain standards withinthem, it may not be necessary to develop newcontracting institutions. In this sense any setof policies that manages to diffuse the tutelagearrangements that exist between foreign clientsand Mexican contractors would also resolve theproblem of minimum order size.

Consultants

This leads to the question of why Mexicangarment firms have been so reliant on theseforeign partnerships at all. Why can they nothire consultants to help upgrade themselves?Indeed, not all foreign firms rely on their ownpersonnel to develop production facilities orcontractors abroad; a number use consultingservices. We identified and interviewed onesuch firm in the garment industry. Among itsother services it offered training in both pro-duction and management for shops in thedeveloping world seeking to export. The firmwill staff and train the personnel of a new pro-duction facility from scratch. Its program fordoing so has strong parallels to the in-houseprograms we encountered. It first hires a cadreof managers. In Mexico, interestingly, it drawsfor this purpose primarily on people whostarted but, often for financial reasons, wereunable to finish a technical education. Theconsulting firm uses its own personnel to trainthe managers in production techniques andthen hires the production workers for the newfacilities. The managerial candidates under thesupervision of the consultant’s personnel thentrain the production workers. At the same timethe managers in the new facility receive spe-cial functional training, including a classroomcomponent. All production training is on-the-job, using a variant of the tutelage wedescribed earlier. Our respondent estimatedthe total time needed to launch a new factory

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in Mexico at six months to one year, which issomewhat shorter than the in-house programsdiscussed above. Although the source of thediscrepancy is not clear, the standards of effi-ciency and quality may not be identical; thetype of product may also vary. Most of ourrespondent’s clients seem to be multinationalcompanies in the United States producing rel-atively standardized products with limitedfashion content, but they claimed to offer thesame services to Mexican producers for anytype of clothing. We did not, however, findMexican firms using this type of service.

We were more successful in the furnitureindustry, where we found an association offirms in Ciudad Hidalgo, a relatively remotecity in Michoacán that had hired a consultantto help upgrade the quality and efficiency oftheir operations. We visited the city some timeafter the consultant, who had provided exten-sive advice on how to upgrade the quality ofthe product line and the efficiency of the pro-duction facilities, and we interviewed in-shopthe proprietors of several of the enterprisesabout what they had learned. It was clear inthese interviews that the people in these shopshad changed their practices at the consultant’sbehest, but they had essentially learned thenew practices by rote. They had no idea of theunderlying principles from which the consult-ant was working. This, in turn, reflected thefact that they had never seen the kinds ofproducts with which they were competing inthe international marketplace, which the con-sultant was using as a template to improvetheir own. Nor had they seen the foreign shopswhose practices the consultant was trying toget them to adopt. Thus one shop has re-designed the work flow on the consultant’sadvice, but aisles were clogged with work inprogress that completely undermined therationale for the streamlined plant layout it hadintroduced. In another shop, the proprietorshowed us how the consultant had suggested

they turn the knots on the wood to the inte-rior of the cabinet to improve the outside fin-ish, but he then indifferently forced the lockand bent the key on his model piece when heopened it up so that we could feel the knots onthe inside pieces of wood.

These experiences with the consultant in thefurniture industry led us to believe that a keyingredient in upgrading partnerships in thegarment industry is the visit of Mexican per-sonnel to the partners’ facilities in the UnitedStates that precedes the visits of the partners’personnel to the Mexican facilities. It seemedthat the consultant would have been muchmore successful if he had first put his clientson a plane and flown them to the United States,or even to Mexico City, to see and discuss theproducts with which they were competing andto visit production facilities on which his advicewas modeled. Indeed, he might then have beenable to teach his clients not only how to do whatthe foreigners were doing but how actually tothink through and critique their own practicesthemselves. This approach might be attractivenot simply for the traditional firms that havebeen left out of the export boom but even forMexican producers that have found foreignpartners. This would be especially true if, assome of our conjectures about the tutelage pro-cess suggest, what Mexican producers are get-ting from their foreign partners is simply themost up-to-date production practices, not theskills of their foreign partners that the economyreally needs to survive in international compe-tition on its own—that is, the capacity for con-tinuous improvement in practice over time andto assume the tutelary role vis-à-vis their ownsubcontractors.

The other factor that is involved in the de-pendence on foreign partners for learning, asopposed to hired consultants, is credit. The dif-ficulties of securing investment in tacit knowl-edge that limit the willingness of foreign part-ners to invest in upgrading Mexican facilities

also make it difficult for the Mexicans to obtaincapital to invest in themselves. This problemhas been greatly aggravated by the generalshortage of working capital and the extremelyhigh interest rates that have accompanied theopening to trade, even before the peso crisis inDecember and much more so afterward.At the same time the credit crisis increases theadvantages of a foreign partner enormously, ifyou can find one, because one then has accessto the partner’s suppliers in the United Stateson favorable credit terms. Indeed, several ofour interview respondents suggested that theycould obtain working capital through foreignpartnerships on relatively favorable terms attimes when such capital would not be availableon any terms in Mexico. The extreme exampleof what the capital shortage was doing was onesmall producer who was reduced to buying justenough material in the morning so that hecould produce a day’s output, sell it in theevening, and have enough money to buy mate-rial for another day’s production. Such prac-tices foreclose economies of scale in purchas-ing and production altogether.

In principle, these credit problems call for an“investment subsidy” or a specialized loan pro-gram. But such a program would not be easyto administer, especially in Mexico. Applicantswould have to be screened for eligibility andthen monitored afterward. The general scarcityof credit promotes a strong incentive to divertfunds to other purposes, and without collateralit is difficult to penalize such diversions. Thedifficulties here are compounded by the natureof small firms in the garment industry and theMexican banking system. The garment indus-try is populated by family firms in which thehousehold and business accounts are oftenintermingled and confused. It requires a stronglocal banking system with roots in the commu-nity to distinguish the viable firms and judgethe integrity of the enterprise. But the Mexi-can banking system has passed through a

process of nationalization and reprivatizationthat has left the industry centralized in Mex-ico City, without locally oriented branches.

Bootstrapping

Given what an investment subsidy designed todiffuse foreign practices appears to entail, it isworth considering a much more broadly con-ceived policy to actually develop the requisitecapacities within the Mexican economy, with-out foreign intermediaries, by what one analysthas termed “bootstrapping” (Sabel ).Could a developing country such as Mexicoactually discover or invent world-class man-agement practices for itself ? The reason tothink it might be able to do so is that develop-ment of the skills at stake here has not histor-ically taken place through tutelage arrange-ments. Rather, these skills emerged first in theefforts of the Japanese economy to catch upwith the West in the aftermath of the SecondWorld War. Japan entered the postwar periodwith a reputation for cheap, second-rate man-ufactured goods, not unlike that of Mexico’straditional industries today. It managed inthe s to set a course of development thatby the s had made it preeminent in theefficient production of high-quality mass-produced goods, rapidly gaining share in thehome markets of its erstwhile competitors inthe United States and Western Europe. In thes these Western competitors then soughtto meet the Japanese challenge by appropriat-ing the techniques the Japanese had inventedin order to catch up and use them to recapturetheir original lead. In both episodes of com-petitive transformation, foreign practices playedan important role, but in neither case was theprocess essentially one of direct transfer offoreign practice.

The latest round of transformation in theUnited States and Western Europe has had

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three key ingredients. First, companies devel-oped a set of standards and benchmarks toidentify concretely where their performancewas deficient. Second, they sought to identifythe precise institutions and practices that dif-ferentiated the benchmark procedures andpractices from their own. In the attempt to doso, they occasionally went as far as to establishjoint ventures with Japanese partners in orderto get firsthand exposure to their ways of doingbusiness. But they did not ever slavishly imitatethe Japanese. Instead, and this is the third ofthe key ingredients, they initiated a series ofinternal debates and discussions about what thecritical elements of Japanese practices were,whether these could be adopted whole, and, ifnot, how they might be altered to fit into theirown organizational practices. When it was notpossible to identify precise procedures usedelsewhere, they nevertheless sought to inventapproaches that might produce the desiredresult. The new practices and procedures thatconstituted the revolution in Western manage-ment in the s were not those actually bor-rowed from Japan but the practices and pro-cedures invented to facilitate the borrowing,namely, discussion and debate structured by aset of benchmarks and standards on the onehand and a set of alternative institutions andpractices on the other. These are what consti-tute the new techniques for managing tacitknowledge. They are basically the techniquesforeign retailers are applying to develop andmaintain the global sourcing networks thattheir Mexican partners are being drawn into.

U.S. manufacturers in the s generallysought to catch up with their Japanese com-petitors as rapidly as possible, in a single spateof institutional reform. It was only relativelyrecently, after they had bridged the initial gap,that they began to think in terms of continu-ous improvement, using the same proceduresand benchmarks or, when they are already inthe vanguard, standards and targets to stay

ahead of the game. By contrast, the Japanesein the postwar period had recognized that theycould not catch up in one sudden transfor-mation and sought instead to raise their per-formance gradually over time. For these pur-poses it is important not simply to have notsimply a single standard or set of benchmarksbut rather to think in terms of a hierarchy ofstandards that the practice can ascend gradu-ally over time. This hierarchy of standardsneeds to be matched to a typology that dividesthe market into segments that the firm canmove across as its standards rise. Mexico’sposition in international competition is closerto Japan’s in the s than to that of theUnited States and Western Europe in thes, and this idea of a hierarchy of stan-dards and markets would seem an importantaddendum to the North American approach.A number of people with whom we talkedwere already thinking in these terms: A Japa-nese government official working to increasethe backward linkages of the Japanese auto-mobile assembly plants used a three-tier sys-tem to rate potential Mexican suppliers; U.S.companies looking for contractors in Mexicouse a similar system. But in such a system, itdoes not appear that a policy designed to stim-ulate a bootstrapping process would be muchmore difficult to initiate than one more nar-rowly focused on investment subsidies.

International Matchmaking: An Illustration

The limits of government policy are illustratedby one particular program we were invited toexamine closely, a program managed by Mex-ico’s Foreign Trade Bank (Bancomext) in part-nership with the Ministry of Commerce (Sec-retaría de Comercio y Fomento Industrial, orSECOFI) to link Mexican producers with out-side clients. The program was conceived as a

matchmaking operation, in which buyers frommajor U.S. and European department storeswere invited to Mexico to meet with potentialsuppliers. This program was run for severaldifferent industries. In the garment industry,the first meeting was held in . The Mex-ican producers brought samples of their mer-chandise, and the buyers set up booths wherethey met with the producers individually toexamine and criticize their products. Enor-mous effort was put into the organization ofthe meetings; the then secretary of commerce,who was also the chief Mexican negotiator forNAFTA, actually called the chief executiveofficers in the United States to urge them tosend representatives. But virtually no effortwas put into evaluation and follow-up. No onereally knows whether Mexican companiesmanaged to obtain any business from this exer-cise and, if not, why they failed to do so. It iscompletely unclear whether the meetings werea successful policy initiative and, if not, whatprecisely could be modified to make themmore successful.

The program was nonetheless administeredagain, in October , in essentially the sameway in which it was administered in . Thistime, however, there was considerably morediscussion and evaluation of the results. Sev-eral of the conclusions that emerged are worthemphasizing, partly to illustrate what was lostby failing to reflect on the experience the firsttime around but also because they feed intothe specific policy recommendation we areabout to put forward. The first conclusion isthat the large U.S. chains that were the focusof the first two meetings are the wrong tar-gets. Their standards of quality and minimumorder sizes are too far out of reach of the bulkof Mexican producers. The Mexican industrycan do better by targeting buyers from otherLatin American countries, whose levels ofincome and taste are closer to its own, andsmaller (but somewhat obscure) retail chains in

the U.S. that order in lesser quantities. Thesecond conclusion is that the promotion ofMexican products should focus on areas witha distinct national style, such as Mexican hand-icraft styles or formal garments for children(baptismal and communion dresses, for exam-ple). The third conclusion is that the kind ofMexican producers most likely to benefit fromprograms of this kind are unable to meet thenew orders without access to working capitaland hence that, to be effective, these match-making operations need to be supplementedby programs providing short-term credit tosmall enterprises. Bancomext developed a pilotcredit program for a group of producers thatobtained orders at the meetings from aColombian department store.

The Bancomext example suggests that thefirst step toward an effective policy is a newapproach to thinking about policy itself. In asense, what is required is to introduce into themanagement of government programs thosetechniques for managing and systematicallyupgrading practical knowledge that haveemerged in manufacturing production. But aprior task is to create a wider space for a prin-cipled approach to industrial policy, to artic-ulate a philosophy of government that, whilemore active and interventionist than theframework that currently dominates govern-ment thinking, cannot be reduced to tradi-tional clientelistic actions.

Toward a New Philosophy ofIndustrial Policy

Our examination of the problems of the cloth-ing industry suggests that a principled ap-proach to industrial policy might be builtaround three basic suppositions. The first ofthese would preserve the basic insight of neo-liberal thought by recognizing that the marketis a powerful instrument both for motivating

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economic activity and for coordinating and di-recting the allocation of scarce resources, andthat economic science provides a way for under-standing how the market works toward theseends. Second, it must be recognized that, what-ever the ideological attractions of a marketeconomy, the scientific case for its effectivenessin no way precludes the interventions of theMexican state. This is because the unregulatedoperation of the market leads to a particulardistribution of income and power in the soci-ety that is not inherently just or necessarilycompatible with long-term social and politicalstability. This important caveat to the neo-liberal argument for market-oriented economicpolicies must be distinguished from the thirdpoint: A separate and distinct rationale for stateaction lies in the considerable difficulty in fullyunderstanding how a market economy operates(in theory, let alone in practice).

What we do understand implies that aneffective market economy must be supportedby a set of supplementary institutions and thateven when those institutions are in place therecan be significant instances of market failure,as appears to be the case, for example, in thetransfer of practical knowledge that we havebeen examining. These principles suggest anapproach to policy that is guided by the mar-ket and instructed by developments in the pri-vate sector without being completely depen-dent on the market to produce desirable resultsor necessarily acquiescing to market develop-ments. They imply as well that, in public pol-icy no less than in the production and com-mercialization of goods and services, constantdiscussion and reevaluation of practice mustsupplement theoretical economic knowledge.

Toward an Alternative Policy

What might an alternative policy look like?First, it should be conceived as an effort to

extend the process of adjustment already tak-ing place in the private sector. Second, it mustbuild on mechanisms for evaluation and learn-ing as well as pressures and processes designedto produce continual improvement over time.Third, it should build on the experience of andborrow mechanisms developed for this pur-pose since the mid-s in the laggard sectorsof advanced industrial countries that have beentrying to catch up with their competitors inthe international marketplace.

These general principles, when applied toa policy designed to bootstrap traditional in-dustries in Mexico, suggest an approach thatfocuses less on specific sets of government pol-icy initiatives and more on the role of govern-ment in catalyzing discussion and debate. Thebasic goal, in other words, is to develop aheightened public awareness of the need toupgrade the productive apparatus and com-mercial practices throughout Mexican society.More than any particular policy measure, theidea is to orchestrate a national discourse; todraw as many people as possible from a broadspectrum of the society—from the worker onthe plant floor to the politician in the legisla-ture—into the enterprise of making Mexicomore competitive at home and in the interna-tional marketplace; to generate a critical per-spective on productive and commercial prac-tices in the business and political community.The aim should be to focus discussion anddebate as much as possible on practice andaway from ideology and abstraction. Models ofhow to do this include the case method usedin business and legal education, grand roundsin medical education, and the design studio inart and architecture, in which students areassigned a particular problem and their solu-tions are then criticized by a jury of faculty. Aparticular example of how this might be done,one that might serve to initiate the process, isto invite state development agencies to a seminarin which each agency presents for discussion

and debate two case studies, one of a majordevelopment success and one of a develop-ment failure. Industry chambers, particularlyin traditional industries, could be encouragedto sponsor similar seminars in which each localchamber is asked to work up and present onecase of a rapidly developing enterprise (or con-tracting network) and one case of a decliningenterprise or network.

As part of the effort to focus and direct thedebate, the government should encourage thedevelopment of standards and benchmarks.These provide both a target for policy and thecriteria for judging its success. The federalgovernment might do this by requiring thatany project it funds build in a set of standardsto serve as a threshold for admission to theproject, as well as a second set of standardsthat serve both as a program target and a setof criteria for evaluating the outcome. Thestandards might in principle focus on out-comes—for example, delivery time, quality,efficiency, and the like. But standards shouldalso focus on processes, such as inspection,inventory control, quality control, quality cir-cles, and so on.

The process of generating these standards,the debate about what appropriate standardsand benchmarks are, is at least as important asthe standards and benchmarks themselves.An example of the kind of standard-settingprocess that needs to be encouraged is Gua-najuato , which the footwear chamber inthat state created as a threshold that firms hadto achieve to gain access to a set of state-rundevelopment programs. There is now a debateat the national level as to whether this stan-dard should be extended to the shoe industryas a whole or whether other states should beencouraged to develop their own standards. Athird alternative would be to use as a nationalstandard the International Organization forStandardization (ISO) of the EuropeanEconomic Community.6

The kind of debate that is emerging aroundGuanajuato is the key to the policy we areproposing. The debate is actually more impor-tant than the particular way in which the issueis resolved. If properly orchestrated, it willforce the participants to reflect on practice.Nevertheless, the outcome of the debate maynot be irrelevant; there is a lesson here too. Wetend to think, as suggested earlier, that it isimportant to avoid a single set of absolutestandards. The relevant standard depends verymuch on which segment of the market theindustry is targeting at any moment. The stan-dard should shift upward over time as thecountry develops or with technological ad-vances. Standards should thus be a movingtarget. And a variety of standards at anymoment will help to pick out benchmarks andcall attention to alternative practices. The factthat Guanajuato has set a standard differentfrom ISO means that ISO firms canserve as a source of ideas for where the indus-try might move next. Were Guadalajara todevelop a higher standard than León, practicein Guadalajara could become a benchmark forfurther upgrading. The León standard, theGuanajuato standard, and the ISO stan-dard would then constitute a hierarchy acrosswhich firms or contracting networks mightthink of moving over time.

The development of standards needs to beaccompanied by a parallel effort to develop atypology of market segments that can then beset alongside the hierarchy of standards toguide industrial strategy. This is the broaderlesson embodied in the Bancomext insight thatMexican producers are more likely to findmarkets at this time in Latin America oramong smaller retail chains in the UnitedStates than in the prestigious New York de-partment stores at which their developmentprogram was originally directed. Divorcedfrom this broader lesson, the Bancomext pol-icy is likely to trap the industry in a low level

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of development. But linked to a typology ofmarkets and a hierarchy of standards, it be-comes a way station in a strategy for the grad-ual upgrading of the productive system overtime. The development of market typologiescan be fostered, like the development of stan-dards, by requiring that a market analysis bebuilt into any development project that thefederal government funds. Such an analysisshould identify the segment of the market towhich the targeted enterprises are currentlycatering and the segment toward which theproject is designed to help them move.

Conclusions

It is useful to return in conclusion to the cen-tral theme of the paper: There is a growingdivision within the Mexican economy between,on the one hand, a relatively small group ofproducers that have managed to adjust to theopening of the economy to trade and are pros-pering in the newly created North Americanmarket and, on the other, a large group ofsmaller producers that have been unable tomeet international standards of quality andreliability and are floundering even in theirown national marketplace. The garment in-dustry is thus in many ways symptomatic ofthe Mexican manufacturing sector: The rap-idly expanding subcontracting industry dom-inates the aggregate statistics and makes theindustry the outstanding success, at least fromthe Mexican point of view, of the NAFTAstrategy, but it masks the stagnation anddecline of the smaller, traditional producersand the progressive loss of the domestic mar-ket to imports. In an economy with significantexcess labor reserves, there seems no reasonwhy the second development pattern shouldfollow from the first, especially in a traditionalsector such as garments, which is extremelylabor-intensive and has a fund of tacit knowl-

edge embodied in a skilled labor force and acadre of managerial and technical experience.In garments at least Mexico should be able toexpand its exports through subcontractingrelationships and retain its domestic market. Itbecame apparent early in this study that itsinability to do so is associated with problemsof quality and reliability within the traditionalsector, and we looked for clues among firmsthat had successfully overcome these prob-lems—largely with the help of an Americanpartner—as to how the lagging firms in theindustry might do so.

Ultimately we arrive at two rather differentsolutions. One is to take the upgrading processin the successful firms as a model and to try totransfer or extend it to the lagging sector. Themodel seems to have two salient characteristics.One is how the foreign partner works as atutor to its Mexican contractors. An extensionof this model would presumably look for con-sultants to play this role. The other character-istic is the investment in intangible assets andthe difficulties of securing such investmentswhen they are made by parties other than thosein which the newly transferred knowledge re-sides. The importance of the credit implicitin these arrangements has been augmentedby the general shortage and high interest costof working capital in Mexico and by howmaquiladora-type arrangements facilitateaccess to working capital in the United States.A direct attempt to extend this model through,for example, a government development pro-gram would thus concentrate on the provisionof consulting services as a substitute for therole of the foreign partner and on special loanprograms to overcome the capital constraintsthat small producers appear to face. The dif-ficulties with implementing such a programand the limitations of upgrading through con-sultants lead us to consider a second strategyof bootstrapping, in which the laggard firmsare encouraged to upgrade themselves through

a process of self-criticism and self-examina-tion in light of visits to best-practice facilitiesand benchmarks that measure the gap betweenbest and prevailing practices.

The bootstrapping strategy might actuallybe better suited to the traditional garment sec-tor than the tutorial approach in maquiladorafirms. The traditional sector, as noted, consistsof a long chain of subcontracting relationshipsthat stretch from the design and cutting roomsbackward to progressively smaller shops and,ultimately, to home workers. Historically therehas been considerable mobility along thischain, with pools of people at each stagethinking strategically about how to gather theknowledge and contacts required to move upto the next level. People are, in other words,already involved in a process that looks verymuch like bootstrapping, and in this sensethe strategy we are proposing in many wayssimply formalizes, codifies, and, hopefully,improves on a process already in progress.

In any case, it does not appear necessary tochoose between the two approaches to upgrad-ing, any more than it seems necessary to choosebetween exports and the domestic market. Thebenchmarking and broader debate aroundwhich the bootstrapping strategy is built shouldserve to facilitate the learning arrangementsassociated with either the foreign partnershipsor consultants. And in the case of foreign part-nerships, it might allow the maquiladoras tocreate or maintain the skills in design and mar-keting downstream and management in a sub-contracting chain upstream that they nowseem to give up when they enter into a rela-tionship with a foreign partner for upgrading.

Notes

Acknowledgments: This was a joint research under-taking of the Massachusetts Institute of Technol-ogy (MIT) and the Universidad Nacional Autó-

noma de México. It was supported by funds fromthe World Economy Laboratory at MIT and a grantfrom the MacArthur Foundation to the Center forInternational Studies at MIT.

. Own calculations based on an Expansión sur-vey of the largest firms in Mexico. The exactnumber of firms varies from to ; it goesfrom firms in that accounted for . per-cent of total Mexican exports, including maquilado-ras, to firms in that accounted for .

percent of total exports (Expansión ‒).. This finding is pervasive in the literature (see,

for example, Gonzales-Aréchiga and Ramírez a,b, c; Wilson ). On linkages withinMexican industry itself, see Rabellotti (). It isnot clear, however, whether the apparent weaknessof these interindustry linkages is a peculiarly Mex-ican phenomenon. Only the last of the studies citedin this note compares Mexico to other countries, andthis is a comparison with Italy, where the interfirmlinkages are believed to be unusually strong.

. The kanban system is a complex administra-tive and production organization that includes ajust-in-time supplier-client system to manage toolchanges, product changes, material purchasing, andplanning. It thereby reduces stocks and work inprogress.

. Formal models that capture elements of thisprocess have been developed by Caballero andHammour () and by Hansen (; ). Theproblem of inducing investments in upgrading hereis a specific instance of what Caballero and Ham-mour call the “appropriability” problem. Theseconjectures are thus basically about how the appro-priability problem is resolved by particular firms.

. In the current depressed conditions of theMexican economy, the investments that the new dis-count retail chains made initially may also act as arent and provide an inducement for them to take onthe task of upgrading local contractors. The invest-ments are a sunk cost. To earn a return upon them,the companies must try to minimize their losses, holdwhat customers they can, and survive until domes-tic demand revives. One strategy for doing this wouldbe to substitute lower-cost Mexican goods for theproducts they were importing from abroad, but to

, , .

do so without losing the reputation that differenti-ates them from other retail outlets. The contributionof this strategy to survival and the long-term profitthat survival will generate is thus a kind of rent thatcould be used to bind the producers that it trains.

. ISO is a set of evolving international stan-dards for businesses or organizations that initiallydeveloped in the United Kingdom in the s.These guidelines and requirements apply to suchtasks as inquiries and orders, doing the job or work,checking the work, and delivering the product. Theintended effect of the systematic evaluation andimplementation of these procedures is to improvethe quality and productivity of economic units.

References

Alvarez Galván, José Luis, and Enrique DusselPeters. . “Causas y efectos de los programasde promoción sectorial en la economía mexi-cana.” Comercio exterior , : ‒.

Bancomext (Banco Nacional de Comercio Exterior).. Sistema de comercio exterior-México (SIC-M). Mexico City: Bancomext.

Caballero, Ricardo, and Mohamad L. Hammour.. “On the Ills of Adjustment.” Journal ofDevelopment Economics , (October): ‒.

Expansión. ‒. “Las empresas más impor-tantes de México.” Expansión (Mexico City).

Fine, Charles, and Daniel Whitney. . “Is theMake-Buy Decision Process a Core Compe-tence?” MIT Working Paper, Massachusetts In-stitute of Technology, Cambridge, Mass., January.

Gereffi, Gary. . “The Organization of Buyer-Driven Global Commodity Chains: How U.S.Retailers Shape Overseas Production Networks.”In Commodity Chains and Global Capitalism, ed.Gary Gereffi and Miguel Korzeniewicz, pp. ‒

. Westport, Conn.: Praeger.Gonzales-Aréchiga, Bernardo, and Jose Carlos Ra-

mírez. a. “Estructura contra estrategia:Abasto de insumos nacionales a empresas expor-tadoras.” In Subcontratción y empresas transna-cionales: Apertura y restructuración en la maquila-

dora, ed. Bernardo Gonzales-Aréchiga and JoseCarlos Ramírez, pp. ‒. Tijuana: El Colegiode la Frontera Norte.

———. b. “Perspectivas estructurales de laindustria maquiladora.” In Subcontratción y em-presas transnacionales: Apertura y restructura-ción en la maquiladora, ed. Bernardo Gonzales-Aréchiga and Jose Carlos Ramírez, pp. ‒.

Tijuana: El Colegio de la Frontera Norte.———, eds. c. Subcontratción y empresas trans-

nacionales: Apertura y restructuración en la maquila-dora. Tijuana: El Colegio de la Frontera Norte.

Hansen, Gordon. . “Industry Agglomerationand Trade in Mexico.” Unpublished Ph.D. diss.,Department of Economics, Massachusetts Insti-tute of Technology, Cambridge, Mass.

———. . “Incomplete Contracts, Risk, andOwnership.” International Economic Review ,

(May): ‒

Nonaka, Inkujiro. . The Knowledge-CreatingCompany: How Japanese Companies Create the Dy-namics of Innovation. New York: Oxford Univer-sity Press.

Rabellotti, Roberta. . “External Economies andCooperation in Industrial Districts: A Compar-ison of Italy and Mexico.” Unpublished Ph.D.diss., University of Sussex, Brighton, U.K.

Robinson, Elizabeth. . “A Comparative Studyof the Economic Effects of External and Inter-nal Linkages Achieved through Compensatory-Type Investments: The Mexican AutomobileIndustry.” Unpublished Ph.D. diss., Departmentof International Business, George WashingtonUniversity, Washington, D.C.

Sabel, Charles. . “Bootstrapping Reform: Build-ing Firms, the Welfare State, and Unions.” Pol-itics and Society , : ‒.

Shaiken, Harley, and Stephen Herzenberg. .

Automation and Global Production: Automobile En-gine Production in Mexico, the United States, andCanada. La Jolla: Center for U.S.-Mexican Stud-ies, University of California at San Diego.

Wilson, Patricia A. . Exports and Local Devel-opment: Mexico’s New Maquiladoras. Austin: Uni-versity of Texas Press.

Ulrik Vangstrup

Knitting the Networks between

Mexican Producers and the U.S. Market

Introduction

Knitwear producers in small towns in Mexicohave recently begun exporting to the UnitedStates as well as to Latin American markets.The most significant challenge they face is thecomplexity of dealing with foreign clients andnot a lack of overall competitiveness, as has beensuggested on the basis of research carried outin the s (Wilson , ). In recent yearsit has become clear that large Mexican manu-facturers have significant export potential, butso far success in the export market has eludedsmall companies (El financiero ). Further-more, the large exporting companies appear tohave few linkages to the small national firms,which means the latter have limited direct aswell as indirect exports (Pozas , ). Thischapter explores the prospects for expandinglinkages between one segment of the Mexicantextile industry—sweater producers—and for-eign customers, taking into account the indus-trial organization of the sector, its management,and the role of private and public business asso-ciations in promoting exports. The main focusis on what is learned through manufacturer-buyer export relationships: changes in attitudes,knowledge, and skills for both the management

and the labor force in companies involved inexport operations.

In the central and western Mexican statesof Hidalgo, México, Michoacán, Guanajuato,and Jalisco are numerous towns1 in whichmanufacturing activities have taken place sincethe s, while in others continuous manu-facturing operations date from the beginningof the twentieth century. In the s the in-dustrialization of the Mexican metropolis andthe expanding national markets established anew socioeconomic context, stimulating thedecision of local entrepreneurs to producebasic consumer goods, such as garments andfootwear. Towns with early experience inmanufacturing were already exporting to theUnited States during World War II (Arias, ), but the majority of recently es-tablished firms have produced exclusively forthe national market. Mexican knitwear man-ufacturers in the s and into the earlytwenty-first century, especially those produc-ing sweaters and similar garments, are con-centrated in these small urban areas. Typicallythey have fewer than fifty employees and arefamily owned and managed. Most Mexicanenterprises that fall into this category have dif-ficulty surviving on the national market, let

alone successfully entering export markets(Calvo and Méndez ).

Contrary to the general tendency amongsmall domestic producers, however, some en-terprises in the knitwear sector thrived in thes and s. Investing heavily in advancedknitting, embroidery, and assembly technol-ogy, they have been able to produce at thedemanding quality levels required for exportto the markets of the industrialized countries.In this chapter I first discuss the current or-ganization of the knitwear sector into indus-trial clusters and how producers can forgelinkages to buyer-driven commodity chains.Second, I discuss the economic developmentof the sector in the s, and third, I analyzecases2 in which businesses and other economicactors have been engaged in establishing com-mercial relations with export markets based onfull-package supply relations. I discuss threecases that can be regarded as “success stories,”and the lessons learned from them are com-pared to the less-successful cases of exportsmediated through producer associations orconsortia.

Industrial Clusters as Links inInternational Commodity Chains

In this section I outline a model for analyzingenterprises in the knitwear sector and theirinteractions with export markets. For smalland medium enterprises (SMEs) in this sectorto succeed in exporting, they should seek to de-velop particular linkages to buyer-driven com-modity chains by engaging in full-packagesupply relations (see Gereffi ; Chapters and in this book).

It is difficult for a Mexican producer toestablish full-package supply to the U.S. mar-ket since it often involves a prolonged periodof product development, from making fabricsto cutting and assembling the final product—

all supervised by a client located far away,speaking a foreign language. Being part of abuyer-driven chain, however, has the advan-tage that once the company is geared up tomeet the demands of foreign buyers (e.g., pro-duce to the required quality levels), additionalmarket opportunities are available. Most man-ufacturers in the Mexican sweater industry arelocated in industrial clusters and can be per-ceived as links in a commodity chain.3

Enterprises located in industrial clustersmay achieve a comparative advantage overnonclustered firms because of gains derivedfrom collective efficiency. It is not the purposeof this chapter to establish which of the twotypes of organization is the most efficient ordesirable from a developmental point of viewbut rather to assess the export experience ofbusinesses that tend in this particular sector tobe located in industrial clusters. It is my hy-pothesis that the organization of businesses inindustrial clusters can facilitate the success ofnew business strategies, including exports.The analysis of the specific commodity chainfor the Mexican knitwear sector is limited tomanufacturers, the cooperation and joint ac-tion between manufacturers, and their rela-tions to third parties, such as export agenciesand overseas buyers.

The concept of collective efficiency wasinspired by the flexible-specialization debateof the s, provoked primarily by the influ-ential work by Michael J. Piore and Charles F.Sabel (). One of the examples that Pioreand Sabel drew on was the Italian case of SMEindustrialization organized in industrial dis-tricts. Hubert Schmitz formulated this newresearch paradigm at the end of the “lostdecade” of Latin American development, inthe years after the financial crisis of the earlys. Building on his previous research onsmall business in Brazil (Schmitz , ),he suggested that the model of industrializa-tion that Piore and Sabel believed to exist in

..

Italy could also be found in industrializingcountries, although the organization and thegains from clustering would differ in the twocontexts (Schmitz , ).

Schmitz initiated research on what he con-sidered a “model” case of SME agglomerationsin the Sinos Valley in Brazil: the success storyof Brazilian footwear producers (Schmitza). He defines collective efficiency as thecombined effect of external economies and jointaction (see also Schmitz ). He summarizesthe potential of collective efficiency in SMEclusters in the following way:

A group of small producers making the sameor similar things in close vicinity to each otherconstitutes a cluster, but such concentrationin itself brings few benefits. It is, however, amajor facilitating factor for a number of sub-sequent developments (which may or may notoccur): the division of labor and specializa-tion amongst the small producers; the emer-gence of suppliers who provide raw materialsor components, new and second-hand ma-chinery, and spare parts; the emergence ofagents who sell to distant national and inter-national markets; the emergence of special-ized producer services in technical, financialand accounting matters; the emergence of apool of workers with sector-specific skills;joint action of local producers, which can beof two types, individual firms cooperating orgroups of firms joining forces in businessassociations or consortia. (Schmitz , )

Schmitz has emphasized the importance ofjoint action among producers as the trigger ofinitiatives that can upgrade the competitive-ness of entire clusters—for example, partic-ipation of groups of entrepreneurs in tradefairs abroad (Schmitz a, b).

Collective efficiency is a promising startingpoint when analyzing the socioeconomic pro-cesses within clusters of enterprises. It is alimitation of the concept, however, that it isdifficult to apply in terms of the economic per-

formance of the individual firms or groups ofenterprises making up the cluster. While Ioffer a reconsideration of the concept else-where (Vangstrup ), the main interest hereis the potential for joint action among pro-ducers located in industrial clusters withrespect to creating export linkages and, in par-ticular, to delivering full-package supply. Anumber of researchers working within thecollective-efficiency framework have assessedjoint action as the driving force behind suc-cessful establishment of export linkages.

Similarly, Schmitz () has argued thatincreased export orientation is the main factortransforming embryonic clusters into efficientones in terms of business performance. Schmitz(a, b), Pamela Cawthorne (), andKhalid Nadvi () describe cases of clusters4

that have successfully reached export markets,identifying joint action combined with an effi-cient business organization as the driving force.It seems, however, that successful integrationof small and medium-sized producers intoexport markets through buyer-driven com-modity chains is more the exception than therule in Latin American, African, and SouthAsian countries. For example, Evert-Jan Visser() has studied the case of a Peruvian tex-tile cluster that did not accomplish its goal ofinitiating exports, although Visser provides sev-eral examples of joint actions among producersin pursuit of this goal.5

The Organization and EconomicPerformance of the MexicanKnitwear Industry in the s

Foreign-trade statistics are an important ele-ment in assessing the development patternof an industry, especially for an industry asdependent on global processes of consump-tion and production as the textile industry.The export performance of selected cate-

gories, covering an array of products, is pre-sented in Table ..

The increase in exports in all three cate-gories is spectacular. The export of knittedfabrics, which are relatively capital-intensive,virtually excludes in-bond, maquiladora pro-duction, while exports in the labor-intensivegarment sectors have depended heavily onmaquiladoras. In knitted garments, the exportsby nonmaquiladora producers have increased percent from to and the exportby maquiladoras percent, but the latterfrom a higher level. What is most interestingare the sweaters, blouses, and T-shirts sub-groups6 of this category. The exports by non-maquiladora producers of these products arepresented in Table ..

The export growth is not simply a reflectionof the December peso devaluation butmore of a process that was already apparent inthe data. It is important to note the lowlevel from which exports developed: Amongthe seven subcategories exports totaled

$. million, whereas in exports of thesame subcategories were $ million. TheU.S. market is the single most important des-tination for these exports.

In terms of the size and location of Mexi-can knitwear producers, the economic censusof identified a total of , knitwear-producing enterprises. The census operateswith five categories, which include hosieryproducers, sweater producers, fifty-sevenunderwear producers, ninety-five cloth pro-ducers, and producers of outerwear andother products (INEGI b, ). An inter-esting characteristic of the group of sweaterproducers is that they are predominantlylocated in small towns in central and westernMexico.

Table . lists eleven sweater-producinglocalities that vary in their importance as cen-ters of knitwear production, along with thenumber of producers located in each localityin . To these can be added a few largerurban areas such as Aguascalientes, Puebla,

..

.. Mexico’s Textile and Apparel Exports, Selected Categories,Including Maquiladoras (in U.S.$,)a

1993 1994 1995 1996

Knitted Fabrics (Chapter 60)b

Nonmaquiladora 7,268 11,779 38,725 52,615Maquiladora 1,307 683 188 267Total 8,575 12,462 38,913 52,882

Knitted Garments (Chapter 61)b

Nonmaquiladora 44,581 59,491 183,223 333,123Maquiladora 168,945 342,138 678,422 941,098Total 213,526 401,629 861,645 1,274,221

Woven Garments (Chapter 62)b

Nonmaquiladora 73,963 120,055 261,403 448,618Maquiladora 710,985 978,285 1,340,569 1,834,367Total 784,948 1,098,340 1,601,972 2,282,985

Source: INEGI (, a, , ).

aMexican trade statistics are published in both Mexican pesos and U.S. dollars. Since the author did nothave access to U.S. dollar figures for and , Mexican pesos were converted into dollars using theaverage exchange rate provided by the International Monetary Fund. For the ‒ period the averagepeso–U.S. dollar exchange rates were . (), . (), . (), and . ().

b“Chapter” numbers refer to the standardized WTO product categories.

and Tulancingo, but the production in theseareas is not comparable to the output ofsmall-town manufacturers. This places theknitwear industry, especially the sweater seg-ment, in a situation that is contrary to mostindustries owned by Mexican capital, the lat-ter being concentrated in the three largesturban areas: Mexico City, Guadalajara, andMonterrey.

The published census does not distinguishbetween the five subcategories on the countyor municipio level, making it difficult to assesthe number of sweater producers. But to myknowledge the knitwear producers in theeleven localities are almost entirely sweaterproducers, although some areas, in particularMoroleón, have a number of fabric manufac-turers (i.e., producers who perform only theknitting process, not garment assembly). It isalso probable that the census is underes-timating the number of knitwear producers,especially those located in small towns.7

Market Integration and EconomicPerformance of Sweater Producers in the s

Sweater production is located primarily insmall towns as a result of economic and socialprocesses that have evolved over decades. Inthe industrial centers in which knitwear pro-duction was first established, Mexico City andGuadalajara, the industry could not growquickly enough to catch up to the proliferationof enterprises in the smaller towns, and theindustry entered a decline from which it hasnot recovered (Lailson ). In the boundedsocial spaces of the small-town clusters, indi-viduals and whole families were mobilized astextile entrepreneurs, coinciding with a grad-ual technological upgrading and an integra-tion between businesses and informal markets.

The most important technological elementin sweater production is knitting technology.Much secondhand machinery has entered

.. Exports of Selected Knitwear Products by NonmaquiladoraManufacturers, ‒ (in U.S.$,)a

1993 1994 1995 1996

61.05.10:b Men’s and boys’ shirts/cotton 1,504 642 4,532 14,568(�57%) (706%) (321%)

61.05.20:b Men’s and boys’ shirts/synthetic 649 760 1,295 1,847(117%) (170%) (143%)

61.06.10:b Women’s and girls’ blouses/cotton 2,929 5,279 6,588 10,988(180%) (125%) (167%)

61.06.20:b Women’s and girls’ blouses/synthetic 139 196 3,746 12,609(141%) (1,911%) (337%)

61.09.10:b Underwear T-shirts/cotton 2,640 7,945 55,763 123,203(301%) (702%) (221%)

61.10.20:b Sweaters/cotton 1,146 2,941 5,631 13,433(257%) (191%) (239%)

61.10.30:b Sweaters/synthetic 2,818 5,574 15,103 17,401(198%) (271%) (115%)

Source: INEGI (, a, , ).

aPercentages indicate increase over the previous year’s exports. Mexican trade statistics are published inboth Mexican pesos and U.S. dollars. Since the author did not have access to U.S. dollar figures for

and , Mexican pesos were converted into dollars using the average exchange rate provided by theInternational Monetary Fund.

b“Chapter” numbers refer to the standardized WTO product categories.

Mexico from the United States, whereas newmachinery was imported from Japan or Eu-rope, especially Italy, Spain, and Germany.Knitting technology has developed from rudi-mentary artisanal manual devices to computer-controlled machines in a few decades. In contrastto many other sectors, the Mexican knitwearmanufacturers have managed to acquire state-of-the-art technology, so that the most advancedmachines are found in Mexico. Another im-portant technological development that man-ufacturers have widely implemented in recentyears is computerized embroidery machinescapable of stitching logos on almost any kindof apparel, including sweaters. The highest con-centrations of embroidery machines in Mex-ico are found in the towns of Moroleón andUriangato, which together had approximatelythree hundred embroidery machines in .8

An important aspect of both knitting and em-broidery machines is their low economies ofscale, making it possible for small firms tooperate in the industry.

Mexican knitwear producers depend on na-tional synthetic-fiber and -yarn manufactur-ers. Synthetic yarn constitutes close to

percent of their yarn input and to per-cent of variable costs. The cost of yarn in-creased more than percent after the

devaluation, and for most producers it has notbeen possible to increase sales prices to thesame extent. The knitwear sector was alsoaffected by Mexico’s general trade liberaliza-tion, with being the most difficult year.Nevertheless, at least some clustered enter-prises experienced high growth in the s,and the industry of Moroleón establisheditself as the indisputable center of knitwearproduction in Mexico. The average annualgrowth in investments in the ‒ periodreached . percent, and the average accu-mulated investment per company in was$,.9

The situation faced by home-market pro-ducers has improved significantly since

for two reasons: first, the December pesodevaluation, which increased the prices onimported goods; and second, the impositionof a percent import tax on knitwear imports(Chapters , , and the majority of , ac-cording to the World Trade Organization, orWTO, product categories) from countries withwhich Mexico does not have any trade agree-ments, for instance, a non–World Trade Orga-nization member such as China (SECOFI de-cree DOF..V.).10 This change is reflectedin the importation of sweaters (Chapter .

in the WTO classification) to Mexico, whichhas developed as follows in the ‒ pe-riod:11 $ million (), $ million (),$ million (), and $ million ()(INEGI , a, , ).

Enterprises within industrial clusters havebeen using seven different marketing strate-gies: informal markets, mail-order sales, sweaterfairs, national department stores, franchise-based retail chains, producer consortia, andexports. While the latter four are discussed in

..

.. Knitwear-Producing IndustrialClusters

Number ofknitwear producers

according to the 1993 economic

Location census

Moroleón, Guanajuato 178Uriangato, Guanajuato 66San José Iturbide, Guanajuato 24Villa Hidalgo, Jalisco 63San Miguel el Alto, Jalisco 60Santiago Tangamandapio, Michoacán 0a

Cuautepéc, Hidalgo 16Santiago Tulantepec, Hidalgo 6Jilotepec, Estado de Mexico 13Coscomate, Estado de Mexico n.d.Chiconcuac, Estado de Mexico 11

Total 437

Source: INEGI (b).

aAlthough the INEGI census data indicate no knitwear produc-ers in this locality, Wilson () discovered fifty knitwear enter-prises there in the mid-s.

the case studies to follow, I comment here onthe significance of the informal markets, thetianguis, which have made up the most impor-tant marketing strategy for clustered enter-prises. Informal markets were established inthree of the eleven localities (Moroleón, Uri-angato, and Villa Hidalgo), and they flourishedin Chiconcuac—an old market town close toMexico City and not far from Cuautepéc andSantiago Tulantepec—after the devalu-ation as consumers began to demand and searchfor cheaper garments.

At present, local retailers buy apparel notonly from the local industry but from all overMexico. In Villa Hidalgo the customers mainlyarrive from the northern parts of the country,while in Moroleón they come from the centraland southern parts and in Chiconcuac fromMexico City. During the last four months ofevery year, which constitute the high season,several hundred buses arrive on market days.Moroleón producers benefit not only from thelocal commerce but also from the tianguis inthe conurban area of Uriangato and from athird tiangui established in in the town ofYuriria, a few miles from Moroleón. In ,

Villa Hidalgo had approximately clothingretailers;12 I have no precise data for the otherareas. The existence of informal retail marketsa close distance from the producers in anindustrial cluster is an important factor forindustrial success from the mid-s onward.

The Export Experience of ThreeSuccessful Exporting Companies in the Mexican Knitwear Sector in the s

I begin the analysis with a discussion of threeenterprises that have initiated exports as aresult of direct contacts they developed withforeign economic actors. The companies aregrowing increasingly independent of the in-

dustrial clusters in which they are or previ-ously have been located. In the next section Idiscuss the export strategies of companies lo-cated in enterprise clusters. They have changedtheir marketing strategies—that is, export salesversus sales to national department stores—as a result of their engagement in businessassociations and consortia.

The Salvatierra Company

Two companies that were founded in Moro-león have a long export experience. I refer tothem as the Salvatierra and Celaya companies.Both began exporting in the s. During thelast ten years they have become less dependenton the local industrial cluster to the extent thatthey relocated from the Moroleón cluster inthe s to communities with little textileproduction, away from what management per-ceived as a deteriorating business environmentcaused by labor shortage.

The Salvatierra company was owned by theSoto family since the early s, and it is nowmanaged by the founder’s oldest son, whorecently took over this responsibility from hisfather. When asked how they got started asexporters, Soto explains that in his com-pany was contacted by a Canadian firm thatwanted to source from Mexico. The Salva-tierra company accepted the business proposal,although it was not very attractive, because itprovided the company with production in thelow season and it could be an important expe-rience. The Salvatierra company soon shiftedits focus to the U.S. market and maintainedthis orientation in subsequent years. It hasrecently diversified its client base, which nowincludes Sears and a New York broker, and ithas also begun exporting to other countries inLatin America. Since the early s the Sal-vatierra company has been selling throughMexican department stores, and at present itworks with ten different stores. It sells almost

nothing in the tianguis, which is rather excep-tional for knitwear producers.

In the owners decided to move theassembly operations to another town, twenty-five miles away. Although this was a difficultdecision to make, the move was necessary be-cause a stable labor force was no longer possiblein Moroleón during the peak period of pro-duction. The expansion of the knitwear indus-try means so many jobs in the peak period thatworkers are able to “shop around” in terms ofemployment opportunities. Soto feels that henow has a much more flexible labor force, forwhich he is paying only about half the wagerate that is typical for Moroleón. Soto is plan-ning to build a new factory in the town whereassembly takes place in order to achieve a moreintegrated production process. Currently allfabrics are still made at the plant in Moroleónand shipped to the assembly plant.

The Celaya Company

The owner of the Celaya company, Mr. Váz-quez, graduated from business school in theUnited States and returned to Mexico withthe idea of using his newly acquired skills,including the ability to speak English, toexport to the U.S. market. Vázquez has severalrelatives who have been involved in the textileindustry in Celaya and Apaseo el Alto. Hechose to set up his business in Moroleón in in order to take advantage of the businessopportunities there. That year Vázquez cameinto contact with a major garment distributorlocated in New York, and they began a long-term cooperative relationship. The U.S. dis-tributor designs and develops the specifica-tions for knitted baby garments that the Celayacompany produces. The distributor sells thebaby garments to department stores, such asWal-Mart and JCPenney.

Right from the start Vázquez did things dif-ferently than most producers in Moroleón. He

quickly got into exports, exporting almost

percent of production during the next fouryears. In exports were negatively affectedby the overvaluation of the peso, and the Ce-laya company started to sell on the nationalmarket through department stores. In ,

Vázquez decided to move the business toCelaya, and he resumed exports after the

devaluation.When Vázquez operated in Moroleón, he

did not invest in knitting machinery, preferringinstead to establish a network of approximatelyeight subcontractors that manufactured thefabrics. He hired a young woman from thetown to help him manage this supply network,which involved working with the fabric man-ufacturers to overcome their difficulties inproducing to the exact specifications requiredby the New York client. Later this woman be-came a partner in the firm, and she is now theproduction manager of the Celaya plant.

Vázquez decided to leave Moroleón becauseof the deteriorating work environment. TheCelaya company had difficulties with both itssubcontractors and its own employees. Vázquezcharacterizes the labor market in Moroleón as“devastating” for a business like his. The work-ers demand a salary but are disloyal to theiremployer and show up for work “whenever theyfeel like it.” In Moroleón, Vázquez paid a salaryof Mexican pesos13 per week to the seam-stresses, while he claims to pay only inCelaya to the female workers.

In a number of important changes oc-curred in the enterprise, which was by thenlocated in Celaya. The company hired twoengineers, a male mechanical engineer and afemale textile engineer. The mechanical engi-neer was put in charge of fourteen recentlybought knitting machines. The textile engineeroversees production, together with Vázquez’sassistant, whose responsibilities also includemaintaining contacts with the company’s U.S.customers. The most important change in

..

terms of production has been better control ofthe production processes in order to establishbetter quality control. The company has plansto construct a new plant outside Celaya.

The changes that have occurred in the Ce-laya company have grown out of the firm’sexperiences in Moroleón as well as its rela-tionship with American buyers. The difficul-ties with producing in Moroleón convincedVázquez of the need to improve the company’sorganization by integrating the whole produc-tion process in the same plant, and the com-pany’s stable relations with its U.S. customersmade it possible for the firm to make the long-term investments necessary for this reorgani-zation. Although the Celaya company main-tains its long-standing relationship with theNew York distributor that helped launch itsproduction in , it has also recently begunworking with a second buyer also located inthe United States. By late the Celayacompany had orders for the next six months,with guarantees for additional contracts in thefuture. Furthermore, its long-term customerfrom New York put Vázquez in contact with aU.S. supplier for secondhand knitting tech-nology from whom his company is now buy-ing, and the U.S. distributor is partly financ-ing the purchase of this machinery.

The San Miguel el Alto Company

In an industrialist from Guadalajara es-tablished a factory in San Miguel el Alto,Jalisco, producing sweaters and sweatshirts. In the factory had about three hundredemployees and had established a formal cor-porate structure, with professional adminis-tration including a sales division—somethingthat was not found prior to the s in thesweater industry, in the industrial clustersmentioned previously. In the companyexpanded when it established a mill to producesynthetic yarn. In the s and s new

divisions were added, producing elastics, ho-siery, and knitted fabrics, and an industrialgroup took form. Apart from its own growth,the company had an important impact on thesubsequent industrial development of SanMiguel. In fifteen local families ownedworkshops in the textile industry, each em-ploying about ten workers (Martínez Saldañaand Gándara Mendoza , ‒).

The company is still family owned andpartly managed by the founder and his twosons, but professional managers have played animportant role in the company’s restructuring.Between my first visit to the factory in Novem-ber and my second visit in August ,

the enterprise underwent fundamental changesand focused on exports as the most importantelement of its business strategy. In thecompany had its first experience with exportingto the United States, working with Phillips–Van Heusen as well as department stores. Forexports to succeed, it was necessary to imple-ment a whole new organization of production,especially with regard to the assembly of gar-ments. In the company hired two newmanagers to implement changes: One was anArgentine engineer, an expert in productionsystems, and the other was a Mexican salesmanager, fluent in English and used to dealingwith the expectations of American clients.

Assembly is now organized around a newproduction scheme—modular production—that resembles a combination of teamwork andjust-in-time organization of internal work pro-cesses. The sewers, mostly young women,work in groups or modules of six to eight work-ers, in which all assembly activities are per-formed. The company has invested in newcomputer-controlled sewing machines thatmake quality control easier. Under modularorganization, it is possible to determine thenumber of garments to be made in a given timeperiod because capacity is always known. Thisorganization also increases flexibility since the

modules can work with different styles simul-taneously, and it increases worker commitmentand quality. The actual production of eachmodule is written on a blackboard together withthe production goal for the day. Other plants inthe town perform the knitting and cutting, butthe operations are strictly coordinated.

The goal is not to knit anything before it canbe immediately cut and assembled in order toavoid inventory, and the organization has re-duced the throughput time from knitting to thefinished garment from thirty-five days to fivehours. According to the managers, their mainproblem is the absence of good supervisors,which they explain by the plant’s remote loca-tion, making it difficult for them to work morethan one shift of nine hours per day. Theadvantage to the company of the location andlack of alternative employment is the low levelof operator salaries, which are similar to thosepaid by the Celaya company. The companyused to contract out assembly operations tolocal firms, but these operations were inter-nalized in order to improve quality. With theexception of labor, the company is thereforebecoming increasingly independent of localinputs. The company still buys some fabricsfrom a few manufacturers located in Moroleón.

The changes in organization were necessaryto increase production volume and improvequality at the same time. Both factors havebeen essential to the company’s export success.Whereas in the San Miguel el Alto com-pany produced approximately five thousanddozens of garments, in they planned toproduce more than eighty thousand dozens.14

While a substantial part is destined for thenational market, more than $. million worthof that production will be exported, primarilyto the United States and Canada but also toVenezuela. The company plans to increaseproduction annually by million units until itreaches million units, and it expects to exportthe majority of this volume to the United

States. The sales manager explained that thecompany was actually rejecting clients, sinceit lacked the additional assembly capacity itwould need to expand its customer base.

Discussion of the Three Cases

I regard these three enterprises as successfulcases of transition from suppliers to the homemarket to full-package suppliers to the U.S.market. These transitions were made possibleby improvement of the companies’ organiza-tion—for example, they are relying now on anincreased number of specialized managers.They are exporting low-priced garments, madewith basic fabrics almost exclusively from syn-thetic fibers. Operating in this highly compet-itive segment provides these companies with astrong incentive to improve their organizationin order to increase efficiency. In all companies,learning processes have occurred over the yearsthat have resulted in an improved organizationof production and higher-quality output. Thelearning processes develop through interac-tions with foreign clients, combined with thechallenges of day-to-day management.

The speed with which changes are imple-mented as a result of learning processes varies.For example, while the Salvatierra companyhas slowly improved its organization over theyears, the Celaya and San Miguel el Alto com-panies have done so in a short period of time.The San Miguel el Alto company initiated asearch process to identify the best managersand most suitable partners, while the Celayacompany did not have the same financial andorganizational resources and found new man-agers in its immediate environment. Thecompany’s long-standing contact with theU.S. client was essential for it to initiate thechanges. The integration between the pro-duction of yarn and fabrics is an enormousadvantage for the San Miguel el Alto com-pany, since its access to yarn both increases

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revenues and facilitates planning. Knowing theright clients is essential, and good clients can bescarce. The Celaya company seems to havebenefited the most from its client relations,while the Salvatierra company is dissatisfiedwith its client relations, primarily because ofprice. The San Miguel el Alto company has thestrongest client position of the three since itsorganization permits it to choose the clients itswants, but this company has also been througha long process of adaptation in which clientrelations were a major facilitating factor.

The three enterprises are embedded in arange of different networks. They have accessto federal agencies, such as the Banco Nacionalde Comercio Exterior (Bancomext) and Nacio-nal Financiera (NAFIN), and in some casesdirect linkages to state governments. They havedeveloped their organizations to the extent thatthey do not need the facilitating aspects of loca-tion in industrial clusters—that is, a special-ized workforce and technology. They trainworkers themselves and have implementedtechnology according to their needs, not be-cause of prevailing norms of technology inindustrial clusters. The clustered enterprisesare exposed to an economic environment inwhich there are both constraining and enablingfactors that influence their possibilities of en-gaging in exports. In the next section I analyzethe role of business associations and producerconsortia in promoting exports.

Business Associations in ExportPromotion: Credit Unions andProducer Consortia

This section deals with two types of associa-tions: the credit unions and the producers’ con-sortia, both emergent from legislation passedduring the administration of President CarlosSalinas de Gortari (‒). The credit unionslocated in Moroleón and Cuautepéc are dis-cussed together with producer consortia in

Cuautepéc and Villa Hidalgo. I first discuss theinstitutional setup of the producer consortiaand credit unions together, arguing that thepolitical motives behind their establishmentand the objectives they fulfill are similar.

Between and , during the Salinasadministration, some four hundred creditunions were established as intermediaries forNacional Financiera, the Mexican develop-ment bank (El financiero ). NAFIN hasplayed an important role in the development oflarge corporations in Mexico, both private andpublic. The bank dramatically changed itspolicies during the Salinas administration:While previously it channeled almost per-cent of its funds to public corporations, after the private sector received percent ofits total support (Rojas and Rojas , ). Ina policy paper, NAFIN’s role is stated the fol-lowing way: “The institution has shifted frombeing the development bank of a proprietarygovernment to become the development bankof a solidary government” (NAFIN , ).From on, the bank began granting cred-its only through intermediaries—that is, com-mercial banks and credit unions.

The stated objective of both credit unionsand producer consortia is to improve the com-petitiveness of Mexican SMEs in the globaleconomy. They were created as local institu-tions, initially branch-specific, so that theycould be “experts” of the local manufactur-ing and service industry they were serving.Like the producer consortia, credit unionswere owned by local entrepreneurs, but thefinal decision on approval of credits was madesolely by NAFIN. It was, however, possible fora credit union to provide credit with its ownresources without consulting NAFIN. Creditunions make their revenues by charging amarkup on interest rates and through the otherservices they may provide. The possibility ofproviding services, for example, in organizingsales, is also the main difference between creditunions and commercial banks.

After three years of fast growth, the Mexi-can peso crisis and the change in administra-tion put an end to most credit unions. In ,

NAFIN continued to work with fifty-six ofwhat were originally more than four hundredcredit unions, one of which was the creditunion of Cuautepéc (NAFIN ).

The producer consortium system of empre-sas integradoras, or integrated enterprises, isparallel to the credit union system. The impor-tant difference is that the consortium has lessaccess to credit, since NAFIN does not want tofinance collective projects, only the individualmembers. This indicates that NAFIN had lit-tle confidence in the accountability and viabil-ity of producer consortia. The legislation onwhich the producer consortia are based waspassed by the Salinas administration in .

The immediate aim of the organization was toencourage SME producers to cooperate in theproduction of services, improving the compet-itiveness of the members working in the samesector. The presidential decree lists the follow-ing services that can be provided by the neworganization to the member companies: imple-mentation of new technology, commercializa-tion, design, subcontracting, financing, andother types of consulting (Diario oficial ).

The number of producer consortia increasedin the s, reaching in . Interest-ingly enough, textiles and apparel are the sec-tors that have generated the most producerconsortia in recent years. Between January andOctober , consortia were established inthe textile sector and in the apparel sector(SECOFI ). The Mexican producer con-sortia15 have received more scholarly attentionthan has the credit union program.

The Credit Union of Moroleón

The Moroleón credit union was established in and by late had members. Thecredit union has been successful in providingcredit to the local industry but was forced to

discontinue its activities after the December peso crisis. According to the staff, the dis-continuation was not because of its economiccondition, which was good, but because ofNAFIN’s politically motivated decision to cutoff credits. Although it is not supposed to be akey objective of credit unions, the director ofthe Moroleón credit union took an early inter-est in promoting exports. Management coursesin exports were arranged, but the most impor-tant influence was through selecting local part-ners for interested foreign companies that con-tacted the credit union director as a result of hishigh profile in the local business community.

Although few producers were interested inthe management courses that the credit unionoffered or in exporting, some contacts devel-oped. The first entrepreneur to engage in ex-ports was Mr. Martínez, who had been wellconnected to the credit union and its managerfor several years. Martínez took an interest inthe possibilities of exporting because of per-sonal financial problems resulting from the crisis. He received export orders from aNew York–based broker but discontinued therelationship because of problems with the pay-ments, and because he felt the broker was toodemanding. Martínez later began to subcon-tract for a Mexican producer16 located in Celayawho, for a number of years, had been export-ing to South America and the United States.Martínez earned less this way but was moresatisfied with the relationship. He feels it isbetter for the workshop to specialize in pro-duction, leaving the international marketingto others and exporting only indirectly.

The Producer Consortium of Villa Hidalgo

In a group of three workshop owners,looking to identify new marketing strategies,decided to contact one of the national depart-ment stores. The department store preferred towork with larger producers and suggested thatthe three companies create a group. In

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two of the three producers had been on a tripto Italy together, along with seven other localproducers, in an effort to learn how the Ital-ians organized themselves in small garment-producing towns. Another objective of this tripwas to investigate the possibility of purchasingnew knitting technology. NAFIN initiated andpartly financed the trip. Several members ofthe group told me they were very impressed bywhat they saw in Italy and thought they shouldreplicate the form of cooperation between pro-ducers that they witnessed there. In early ,

NAFIN invited the same group to visit a suc-cessful producer consortium of apparel pro-ducers in Atotonilco, Jalisco. After this the pro-ducers decided to establish a consortium underthe terms of the empresas integradoras legis-lation, and their organization soon numberedtwenty-three producers.

Their first project was to design a commonline of clothing that they would offer to na-tional department stores. On the day of theirfirst business meeting, for which they hadinvited a designer from Guadalajara, anotherperson from Guadalajara, Miguel Sedano, vis-ited Jesús González, the president of the localbusiness chamber and also one of the initiatorsof the consortium. González invited Sedano toparticipate in the meeting, at which Sedanoexplained his own ideas for exporting to theUnited States. Sedano told the owners of thecompanies assembled for the meeting about hisexperience as a sales manager working for alarge sweater plant in Guadalajara, and heoffered to work with them in initiating exports.

The leading members of the consortiumagreed to work with Sedano with the goal ofexporting sweaters to the United States. Se-dano explained that their first action would beto make samples for a U.S. client with whom healready had contacts. The American client,whom Sedano introduced to the consortium,was an important New York–based garmentbroker. The company had suppliers in more

than fifteen developing economies and was in-terested in adding Mexico to its list of suppliercountries. The broker’s interest in Mexico wasdue primarily to the country’s proximity, mak-ing it possible to reduce both transportationand financial costs considerably while increas-ing flexibility. The broker’s representativestated that the company would place orders ofas much as $ million in Mexico on a yearlybasis if an agreement could be reached. Theclient required that the Villa Hidalgo producerconsortium develop a new spring line in col-laboration with one of its designers, finishingthe sample making by mid-December in orderto start production and shipping in January.

The workshop owners, however, were notprepared for this time-consuming and tediouswork, which required fundamental changes intheir organization. They were used to makingvery few models that they repeated year afteryear, so in the beginning they simply saw it asa waste of time. The person who best under-stood Sedano’s modus operandi and the result-ing demands the U.S. broker was placing onthe consortium members was the president ofthe consortium, Antonio Moreno, who wasalso the owner of the largest sweater plant inVilla Hidalgo, the only one that could rivalmost of the Moroleón workshops with its Ger-man flatbed computerized machines. Morenowas also a member of the group of three pro-ducers who had initially contacted the Mexi-can retail chain. At this point Sedano felt thathe could trust Moreno, whom he thought ca-pable of influencing the other owners.

Moreno’s company, called Originales Futura,and another, Maroly, also making use of com-puterized machinery and a computer pro-grammer, made most of the samples whilesmaller workshops made the simpler ones. Allthe producers felt that sample making was aproblem since it had to take place in the highseason, during which an idle machine wouldmean a loss. An owner using automatic ma-

chinery explained that he had to spend threeweeks making a single sample. In the work-shops that possessed computerized machinerythe process went much faster, but it was still aproblem.

The American client signed a contract inApril directly with Sedano, who decidedthat the producer consortium should makethirty-seven sweater styles and the Aguas-calientes plant the remaining thirteen, for atotal of five thousand dozens. In August

the producer consortium began exporting, andlater in , Bancomext, which had contactsto a potential client in Costa Rica, contactedthem. This client needed women’s garmentsthat were rather simple compared to those theconsortium was shipping to the United States,making it possible for a number of owners withless developed technology than that of the twolargest members to fill this order. The work-shops belonging to Moreno also began export-ing to Chile independent of the consortium asa result of contacts with Bancomext.

This export experience brought major or-ganizational changes to the two largest work-shops, Originales Futura and Maroly. Theybecame responsible for almost all of the assem-bly, while the rest operated as subcontractorsproducing part of the knitted fabrics. Thequality requirements of the U.S. broker madeit necessary to change many routines in assem-bly and finishing. The consortium presidentdecided to integrate the assembly and finish-ing in the two largest plants in order to achievethe necessary quality.

There was little discussion among the part-ners about the business and the needed invest-ments and changes in structure. Several own-ers talked to me about investing in knittingtechnology that would be more appropriate forthe American market, but the necessary stepshave not been taken. There are two reasonsfor this: The smaller member companies werecontent with their sales on the national mar-

ket, and they felt the two largest companieshad taken over the consortium.

The future looked promising at first glance,but the consortium never returned to export-ing again. The reason was lack of trust amongmost of the participants and a difficult finan-cial situation. Apparently, some members hadno confidence in the new manager, who theyfelt was too strongly connected to Moreno. Thiscaused the manager to leave the consortium inDecember . Moreno’s company was ableto export smaller orders to JCPenney in

and , but in it had given up export-ing for the time being because of good salesin the domestic market. Moreno felt that theexport experience had been important, since itwas no longer a problem to produce the qual-ity demanded by the department stores.

The Producer Consortium and Credit Union of Cuautepéc

The producer consortium of Cuautepéc (LaCorporación Industrial de Tejido de Punto, orCOITEP) differs from that of Villa Hidalgo inone important aspect: It merged with theCredit Union of Cuautepéc and thereforeenjoys strong financial support. The creditunion was established in and the consor-tium in by the same group of producers,and this later facilitated the merger betweenthe two organizations. An additional differencebetween the Cuautepéc credit union and mostother credit unions is that NAFIN did not cutits credit after the devaluation, due to abetter economic situation and possibly betterpolitical contacts to NAFIN.

Shortly after the establishment of COITEP,a number of interesting initiatives were takenaimed both at improving the members’ situa-tions on the national market and at initiatingexports. COITEP bought two advanced com-puterized knitting machines and established achain of sales outlets. The members financed

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one of the knitting machines while the creditunion financed the other, with the intention ofusing it partly to produce “in common” forCOITEP’s exports. When not being used forthis export production it could be “rented” toindividual consortium members, who couldbuy production time according to their needs.

The chain of sales outlets the consortiumowned proved to be a success. The first twoshops were located in Chiapas, and in sixmore opened in central Mexico, all on a fran-chise basis. Despite this, the consortium raninto economic difficulties, primarily because ofthe investments in the two knitting machines.An additional reason was the lack of commit-ment on behalf on the members, since they didnot provide the shops with the necessary mer-chandise in the high season. The credit uniontook over all assets in ; the consortiumcontinued to operate as a sales agent on thenational market and as a distribution center forthe credit union. The producer consortium wasestablished by a group of credit union mem-bers who wanted to engage in new activities,but because of financial problems they had tomerge with the credit union, although theywere still officially two distinct organizations.

In the period after the peso devalua-tion, the main concern of the credit uniondirector and the board was to avoid bankruptcyfor the whole union. After the merger of thetwo organizations a new set of initiatives wastaken involving both, but under the supervi-sion of the credit union director and his staff.The director developed three sales strategies:() increased sales on the domestic marketthrough department stores, () setting up theirown retail chain, and () the initiation ofexports. In the credit union hired fournew staff members to implement the threestrategies, and the consortium hired a man-ager to make contacts with department stores.Administration of the retail chain and exportswere now handled solely by the credit union,

while the department-store business was dealtwith by both organizations.

The results were promising at first, as Mex-ican department stores (e.g., Aurrera and Wal-Mart/Mexico) were interested in sourcingfrom national producers since the devaluationhad made their prices competitive. Membersof the credit union were invited to presenttheir collections to interested buyers; the newcredit union staff developed the designs thatthe stores requested; and members shared thelarge orders. The credit union purchased theacrylic yarn, lending it to the producers.Orders were made directly with the creditunion, which paid the producers sixty daysafter orders were delivered.

In January the credit union directorwas no longer very optimistic: Although themembers had experienced a good season interms of sales, they had difficulties securingthe commitments of the department stores.Because of the improved market situation ofthe tianguis—especially Chiconcuac, which iswhere the Cuautepéc producers sell most oftheir output—the producers were reluctant tofulfill their orders with the department stores,which offered smaller revenues while beingmore demanding. The credit union had ac-cepted orders of sixteen thousand dozens fromthe department stores but could only deliverten thousand. In addition, the producer con-sortium made orders of fifteen hundred dozensthat it managed to deliver.

By early the retail chain was a successin terms of sales, and more outlets were to beopened. The planned export program had notbegun, but the sales at department storeswould be continued. The results of these ini-tiatives were mixed, but the economic situationof the member producers and the credit unionas such improved in . The better financialsituation is partly due to the new marketingstrategies but mainly because of more sales inthe tianguis.

Discussion of the Producer Organizations

The producer associations and consortia dis-cussed above operated as organizing agents. Iargued earlier that such organizing agents maycontribute to the diffusion of knowledge aboutand changes in attitudes and skills related toexporting. The three case studies have shown,however, that it is difficult to establish an effi-cient working organization.

In Moroleón the credit union did not actu-ally have a clear strategy about how to promoteits member companies, but the experienceshows that considerable upgrading can takeplace if a company is connected to the rightcustomer. This case also exemplifies that themanufacturer-buyer relationship is not a one-way process; customers can and should learnthrough their interactions with manufacturers.During its second attempt to source fromMoroleón, the New York–based client investedmore time and offered better working condi-tions, although no long-term relationship wasestablished.

The Villa Hidalgo producer consortiummanaged to export, but lack of financial con-trol by the partners, combined with mistrustbetween managers and the partners, made theproject fail. The Cuautepéc consortium andcredit union did not manage to export, but itbecame a supplier to the national departmentstores. The members preferred, as did mostmembers of the Villa Hidalgo consortium, tocontinue working primarily on the nationalmarket.

From an efficiency point of view, the opti-mal business association is what the producersin Cuautepéc attempted: to establish closeconnections among a private business associa-tion, the consortium, and a semipublic associ-ation such as the credit union. I believe thisorganization is superior to the Villa Hidalgoconsortium, because the latter lacked workingcapital and financial expertise, and better than

the Moroleón credit union, because it did nothave a staff to undertake the management ofthe new marketing strategies.

The case studies of these business organi-zations show that they have potential but alsothat they are fragile: A mixed or negative expe-rience can ruin interest among and supportfrom the members, and disagreement betweenpartners and managers is common. Managersof business associations develop their skillsover time, through interaction with clients andas a result of adjusting their daily routines tothe requirements of buyers. It is likely that dis-agreements between the managers and part-ners develop because managers do not feel thatthe individual owners manage their businessesaccording to the needs of the organization andbecause the producers are not used to dealingwith highly skilled employees.

A logical answer to the problem would be tocreate institutional setups that can accumulatesuch knowledge by learning from past experi-ences, but such attempts have been infrequentin Mexico. For example, the credit union pro-gram was dismantled without a proper evalu-ation of its costs and benefits. The problem isnot that the Mexican government is unable tointervene but that government agencies havenot been capable of learning from the suc-cesses and failures when it comes to promot-ing exports from SMEs.

Conclusions

In this chapter I have examined the Mexicandomestic sweater industry in order to assessthe potential of entrepreneurs and enterprisesto participate in subcontracting relationshipswith foreign clients. The case studies of thethree successful exporters have shown that forMexican companies to export through buyer-driven networks, changes in management prac-tices are necessary. These can be fostered both

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internally and by interaction with foreignclients. The practices associated with export-ing are different from those that have prevailedamong enterprises operating on the nationalmarket, which sell the majority of their pro-duction to the tianguis, where customers pre-fer low prices and accept low quality in finish-ing. This is in contrast to the North Americanmarket, where finishing quality has to be higheven in the low-priced segment, which all thecompanies studied are serving.

Management practices and the organizationof the firm are becoming more efficient in thes. While this may not be true of all enter-prises, it is especially true for enterpriseslocated in the Moroleón industrial cluster.Important reasons for this include the recenttechnological upgrading of the sector and in-creased competition in the national market.Management practices in Moroleón in manycases have also been influenced by the entry ofsecond-generation entrepreneurs, often pro-fessionals with former work experience.

Despite their potential benefits, in some sit-uations external “dis-economies” develop inindustrial clusters. For example, in the Moro-león industrial cluster dynamic growth in thesweater sector created a labor shortage. This ledentrepreneurs to leave the community, andoften the firms that chose to leave were amongthe best-organized companies and those mostcapable of managing the transition to exporting,for example, the Salvatierra and Celaya compa-nies. Many producers in Moroleón believe thatlow assembly quality, which they attribute tothe unstable labor situation, is the most impor-tant impediment to companies that want to ini-tiate export programs.17 There are producers inMoroleón that are improving the physical con-ditions of their facilities and offering workersbetter conditions (e.g., year-round employment)in the hopes of lowering turnover.

Larger companies in the apparel sector tendto be relatively successful exporters. It is im-

portant, however, to study as well the exportpotential of clustered companies. First, thevast majority of manufacturers in the sweatersector are located in industrial clusters, andthese clusters collectively contain the largestexport potential in the knitwear segment of theapparel industry. Second, developing relation-ships with foreign clients is an importantmeans of improving the sector’s overall com-petitiveness. Increasing competitiveness for thesector will also benefit the companies that servethe home market, which is becoming increas-ingly open to global competition. The benefitsexporting companies receive in terms of im-proved overall competitiveness are probablythe most important reason to export.

Different institutional environments medi-ating manufacturer-client relations have beenanalyzed based on the concept of joint actionamong manufacturers, the second element ofthe collective-efficiency model. The conclu-sion is that the learning experience withinbusiness associations has been more individualthan collective. The important learning effectshave been internal to the firms, and this expe-rience has not been diffused equally among themembers. At the same time the staff membersof these various associations have benefitedfrom the “export learning curve,” but thislearning process has not been institutionalized.Consequently, business associations and pro-ducer consortia are not efficient facilitators ofexports.

Mexican knitwear producers are not in thesame position as many other Mexican compa-nies, which lack the technology and capacity toengage in exports or even to compete success-fully on the domestic market. To the contrary,many knitwear producers have high techno-logical levels and have improved their organi-zation significantly in recent years. From a visitto Moroleón and Villa Hidalgo during thesummer of , I learned that few new enter-prises had engaged in exports, but the attitude

in the producer communities, at least in Mo-roleón, had changed. Because of stagnation inthe domestic market in , several produc-ers that before had been skeptical declared thatthey would now pursue an export strategy.Whether they will achieve this goal remainsunclear. The Mexican domestic garment in-dustry is indeed highly volatile, but indicationsare that a more efficient and internationallycompetitive industry is being formed, with thepotential of becoming a significant part ofinternational subcontracting networks.

Notes

. Patricia Arias lists seventy-one localities withfewer than fifty thousand inhabitants in the states ofMichoacán, Jalisco, and Guanajuato in which peo-ple are involved in manufacturing not related toagriculture (Arias , ‒). In some of these,particularly in Michoacán, production is more arti-sanal than industrial.

. Cases of exporting companies were identifiedin the enterprise clusters in the towns of Moroleón,Villa Hidalgo, and Cuautepéc. All enterprises withexport experience were sought out and interviewed,along with local organizations that promoted ex-ports—namely, credit unions, producer consortia,and an export agency. Enterprises with export expe-rience in the same sector but located outside clus-ters were identified in four other localities: Celaya,San Miguel el Alto, Aguascalientes, and Guadala-jara. In all cases, interviews focusing on economicperformance and organization in general and rela-tions to foreign clients in particular were conductedwith owners and managers, in most cases on severaloccasions over the four-year period from to. All names are pseudonyms, with the excep-tion of those of politicians.

. I owe this point to Florence Palpacuer’s con-tribution to this book (see Chapter ). My concep-tion of commodity chains follows the definition ofTerence K. Hopkins and Immanuel Wallerstein,cited in Gereffi (, ‒); see also Humphrey(, ) for his account of the theoretical con-

nections between industry clusters and commoditychains.

. The authors analyze clusters in Brazil, Pak-istan, and India in the footwear, surgical instru-ments, and textile sectors, respectively.

. Visser made an interesting comparison be-tween clustered and nonclustered enterprises in thePeruvian apparel sector. The benefits of clusteringseemed to erode when the national market wasopened to international competition. Clustered pro-ducers had a tendency to invest in retailing insteadof in production when faced with increased com-petition. Furthermore, they were less capable thannonclustered enterprises of establishing subcon-tracting linkages that could have improved theirperformance (Visser , ‒, ).

. The most important subgroups for the knit-wear producers in relation to this study are sweaters,blouses, and T-shirts. An important subgroup notdealt with is hosiery.

. The economic census is based on interviewswith owners of permanent establishments (INEGIb, ‒). A census not based on interviewswould exclude nonregistered enterprises and there-fore be of little value in Mexico. It is likely, however,that many enterprises are simply not included be-cause the census interviewer did not detect them.For example, according to the census there are noknitwear businesses in Santiago Tangamandapio.However, Fiona Wilson () examined the indus-try of this city and discovered about fifty knitwearenterprises there in the mid-s. Another exam-ple is Cuautepéc, which, according to the census,had only sixteen producers in , while the CreditUnion of Cuautepéc had forty-seven members inthe textile sector in ; they had been operatingfor several years and are only a fraction of the totalnumber of producers (Unión de Crédito de Cuau-tepéc ). There may also have been changes inhow the census is carried out and therefore differ-ences in the quality of the data from and .

The simple fact that the number of enterprises inthe knitwear sector went up from in to, in suggests that this is the case. Althoughthe sector expanded in some areas in the period, Ibelieve that the census was simply more accurate in than in .

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. Interview with a supplier of machinery inMoroleón, July .

. Investments in technology (‒) are usedas a proxy for economic performance. The data arebased on a sample of ten enterprises out of the ap-proximately three hundred companies in the local-ity employing computer-controlled knitting andembroidery equipment.

. This was a governmental decree by theSecretaría de Comercio y Fomento Industrial(SECOFI), Mexico’s Ministry of Trade and Devel-opment, acting on behalf of the president of Mex-ico. It was published in Diario oficial de la nación.

. Before , Mexican statistics did not dis-tinguish between maquiladora and nonmaquiladoraproducers.

. Interview with the town treasurer in VillaHidalgo Town Hall, July , .

. Approximately U.S.$ in late .

. U.S. wholesalers normally trade garments indozens and not in tens or hundreds.

. Alba Vega () did a case study of the firstproducer consortium in Mexico. Enrique DusselPeters, Clemente Ruiz Durán, and Michael J. Piore(Chapter in this book) discuss the shortcomingsof the institutional design of Mexican producerconsortia.

. This company is not the one discussed ear-lier. There were two exporting companies in Celayain the sector, and it was not possible to arrange ameeting with this latter company.

. At a meeting organized by Coordinadora deFomento al Comercio Exterior (COFOCE) andGrupo Guanajuato Textil on September , ,

a questionnaire was administered with the objectiveof identifying the problems and priorities of thesector. The majority of the forty entrepreneurspresent identified apparel assembly as their mostsignificant problem.

Bibliography

Alba Vega, Carlos. . “Las empresas integrado-ras en México.” Comercio exterior , : ‒.

Arias, Patricia. . Nueva rusticidad mexicana.Mexico City: Consejo Nacional para la Culturay las Artes.

———. . Irapuato: El Bajío profundo. Guana-juato: Talleres Gráficos del Gobierno del Estadode Guanajuato.

Boston Consulting Group and Bufete Industrial.. “Sector textil.” Report. Mexico City:Boston Consulting Group and Bufete Industrial.

Calvo, Thomas, and Bernardo Méndez, eds. .

Micro y pequena empresa en Mexico: Frente a losretos de la globalización. Mexico City: Centro deEstudios Mexicanos y Centroamericanos.

Cawthorne, Pamela. M. . “Of Networks andMarkets: The Rise and Rise of a South IndianTown, the Example of Tiruppur’s Cotton Knit-wear Industry.” World Development , (Janu-ary): ‒.

Diario oficial. . “Decreto que promueve la orga-nización de empresas integradoras.” Diario oficialde la nación, May , pp. ‒.

El financiero. . “Empresas sin cultura exporta-dora.” El financiero, November , p. .

———. . “Uniones de crédito en la mira deCNBV.” El financiero, January , p. .

Gereffi, Gary. . “New Realities of IndustrialDevelopment in East Asia and Latin America:Global, Regional, and National Trends.” In Statesand Development in the Asian Pacific Rim, ed.Richard Appelbaum and Jeffrey Henderson, pp.‒. Newbury Park, Calif.: Sage Publications.

———. . “Global Shifts, Regional Response:Can North America Meet the Full-PackageChallenge?” Bobbin , (November): ‒.

González Ruiz, Edgar. . Guanajuato: La democ-racia interina. Mexico City: Rayuela Editores.

Humphrey, John. . “Industrial Reorganizationin Developing Countries: From Models to Tra-jectories.” World Development , (January):‒.

Instituto Nacional de Estadística, Geografía e Infor-mática (INEGI). , a, , . Anuarioestadístico del comercio exterior de los Estados Uni-dos mexicanos. Mexico City: INEGI.

———. b. XIV censo industrial—industriasmanufactureras productos y materias primas—resumen general. Mexico City: INEGI.

———. c. La industria textil y del vestido enMexico. Mexico City: INEGI.

Lailson, Silvia. . “Expansión limitada y proli-feración horizontal: La industria de la ropa y el

tejido de punto.” Relaciones (College of Michoa-cán), no. : ‒.

Martínez Saldaña, Tomás, and Leticia GándaraMendoza. . Política y sociedad en México: Elcaso de los altos de Jalisco. Mexico City: Secretaríade Educación Pública–Instituto Nacional de An-tropología e Historia.

Nacional Financiera (NAFIN). . “Credit Sup-port Programs.” Policy paper. Mexico City:NAFIN.

———. . From the NAFIN Web site: <http://www.nafin.gob.mx/>.

Nadvi, Khalid. . “Collective Efficiency andCollective Failure: The Response of the SialkotSurgical Instrument Cluster to Global QualityPressures.” World Development , (Septem-ber): ‒.

Organisation for Economic Co-operation and De-velopment (OECD). . Networks of Enter-prises and Local Development: Competing and Co-operation in Local Productive Systems. Paris:OECD.

Piore, Michael J., and Charles F. Sabel. . TheSecond Industrial Divide: Possibilities for Prosper-ity. New York: Basic Books.

Pozas, María de Los Angeles. . Industrial Re-structuring in Mexico: Corporate Adaptation, Tech-nological Innovation and Changing Patterns ofIndustrial Relations in Monterrey. San Diego:Center for U.S.-Mexican Studies, University ofCalifornia at San Diego.

Rojas, Mariano, and Luis Alejandro Rojas. .

“Transaction Costs in Mexico’s PreferentialCredit.” Development Policy Review : ‒.

Secretaría de Comercio y Fomento Industrial(SECOFI). . From the SECOFI Web site:<http://www.secofi.gob.mx/>.

Schmitz, Hubert. . Manufacturing in the Back-yard: Case Studies on Accumulation and Employ-ment in Small-Scale Brazilian Industry. London:Frances Pinter.

———. . Technology and Employment Practicesin Developing Countries. London: Croom Helm.

———. . “Flexible Specialisation: A New Par-adigm of Small-Scale Industrialisation?” IDSDiscussion Paper no. . Brighton: Institute ofDevelopment Studies, University of Sussex.

———. a. “Small Shoemakers and FordistGiants: Tale of a Supercluster.” World Develop-ment , (January): ‒.

———. b. “Collective Efficiency: Growth Pathfor Small-Scale Industry.” Journal of Develop-ment Studies , (April): ‒.

———. . “Collective Efficiency and IncreasingReturns.” Working Paper no. . Brighton: In-stitute of Development Studies, University ofSussex.

Suarez Aguilar, Estela. . Pequeña empresa ymodernización: Analisis de dos dimensiones. Cuer-navaca: Universidad Autónoma de México, Cen-tro Regional de Investigaciones Multidiscipli-narias.

Vangstrup, Ulrik. . “Moroleón—La pequeñaciudad de la gran industria” Espiral (Universityof Guadalajara), no. : ‒.

———. . “Collective Efficiency and RegionalIndustrial Clusters in Mexico—Assessment of aTheory of Local Industrial Development.” Ph.D.diss., Department of Geography and Interna-tional Development Studies, Roskilde Univer-sity, Denmark.

Visser, Evert-Jan. . “Local Sources of Com-petitiveness—Spatial Clustering and Organi-sational Dynamics in Small-Scale Clothing inLima, Peru.” Ph.D. diss. Amsterdam: ThesisPublishers.

Wilson, Fiona. . Sweaters: Gender, Class andWorkshop-Based Industry in Mexico. London:Macmillan.

———. . “Workshops as Domestic Domains:Reflections on Small-Scale Industry in Mexico.”World Development , : ‒.

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..

Jorge Mendoza, Fernando Pozos Ponce, and David Spener

Fragmented Markets, Elaborate Chains:

The Retail Distribution of Imported

Clothing in Mexico

Since the beginning of its opening to inter-national trade in , the Mexican economyhas undergone a series of transformations.Some of these arose as a consequence of thecontinuation of the financial crisis that eruptedin . Others were the result of Mexico’snew relationship to the world economy in gen-eral and with the United States and Canadain particular. Mexico’s reinsertion into theworld economy called into question the pat-terns of production, distribution, and serviceprovision that prevailed during its import-substitution period. For this reason manyentrepreneurs, some with experience in theinternational market and others who werecomplete novices, developed new strategies tokeep their enterprises competitive during anuncertain period of economic restructuringthat continues to this day. Many manufactur-ers underwent radical restructuring in responseto the new productive and marketing chal-lenges, while others simply could not meet thecompetitive challenge and closed their doors,contributing to soaring unemployment levelsduring the peak years of the crisis in the mid-s (Calva ). Other firms abandonedmanufacturing but survived by converting

themselves into distributors of the foreign im-ports that flooded the Mexican market duringthese years. Moving to the sale of these prod-ucts offered greater short-term profits to suchfirms and avoided the problems inherent inupgrading their manufacturing processes. Infact, three of every ten small-to-medium-scaleenterprises in Mexico switched from manu-facturing to the distribution of imported man-ufactures, a move that typically involved a re-duction in employment in these firms (Pozosa, ).

The garment industry has been transformedby the globalization of markets and productiverestructuring in Mexico. Since it hasgone from being an industry featuring mod-erate growth and exports to one undergoingdramatic expansion, especially in the export-oriented sector, such that Mexico has replacedthe Asian countries as the leading exporter ofgarments to the United States (Gereffi ,

Table ; Ramzy Casab, president of the CámaraNacional del Vestido, cited in Ocho columnas). At the same time clothing consumptionin Mexico grew substantially, from aroundU.S.$. billion in to U.S.$. billion in. A substantial portion of this increased

consumption consisted of apparel importedfrom the United States and a number of Asiancountries, which grew from percent of totalconsumption in to nearly percent by, quintupling in dollar value (see Table.).1 This import boom stimulated employ-ment growth in both formal and informal saleof clothing in Mexico, especially in the majorurban centers of Mexico City, Guadalajara, andMonterrey, which also became regional distri-bution centers for consumer apparel (Gereffi; Guzmán , ).

In this chapter we focus our analysis on thefinal segment of the apparel market channel,2

namely, the sale and distribution of finishedgarments to private consumers in Mexico. Ourobjective is to advance understanding of theevolution of distribution channels in the gar-ment industry in Mexico during the period oftrade opening that began in the s and con-tinued through the s, upon the signing ofthe North American Free Trade Agreement(NAFTA). We begin by reviewing the dynam-ics of the Mexican consumer market for cloth-ing during this period, including changes inthe share of apparel sales captured by im-ported garments as well as the principal coun-tries of origins of such garments. Next wediscuss the principal types of enterprises re-sponsible for the retail sale of apparel in Mex-ico and the market segments they serve. In thethird section we undertake a special examina-tion of the important role informal channelsplay in the distribution of imported garmentsin Guadalajara. We conclude by raising sev-eral questions regarding the continued evolu-tion of apparel-distribution channels in Mex-ico that may be answered by future research.These questions arise in response to the trans-formation of commercial practices in the Mex-ican apparel industry, which has simultane-ously featured dramatic growth in large-scalecommercial firms and the persistence of a sub-stantial informal sector populated by manythousands of microenterprises.

The Mexican Apparel Market,‒

The consumer market for clothing in Mexicoreflects the differences between Mexico andthe United States–Canada in terms of the agestructure of the national population. In thelatter two countries, residents under twentyyears of age account for percent and

percent of the total population, respectively,whereas in Mexico they are percent of thepopulation. For this reason the sale of chil-dren’s clothing is considerably more impor-tant in Mexico ( percent of all clothing sales)than in either the United States ( percent)or Canada ( percent) (INEGI a). Withregard to the distribution of clothing pur-chases by gender, in more women’s gar-ments were sold than men’s, but the total valueof men’s clothing exceeded that of women’s(INEGI a). Also, in contrast to the marketsin the United States and Canada, clothing pur-chased in Mexico is for the most part producedin Mexico, even though the amount of im-ported clothing consumed in Mexico rose dra-matically after the country’s unilateral tradeopening in the late s and early s.

We can identify two distinct periods in theMexican consumer clothing market in recentyears: an expansion stage in consumption thatlasted from to , followed by a con-traction stage that ran from through

(see Table .). During the expansion stage,total consumption of garments in Mexico rosefrom U.S.$. billion in to U.S.$. bil-lion in , an average annual growth rate ofaround percent. Put another way, clothingpurchases in Mexico grew by about one-thirdin just four years. This high rate of growthreflected an increase in per capita clothingconsumption.3 Additionally, the consumptionof garments grew more rapidly than the totalconsumption of goods, suggesting that the par-ticipation of garments in average consumptionalso rose somewhat during this period.4

, :

The increase in consumer purchases ofclothing in the ‒ period can be attrib-uted to several factors. First, the Mexicaneconomy experienced moderate growth dur-ing these years, and real wages (except forthose at the bottom of the range) also grew.5

Moreover, the price of garments relative toother consumer goods fell significantly inthese years.6 In addition, this period witnessedan important reduction in both tariff and non-tariff barriers to the importation of clothing.In response to this relaxation of protection-ist measures, the consumption of importedclothing in Mexico rose markedly, from just percent of the total in to nearly per-cent in . During this period the main ex-porters of finished clothing to Mexico werethe United States and Hong Kong, with .

percent and . percent of the total, re-spectively (see Table .).7

The contraction phase of clothing consump-tion began in a mild manner between and

, when consumption fell by percent; itthen plummeted dramatically by percent in, during the deepest stage of the recenteconomic crisis in Mexico (see Table .). Thereduction in clothing consumption in isexplained by the recession in the Mexicaneconomy that resulted from the contraction inprivate investment in the face of uncertaintywith regard to the U.S. Congress’s ratificationof NAFTA.8 In , although the Mexicaneconomy recovered somewhat, clothing con-sumption continued to fall. During that year pri-vate consumption of imported clothing beganto fall after several years of sustained growth.This decline is explained in part because therelative price of imported clothing increased asa consequence of exchange-rate adjustmentsmade that year, as well as by the institution ofprotectionist measures aimed at curbing theimport of East Asian garments. The peso de-valuation of December reduced the saleof domestically produced clothing as well, since

, ,

.. Mexican Consumption of Domestically Produced and Imported FinishedGarments, ‒

Domestic Garments and Accessories Imported Garments and Accessories

Total Private % Dollar % of % Dollar % of % Year Consumptiona Changeb Valuea Total Changeb Valuea Total Changeb

1988 9,193,424 8,917,621 97.0 275,803 3.01989 9,857,523 7.2 9,315,360 94.5 4.5 542,164 5.5 96.61990 10,933,508 10.9 10,190,030 93.2 9.4 743,479 6.8 37.11991 11,294,765 3.3 10,357,300 91.7 1.6 937,466 8.3 26.11992 12,170,314 7.8 10,746,387 88.3 3.8 1,423,927 11.7 51.91993 11,831,525 �2.8 10,388,079 87.8 �3.3 1,443,446 12.2 1.41994 11,472,782 �3.0 10,141,940 88.4 �2.4 1,330,843 11.6 �7.81995 9,067,013 �21.0 8,486,724 93.6 �16.3 580,289 6.4 �56.41996 9,527,028 5.1 8,898,244 93.4 4.8 628,784 6.6 8.41997 10,155,812 6.6 9,191,010 90.5 3.3 964,802 9.5 53.41998 10,480,798 3.2 9,139,256 87.2 �0.6 1,341,542 12.8 39.01999 10,522,721 0.4 9,186,335 87.3 0.5 1,336,386 12.7 �0.42000 11,311,925 7.5 9,875,311 87.3 7.5 1,436,614 12.7 7.5

Source: INEGI, “Sistema de cuentas nacionales de México,” available at <http://dgcnesyp.inegi.gob.mx/bdine/m10/m100352.htm>.Retrieved May , .

aIn thousands of U.S. dollars. Based on authors’ calculations using INEGI data expressed in constant pesos.

bRelative to the previous year.

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it occurred at the beginning of the holidayseason, in which a large proportion of annualclothing sales typically is made.

In the Mexican economy experiencedits largest contraction since the s, as realgross domestic product (GDP) fell by . per-cent.9 For its part, total consumption of cloth-ing decreased much more ( percent), owingto the drop in disposable income and real wagesas well as the rise in garment prices relative toother goods.10 Furthermore, the drop observedin the value of imported garments ( percent)was much greater than that for domestic gar-ments ( percent) as a consequence of thedevaluation of the national currency. Thus theshare captured by imported garments in totalclothing sales fell from a peak of . percentin to just . percent in , as con-sumers substituted cheaper domestically pro-duced garments for more-expensive imports.

It is important to recognize the severity ofthe contraction in the consumption of gar-ments in Mexico as a consequence of the eco-nomic crisis. Total consumption of clothing in was percent less than that registered in, representing a rollback of more thanseven years of gains in absolute levels of con-sumption. Moreover, per capita consumptionof clothing—which is an indicator that allowsus to approximate the effects of the crisis onthe welfare of the population—suffered a dra-matic decline of percent when we compare with . Given all this, the share oftotal consumer spending in Mexico that wascaptured by garments—which in and had fallen to . percent and . percent,respectively—in contracted significantlyto just . percent, a level that was also sub-stantially below that of .11 Modest macro-economic recovery in Mexico began in ,

with a percent increase in GDP and a .

percent increase in consumption of privategoods and services. Total consumption ofclothing increased . percent over , and

as the peso strengthened against the dollarconsumption of imported clothing also roseby . percent (see Table .).

Although the Mexican public’s consump-tion of both domestically and foreign-producedclothing was considerably less in than itwas in , Mexico’s garment imports grewrapidly throughout this period (see Table.). Where, in , Mexico imported justover U.S.$ billion in “garments and acces-sories,” by the figure had more than dou-bled to U.S.$. billion. Even more dramati-cally, imports from the United States eclipsedthose from all other countries, as its share ofMexican imports grew from percent in

to percent in . The continued growthof garment imports to Mexico and the increasein share captured by the United States are adirect consequence of the dramatic expansionof maquiladora production of garments in thewake of NAFTA and the peso devalua-tion. The import of synthetic and natural fibergarments for the maquiladora industry grewby . percent from to , and themaquiladoras’ share of imports of these gar-ments grew from percent to percent oftotal imports.12 We now turn our attention tothe types of firms that served the increasinglydynamic and volatile Mexican retail market forclothing.

The Types of Enterprises Engagingin the Retail Sale of Clothing inMexico

A number of different types of enterprisesengage in the retail sale of new clothing inurban Mexico. These vary along a continuumof size and degree of formality of establishmentand range from large-scale department stores(tiendas departamentales) and self-service outlets(tiendas de autoservicio) to “markets on wheels”known as tianguis and door-to-door sellers

, ,

known as aboneros. Table . presents a typol-ogy of enterprises selling garments in Mexicoand describes the characteristics of each cate-gory. As shown in Table ., the Mexican retailclothing market is roughly divided into thirdsat both the national level and in the nation’sthree largest cities (which are also the threelargest urban markets for retail clothes). In

formal, large-scale department stores and self-service outlets accounted for a bit more than athird of clothing sales. Another third of totalsales were by clothing stores (tiendas de ropa),most of which are small-scale, formal estab-lishments. Finally, about one-third of clothingpurchases by Mexican consumers were madethrough a variety of small-scale, informal enter-prises, including tianguis, aboneros, and streetvendors. In the remainder of this section wediscuss the dynamics of the coexistence of thesethree distinct market segments and their possi-ble future evolution. In particular we discussthe simultaneous expansion of the large-scale,formal sector of the market and the small-scale,informal sector.

Since the s, and increasingly in thes, Mexico has witnessed a rapid growth of

retail sales of all types of products, includingclothing, through large-scale, multicity chainsof department stores and self-service outlets.13

As in the United States, the rise of depart-ment stores and discount chains has taken con-siderable market share away from small-scale,independently owned stores.14 These types ofoutlets have come to play a very important rolein the retail sale of clothing, so that by

sales of the biggest eight stores in Mexico City,Guadalajara, and Monterrey accounted for

percent, . percent, and . percent, respec-tively, of total retail clothing sales (TrendexNorth America ). The development ofself-service outlets has taken two distinctforms. On the one hand, department-storechains have increased the size of their indi-vidual stores and the breadth of their productlines. Thus this sector, which had typicallybeen composed of supermarkets, has incorpo-rated hypermarkets and, more recently, mega-markets and “membership clubs” as well.15

The expansion of large-scale self-service out-lets has offered an increased role for foreigninvestors, who have initiated joint ventures andmergers with domestic firms in order to take

, :

.. Principal Types of Retail Clothing Outlets in Mexico

Type Description

Tiendas departamentales Department stores

Tiendas de autoservicio Self-service stores (i.e., items purchased without the assistance of a sales clerk). Includes supermarkets, general-merchandisediscount stores, warehouses, and membership clubs. Generallylarge-scale establishments but also includes some clothing spe-cialty chains with smaller individual establishments.

Tiendas de ropa Clothing stores. Mainly small-scale and privately held.

Tianguis “Markets on wheels” that move from place to place in a Mexicancity, so that one operates in a particular part of the city on a givenday of the week. Similar to “flea markets” in the United States,except that tianguis sell new as well as secondhand goods.

Mercados and bazares Market stalls and bazaars.

Aboneros Door-to-door sellers of clothing and other goods who extendcredit to customers, allowing them to pay for goods in install-ments.

Other outlets Includes street vendors and non-abonero door-to-door sales.

advantage of the latter’s existing locations andmarket experience. For their part, Mexican do-mestic firms have preferred to associate them-selves with foreign firms and thus broadentheir scale of operations rather than face theforeign firms as new competitors in their tra-ditional markets.16

The market position of small independentretail establishments has also been affected byproliferation of informal microenterprises,which by numbered around million inMexico.17 These enterprises mainly serve alow-income clientele that is attracted by cheaperprices, does not possess credit cards, and mayhave difficulty accessing large-scale self-serviceoutlets that are not located conveniently neartheir neighborhoods. In , at the peak ofthe expansion phase of garment consumptionin Mexico, nearly , microenterprisesengaged principally in the sale of clothing in

urban areas.18 Eighty percent of Mexicanmicroenterprises had no fixed place of busi-ness and no employees. These informal busi-nesses included tianguis, street vendors, mar-ket-stall sellers, and aboneros. In aroundhalf of the microenterprises dedicated to cloth-ing sales had opened within the previous threeyears, that is, they were born in the yearsimmediately after Mexico’s trade opening(INEGI-STPS ).

Market-research studies conducted by in-dustry consultants in Mexico indicate thatthe formal and informal sectors of the retailmarket for apparel serve different consumersegments (Kormos, Harris and Associates andShaw Direct a). As indicated in Table., middle- and upper-class consumers makefrom two-thirds to three-quarters of theirclothing purchases in department stores andclothing stores, from to percent in self-

, ,

.. Percent Share of Mexican Retail Clothing Sales Captured by Enterprises ofDifferent Typesa

Nation

Type of Enterprise 1995 1996 Mexico Cityb Guadalajarac Monterreyd

Formal, large-scaleTiendas departamentales 29.2 24.9 27.3 28.2 29.2Tiendas de autoservicio 12.7 10.7 13.1 8.2 15.6

Subtotal 41.9 35.6 40.4 36.4 44.8

Formal, mainly small-scaleTiendas de ropa 31.1 32.0 32.1 35.7 28.4

Informal, small-scaleTianguis, mercados, and bazares 16.3 18.7 18.3 14.9 13.6Aboneros 4.2 5.2 3.3 6.6 4.3Other outlets 6.5 8.5 5.9 6.4 8.9

Subtotal 27.0 32.4 27.5 27.9 26.8

Total 100.0 100.0 100.0 100.0 100.0

Source: Kormos, Harris and Associates and Shaw Direct (a, ).

aMetropolitan figures are for .

bMexico City captured . percent of national retail clothing sales in .

cGuadalajara captured . percent of national retail clothing sales in .

dMonterrey captured . percent of national retail clothing sales in .

service outlets, and one-fifth or less from infor-mal channels. Working-class Mexicans, bycontrast, carry out about percent of theirclothing purchases through informal outlets,especially tianguis, markets, and bazaars, andabout percent through self-service outlets.They are especially unlikely to shop for clothesin the expensive department stores, makingless than percent of their purchases in suchestablishments. While working-class Mexicansconstitute the majority of all clothing con-sumers in Mexico, they do not make the ma-jority of clothing purchases. In upper-and upper-middle-class Mexicans, who madeup just percent of consumers, accountedfor half of the value of all clothing purchasedin the country (Harris ).

The contraction of the Mexican clothingmarket from through reduced thesales of all types of retail clothing sellers. Theunexpected devaluation of the peso in late ,

in addition to reducing overall clothing salesdrastically, led to the substitution of domesti-cally produced garments for imports. The de-

cline in clothing sales after had a signifi-cant impact on the informal retail clothing sec-tor. The number of microenterprises engagedin the sale of clothing and footwear fell from itspeak of , in to , in , withemployment falling from , to ,

(INEGI ). During the same period, in con-trast, the number of microenterprises in allindustries at the national level actually grew,from . to . million. As the apparel marketbegan its recovery, however, the number ofclothing microenterprises expanded to ,

in and employed more than , Mex-icans (INEGI-STPS , , ). Asshown in Table ., informal outlets increasedtheir share of total clothing sales in Mexicofrom . percent of the market in to .

percent in . In this first year of market re-covery, the National Association of Self-Serviceand Department Stores reported that clothingsales among its members continued to fall,though not as precipitously as they had from to (ANTAD b). Accordingly,the share of Mexican clothing sales captured by

, :

.. Mexican Retail Clothing Sales in , by Type of Enterpriseand Class of Customer

Class of Customer

Upper-class and Type of Enterprise upper-middle-class Middle-class Working-class

Formal, large-scaleTiendas departamentales 37.0 31.7 18.5Tiendas de autoservicio 9.9 13.9 13.9

Subtotal 46.9 45.6 32.4

Formal, mainly small-scaleTiendas de ropa 36.5 31.9 28.4

Informal, small-scaleTianguis, mercados, and bazares 6.7 11.7 27.2Aboneros 2.9 4.1 4.7Other outlets 7.0 6.7 7.3

Subtotal 16.6 22.5 39.2

Total 100.0 100.0 100.0

Source: Kormos, Harris and Associates and Shaw Direct (a).

department stores and self-service outlets fellfrom about percent in to percent in (see Table .). At the same time theshare of sales made through clothing stores wasessentially unchanged.

Thus in the first years after the establish-ment of NAFTA we find a Mexican consumerapparel market whose characteristics are chang-ing rapidly in terms of the overall volume ofsales, the country of origin of garments, andthe principal sales outlets. Recent years haveseen a rapid expansion of large-scale clothingretailers in the form of department stores andself-service outlets that now claim a substantialportion of the market. As leaders of buyer-driven commodity chains (Gereffi ), theseretailers, which now include U.S. giants such asJCPenney, Wal-Mart, Dillards, Price Club, andSam’s, have begun to import large amounts ofclothing from abroad, especially Asia, whilethey also source an increasing amount of theirown production in Mexico.

At the same time the informal sector hasexpanded considerably in recent years. It cur-rently accounts for a substantial portion of theoverall apparel market and plays an especiallyimportant role in serving the needs of Mex-ico’s working-class consumers (who are themajority of consumers). Although they clearlydo not drive garment commodity chains in theway that their large-scale counterparts are ableto do, informal apparel sellers contributedsubstantially to the growth of clothing im-ports during the first years of the Mexicantrade opening leading up to NAFTA. Stand-ing between these two sectors, and havingexperienced loss of market share to both, wefind the clothing stores, a large proportion ofwhich are small-scale locally owned and oper-ated establishments. While it is clear that theexpansion of the department stores and self-service outlets has significantly altered thedynamics of the Mexican apparel market inthe wake of free trade, we must nevertheless

bear in mind that small-scale establishments,both formal and informal, still make up asmuch as half of total apparel sales in Mexico.

We now turn our attention to the operationof small-scale and informal distribution chan-nels for imported garments in Guadalajara,Mexico’s second largest urban area. Guadala-jara, known as “la gran ciudad de la pequeñaindustria” (the big city for small business)(Arias ), is also the country’s secondlargest apparel market and serves as a regionaltrade hub for western-central Mexico. Weundertake this examination of such channelsin order () to better understand their coexis-tence with the large-scale firms that leadbuyer-driven commodity chains; () to illus-trate their role in the opening of the Mexicanmarket to imported clothing in the early yearsof the trade opening; and () to speculate as towhat type of role they will play as the NorthAmerican apparel market is consolidated andmacroeconomic recovery continues in Mexico.

Guadalajara: Case Study of InformalDistribution Channels for Clothing19

In Guadalajara informal distribution channelsfor clothing play a substantial role in the mar-ket: Twenty-one and a half percent of clothingsales in the metropolitan area are accounted forby tianguis, markets, bazaars, and aboneros (seeTable .). If we add to this the . percent ofclothing sales that are made by clothing stores(which in this city are mainly small businesses),we find that in Guadalajara up to percent ofall clothing sales are made by small-scale enter-prises, many of which operate in the informalsector.20 Furthermore, there is a close relation-ship between small-scale formal establishmentson the one hand and informal sellers on theother, since many informal sellers purchasetheir imported merchandise wholesale from thesmall formal establishments.

, ,

The Import Clothing Boom, ‒

Beginning in the late s a large volume ofimported garments entered the Mexican mar-ket, mostly from the United States. Most if notall apparel imports from Asia passed throughthe port of Los Angeles, California, and thenentered Mexican territory through inland portsof entry, especially in Tijuana and Nuevo La-redo. Many of these Asian garments were soldto small-scale Mexican firms through brokersin Los Angeles’ dynamic garment district.Thus the “true” country of origin of importedapparel in Mexico was frequently murky, sinceclothing traded in Los Angeles consisted ofboth U.S.- and Asian-made garments.

In Guadalajara the dramatic growth in im-ports promoted the creation of a new down-town district for retail clothing sales, in andaround the traditional San Juan de Dios Mar-ket, a section already dedicated mainly to thesale of imported clothing. Around four hun-dred small stores in this area are located alongeach of four streets (Alvaro Obregón, Estebande la Torre, Medrano, and Sixty-fourth Street)(Pozos b, ). Fifty percent of thesestores are dedicated exclusively to the sale ofclothing. Elsewhere in the city we find approx-imately two hundred tianguis, percent ofwhich sell only apparel items (Torres ,

; corroborated in personal communicationby Pozos with the staff of the Cámara Nacionalde Comercio de Guadalajara, June ). Smallformal businesses and tianguis combined ac-count for around three thousand jobs in thesale of clothing. These jobs are quite diverseboth in terms of class of worker (employers,the self-employed, salaried workers, and unpaidfamily workers) and in terms of income level.21

No single firm or group of firms in Guada-lajara’s retail garment district appears to dom-inate the distribution channels, whose outletsare small-scale establishments or informal en-terprises. Furthermore, there are few barriers

to entry for firms wishing to enter these dis-tribution channels. To a great extent this isbecause any businessperson, whether large- orsmall-scale, can travel to Los Angeles to ac-quire merchandise, so that no firm is “con-trollable” by other firms up- or downstreamfrom it in the distribution channel.22 Thus inour fieldwork we did not discover that any sin-gle importing firm or group of firms suppliedmost small garment-selling enterprises in thecity (as is the case in some Mexico City infor-mal markets for other types of products inMexico—e.g., Mexico City’s Tepito market—which are controlled by powerful syndicates).Nor did we find that small-scale garment sell-ers had begun to turn to large-scale discountchains as their wholesale suppliers.23

The inability of individual firms or groupsof firms to monopolize clothing imported intoGuadalajara’s garment district encourages mul-tiple structures for distribution channels. Atone end of the continuum we find channelscomposed of segments that are vertically inte-grated to some extent, where an import/exportfirm sells garments to retail/wholesale estab-lishments and these, in turn, supply tianguisvendors, who then serve as suppliers to abonerosselling clothing door to door. At the other endare channels whose segments are completelyindependent of one another, where the retail/wholesale clothing store, the tianguis vendor,and the abonero purchase garments directly inLos Angeles and sell directly to the final con-sumer, completely independent of one another.Between these two extremes we find channelswith other kinds of characteristics, which forreasons of space we do not describe here. Moreimportant, we need to explain the factors thatseem to have prevented the concentration ofcontrol of imported-garment distribution chan-nels in just a few hands.

One of the factors that promotes verticallyfragmented channels with autonomous firms foreach transaction is the potential for individual

, :

firms to bypass intermediaries in the channel inan attempt to realize greater profits. Thus, forexample, the clothing store, the tianguis ven-dor, and the abonero who buy their productsdirectly from suppliers in Los Angeles and selldirectly to the final consumer realize signifi-cantly greater profits relative to those who sellto other segments of the channel.24 In thesecases each segment adds value to the garmentsin order to realize its specific profit without theprice of the garment rising above a competitivelevel. Here we insist that in a fragmented,undeveloped market such as that representedby working-class residents of Guadalajara, eachsegment of the channel provides a needed dis-tributive service that ensures diverse buyersreceive the clothing they desire at prices com-mensurate with their ability to pay. Thus thesegments’ markup is not merely the collectionof a middleman’s economic “rent” but in fact

adds value to the product through the labor ofsmall-scale entrepreneurs and their associates(see Sayer and Walker ).

To better illustrate this phenomenon, inTable . we present three examples of dis-tribution channels for imported garments thatare widely consumed in Guadalajara: men’sprinted T-shirts, women’s dresses, and chil-dren’s outfits (vestidos y conjuntos). In the firstcolumn for each type of garment, the tableshows the percentage that each buyer-sellermarks the price up beyond what was paid to thebuyer-seller immediately “upstream” in thechannel. The second column represents thesize of that markup in percentage terms rela-tive to the value of the garment at its point ofpurchase in Los Angeles. Figures in the secondcolumn are summed to show the total percent-age of value added to the garment along its dis-tribution channel after it leaves Los Angeles.25

, ,

.. Distribution of Value Added among Three Types of Distribution Channels forImported Clothing in Guadalajara,

Men’s Wear: Women’s Wear: Children’s Clothing:Printed T-Shirta Dresses Dresses or Outfits

Typical Typical Value Typical Typical Value Typical Typical Value Seller’s Added to Seller’s Added to Seller’s Added to

Type of Seller Markup (%)b Garment (%)c Markup (%)b Garment (%)c Markup (%)b Garment (%)c

Importing firm 25.0 25.0 30.0 30.0 36.0 36.0Clothing store 35.0 43.8 40.0 52.0 25.0 34.0Tianguis vendor 30.0 50.6 25.0 45.5 20.0 34.0Abonero 15.0 34.1 16.0 32.6

Typical Total Value Added (%) — 119.4 — 161.6 — 136.6

Source: Constructed by authors with data obtained through field interviews in Guadalajara and Los Angeles, May–June .

aThis channel ends with sale to the final consumer by the tianguis vendor; hence the empty cells for the abonero’s markup and valueadded.

bThe typical “seller’s markup,” SMU, is given by the equation SMU � 100*(b � a)/a, where a � the price paid by the seller whenshe or he purchases the garment from the supplier immediately preceding her or him in the channel, and b � the price she or hecharges the next purchaser in the channel. Percentages shown at each transactional level of the chain may not be summed to give atotal markup for the garment.

cThe typical “percent value added,” PVA, is calculated with respect to the garment’s cost at point of purchase in Los Angeles. At anytransactional level it is defined by the equation PVA � 100*(d � c)/p, where c � the price paid by the seller when she or he pur-chases the garment from the supplier immediately preceding her or him in the channel; d � the price she or he charges the next pur-chaser in the channel; and p � the cost of the garment at the point of original purchase in Los Angeles. Percentages shown at eachtransactional level of the chain may be summed to give a total PVA for garments passing through the channel.

Of the three examples represented in Table., dresses are the type of garment with thegreatest value added along the entire distribu-tion channel, showing an average increase of percent between the point of sale in LosAngeles and the point of final consumer pur-chase in Guadalajara. Thus, for example, a wo-man’s dress purchased wholesale in Los Ange-les for Mexican pesos receives a percentmarkup from the importer ( pesos). Next,one of the small retail/wholesale clothing storesnear the San Juan de Dios market purchasesthe dress for pesos, marks it up percent( pesos), and sells it to a tianguis vendor for pesos, who in turn marks it up another

percent ( pesos). Then the tianguis vendorsells it to an abonero for pesos, who in turnmarks the dress up another percent (

pesos) and sells it to the final consumer for

pesos. As we see, in this way each segment ofthe channel appropriates for itself a part of thetotal value added to the dress, which is still soldon the market for a competitive price.

The type of distribution channel repre-sented by this description of the movement ofa dress from Los Angeles to Guadalajara wasthe most common one we found in our fieldstudies. Nevertheless, a large number of inde-pendent entrepreneurs and firms bypass inter-mediaries and purchase goods directly in theLos Angeles garment district. Obviously, thesemerchants must have sufficient financial re-sources to travel to Los Angeles, but they areaided by the fact that there are a number offairly inexpensive direct flights between the twocities. For large-scale sellers, travel costs rep-resent a relatively small investment, while forthe small-scale sellers such expenses are con-siderably more significant. Still, small-scalesellers are often able to minimize their expensesby () relying on family members or friends inLos Angeles to purchase and ship to them thegarments they need and () making less fre-quent trips and purchasing garments that per-

mit a greater markup, such as women’s dressesor prestigious brand-name gentlemen’s clothing.

Another factor that facilitates merchants’purchases of garments in Los Angeles is thepresence of Mexican immigrant and Mexican-American employees in the stores and ware-houses of the garment district. Although mostof the owners of establishments in the LosAngeles garment district that we interviewedwere Koreans or Iranians who did not speakSpanish,26 their Mexican employees filled theethnic and linguistic gap that separates theGuadalajara and Korean entrepreneurs. In thisway the Mexican businessperson in Los Ange-les finds herself in an environment that is inmany respects quite similar to what she wouldencounter in her own city, including the clas-sic haggling over price and terms, in which theentire transaction is carried out in Spanish. Ofcourse, the employees of these stores and ware-houses consult in English with their Koreanemployers to close certain deals, offer price dis-counts, or inquire as to the availability of cer-tain seasonal fashions. This ethnolinguistic fac-tor allows an “average” Guadalajara merchantto travel to Los Angeles and obtain garmentsto sell in her city of origin with a far greaterprofit margin than the merchant who acquiresher product in Guadalajara itself.27

The Peso Crisis: Import Substitution Redux

As noted previously, the devaluation of the pesoin December produced a significant down-turn in Mexican imports of clothing from theUnited States and East Asia.28 In response tothe devaluation, Mexican merchants revertedto the sale and distribution of domestically pro-duced apparel, which suddenly became cheaperthan imported garments. This obviously ben-efited Mexican garment manufacturers, whoseexport potential also increased dramaticallywith the devaluation. (See Chapters and in

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this book.) In states such as Jalisco and NuevoLeón, many garment factories that had pro-duced mainly for the domestic market con-verted themselves into exporting maquiladoras(interview with Jaime Barba de Loza, presi-dent of the Cámara del Vestido de Jalisco, re-ported in Ocho columnas ; see also Chap-ter in this book).

During the phase of expansion in garmentimports, Mexican consumers became accus-tomed to certain models, logos, and brandnames emanating from the United States andEast Asia. For this reason Guadalajara clothingmerchants insisted that domestic manufactur-ers of garments modify their products after thedevaluation in order to make them more simi-lar to those that consumers had become used topurchasing. Examples include printed T-shirtsthat have a strong market, especially among theyoung. Before the peso devaluation, some of themost popular shirts sold were imports that wereadorned with the logos of U.S. sports teams,such as the Dallas Cowboys, the Los AngelesLakers, and the Chicago Bulls. The same shirtsstill appear to be on the market in large num-bers. Close inspection reveals, however, that thetags on the shirts that give cleaning instructions,type of cloth, and country of origin now read,in English, “Made in the U.S.M.” Clearly thistag is intended to give the consumer the ideathat the shirt was produced in the United Statesof America, with “U.S.M.” referring to the“United States of Mexico,” a translation of thecomplete name of the Mexican republic. As aresult, the great majority of consumers are ableto purchase T-shirts that are “identical” tothose they purchased before the devaluation,but at a more affordable price.

The overall decline in the consumption ofimported clothing in Mexico has had directeffects on distribution channels at both thenational and international levels. In responseto Mexican merchants switching back to do-mestic garment producers as suppliers, Los

Angeles garment sellers had to offer Mexi-can clients better prices to stimulate sales. Forthis reason many of the Los Angeles sellershave resorted to their own version of tag-switching: They put “Made in the U.S.A.”labels on cheaper Asian-produced garments,which allows them not only to avoid Mexicantariffs but also to offer a lower-priced alter-native to U.S.-made imports. Still, the reduc-tion in the consumption of imported clothingin Mexico has signified important losses. LosAngeles garment sellers we interviewedreported that their sales to Mexican mer-chants declined by approximately percentfrom to .

Conclusions

Since at least the late s, analysts of inter-national economic development have writtenextensively about the rise of export-orientedmanufacturing in developing countries of theperiphery and semiperiphery of the worldsystem. A great deal of attention has beenfocused on the garment industry, which hasplayed a pioneering role in this process. Coun-tries such as Mexico are studied as cost-savingproduction sites for transnational manufac-turing. Much less attention, however, has beenpaid to the opening in these countries of largeconsumer markets to foreign products. In thecase of Mexico we see that this may be a sig-nificant oversight, especially with regard toapparel, which by constituted a $ bil-lion market, over $ billion of which consistedof imports. Because of the unexpected col-lapse of the peso in NAFTA’s first year ofoperation, the steady growth of sales of im-ported clothing since was reversed in themid s. By the year , total private con-sumption of clothing had finally returned toits pre-crisis share of total consumption (seeTable .).

, ,

That the Mexican consumer market was apotentially lucrative one for foreign firms isattested by the rapid expansion of large U.S.retail chains into many Mexican cities in thes. Such firms, whether independently or inconcert with Mexican partners, quickly gainedmajor market shares for a variety of consumergoods, including apparel. In the case of apparel,some of the leading firms that established anetwork of production contractors in Mexicoduring this period also began to attack theMexican consumer apparel market aggressively.This was a theoretically significant develop-ment as buyer-driven commodity chains camefull circle, with developed-country firms bring-ing their Mexican-made goods to an emergingmarket that was itself located in the develop-ing world.

At the same time a substantial share of theconsumer market for apparel, including thatfor imported garments, continued to be servedby small-scale and informal enterprises. Theseenterprises were not “driving” the commoditychains for which they were the retail outletsbut rather purchased goods either directly frommanufacturers or from brokers located in LosAngeles’ garment district.29 Although they“took” the prices offered by suppliers fromwhom they purchased garments wholesale(whether in Mexico or in the United States),they played a vital role in serving a clientele of low-income consumers in a market charac-terized by an underdeveloped physical andfinancial infrastructure. In this context, thesesmall-scale entrepreneurs were not so muchprice-gouging “middlemen” interposing them-selves between suppliers and the public as theywere necessary links between producers and ahighly fragmented market, with their earningscommensurate to the value they added to theproduct by ensuring that it reached its intendedconsumer. Moreover, while it may be true thatthe fragmented markets served by small-scaleand informal clothing-distribution channels are

relatively small in terms of monetary value andpotential profits to be made by transnationalenterprises, both these markets and the dis-tribution channels that serve them are of sub-stantial social significance. Millions of Mexicanconsumers and thousands of workers are vitallydependent on them.

We do not yet know the extent to which theexpansion of large-scale self-service outletsand corporate chains of clothing stores mayerode informal distribution channels in urbanMexico. If the self-service outlets, because ofthe volume of merchandise they move, canoffer discounted prices that overcome the ad-vantages of informal sellers (physical proxim-ity to customers and limited overhead in theform of taxes, rent, employee benefits paid),they may continue to gain market share as theMexican economy recovers. As lead firms inbuyer-driven commodity chains that includeproduction sites in Mexico, the United States,and elsewhere in Latin American and Asia,both the discount chains and the departmentstores will surely play a major role in deter-mining the extent to which imported clothingbecomes more important in the domestic ap-parel market.

Small-scale and informal sellers of gar-ments are likely to retain distinct competitiveadvantages for a substantial segment of theMexican market. Mexico’s neoliberal eco-nomic model has, in general, fostered thedevelopment of separate markets and separatesocial worlds for the upper and lower classes.This may extend to the world of apparel sales.It is quite conceivable that U.S.-style depart-ment stores and discount warehouses will con-tinue to serve a relatively affluent clientele withthe automobiles and credit cards that makeshopping in these sorts of outlets attractive,while the tianguis, markets, and bazaars willserve a more working-class clientele, greaterin number but with considerably less pur-chasing power and more willing to purchase

, :

goods of lower quality (including factory sec-onds and cheap, even fraudulent imitations ofname-brand garments).

Indeed, not only does the informal sectorserve the lower and working classes in Mexico;its entrepreneurs and employees are them-selves typically drawn from these same classes.Though we did not find this to be the case inour fieldwork, an additional possibility is thatthe two sectors may eventually become linkedso that informal and other small-scale sellersmake wholesale purchases of some types ofgarments from large-scale discount outlets.Whether or not they retain independence fromlead firms in the formal sector, small-scale andinformal sector enterprises are likely to play asignificant role in the clothing of Mexicans forthe foreseeable future.

Notes

Acknowledgments: Research whose results are re-ported in this chapter was supported by a grantfrom the Ford Foundation to the Population Re-search Center (PRC) of the University of Texas atAustin. The authors worked as part of a PRC teaminvestigating the interrelationships among small-business activity, urban poverty abatement, andinternational migration in the U.S.-Mexico trans-border region.

. Here we should note that official data do notcapture the large amount of clothing that entersMexico as extralegal contraband.

. Our use of the term market channel in place ofcommodity chain follows that of Dannhaeuser (),an economic anthropologist. Dannhaeuser’s use ofthe term, in turn, follows that of Kotler (). Inthe interest of clarity, in this chapter we frequentlyuse the term distribution channel to describe thoseportions of garment commodity chains that distrib-ute imported garments in Mexico. We do this inorder to avoid confusion between “chain stores” thatare major sellers of such garments and the distribu-tion “chains” in which they are inserted. As arguedby Dannhaeuser (, ), the market channel for

a commodity is structured around the number oftrade levels that exist between producer and con-sumer and by the number, size, and type of enter-prises that occupy each level. Some market chan-nels are complex and vertically fragmented, withmany firms located at each transactional level. Inthese channels no single firm exerts effective controlover other firms. Other channels are more tightlycoordinated and vertically integrated, so that a sin-gle enterprise or group of enterprises dominates andcontrols the operation of the entire channel (Dann-haeuser ). In the case of peripheral or semi-peripheral countries, we must consider anotheraspect of these channels as well: the relative for-mality or informality of the activities carried out byan enterprise at each of its transactional levels.

. The growth in per capita consumption isinferred from an annual population growth of lessthan percent per annum. Figures on growth ingarment sales are taken from INEGI (b).

. Thus the share of garments in total consumerexpenditures rose from . percent in to .

percent in . These figures are calculated in con-stant prices (INEGI b).

. Average annual growth in gross domesticproduct between and was . percent.Manufacturing salaries and the average salary na-tionwide grew in real terms each year from

through , although they fell significantly in. In contrast, the minimum wage in Mexico fellin real terms throughout this period (CIEMEX-WEFA ).

. Between and the price index forclothing fell by percent relative to the index ofprices for all other consumer goods in Mexico(INEGI b).

. The figures for this period exclude semifin-ished and unfinished garments imported into Mex-ico for assembly in maquiladoras.

. In , Mexican gross domestic productexperienced a real growth rate of just . percent,while real gross investment fell by percent(CIEMEX-WEFA ).

. In private consumption fell by . per-cent and total investment shrank by nearly per-cent (CIEMEX-WEFA ).

. Real wages in manufacturing fell by . per-cent in , while the average wage for all sectors

, ,

dropped by . percent (CIEMEX-WEFA ).Furthermore, the price index for garments rosethree points higher than that of the general con-sumer price index (INEGI b).

. These indicators are calculated using con-stant prices. If instead we rely on prices incurrent pesos, the share of total consumer spend-ing captured by garments was . percent in ,

falling to . percent in and further, to just .

percent, in . This contrast owes to the lag ingarment prices with respect to the consumer priceindex. In other words, the fall in the relative priceof clothing (both domestic and imported) more thancompensated for the important increases in the unitvolume of sales, such that garments’ share of cur-rent consumer spending effectively declined.

. Figures reported are based on calculationsmade by the authors using the Banco de México’sIndicadores del sector externo (, a).

. For example, the Asociación Nacional de Ti-endas de Autoservicio y Departamentales (ANTAD)reports that between and the number ofestablishments designated as megamarkets, hyper-markets, and department stores grew by percent, percent, and percent, respectively (a). Ac-cording to ANTAD, a “megamarket” is a self-serviceoutlet (tienda de autoservicio) with more than tenthousand square meters of floor space that managesall product lines. A “hypermarket” is a self-serviceoutlet with between forty-five hundred and tenthousand square meters of floor space that managesa large number of, but not all, product lines. “De-partment stores” sell and exhibit products that areclassified by department, such as clothing and house-wares. These categories are defined in ANTAD’sDirectorio (a).

. In the retail discount chains and de-partment stores with the greatest sales in the coun-try were (in descending order): Cifra, Gigante, Co-mercial Mexicana, Liverpool, Chedraui, Soriana,Hermes, Sears Roebuck, Sorimex, Nazas, Salinas yRocha, El Palacio de Hierro, and Almacenes Cop-pel (Harris ).

. Membership clubs are stores with floor spacegreater than forty-five hundred square meters thatare focused on wholesale and semiwholesale salesand directed to certain sectors through member-ships; these stores sell hardware, perishables, and

general merchandise (ANTAD a). There arealso some specialty discount-clothing stores that fallin the self-service outlet category that are typicallysmaller establishments.

. It should be mentioned that the Cifra groupestablished a joint venture with Wal-Mart, whichnow operates both supermarkets (Aurrerá and Supe-rama) and department stores (Suburbia). Otherexamples of joint ventures among discount chainsare Comercial Mexicana–Price Club–Kmart andGigante–Sam’s Club.

. Owners of small-scale formal retail estab-lishments in Mexico frequently complain of compe-tencia desleal (unfair competition) on the part ofstreet vendors and other informal enterprises, sincethe informals do not abide by the same governmentregulations or have to factor high overhead costsinto their prices. Particular ire is reserved for streetvendors who “use public space for private gain” (seeMendoza ).

. The number of microenterprises selling newand used clothing also includes footwear. A “mi-croenterprise” is defined as an economic unit em-ploying up to six people, including owner andemployees, whether or not they are paid. For man-ufactures this number rises to sixteen persons (seeINEGI-STPS , ).

. Findings reported in this section derive fromfieldwork conducted by Pozos among garment sell-ers in Guadalajara and in the garment district inLos Angeles in May and June . In Guadalajarathirty structured interviews were conducted withsellers of different types of garments. In Los Ange-les fifteen such interviews were conducted withKorean and Iranian garment sellers.

. This needs to be taken as an upper-boundestimate, since clothing stores as a category includesome larger retail companies with multiple retail lo-cations in Mexico. In Guadalajara, however, smallerindependent retail establishments dominate thiscategory.

. This information is drawn from fieldworkconducted in the retail garment district in down-town Guadalajara as well as in several of the city’stianguis.

. The Los Angeles garment district is thepoint of provision for the majority of new clothingimported into Mexico. The public sellers in this

, :

district affirm that Mexicans were among their mostimportant customers until the end of ; Mexi-cans imported clothing for men, women, and chil-dren from a variety of countries until the Mexicangovernment placed a quota on Asian clothing. Thisobliged the Los Angeles businesspeople to switchthe “made in” tags on Asian-made clothing to tagsshowing (falsely) that garments were “Made in theU.S.A.” and thus could be legally imported intoMexico (interviews with garment sellers in LosAngeles, California, June ).

. In Guadalajara, for example, there is onlyone Wal-Mart and one Price Club in the city thatcould serve as distributors to informal enterprises,and their prices are for the most part higher thanthose found in the informal sector. The higherprices charged in the “discount” self-service outletsmight help explain why they lost market share ofclothing sales nationwide to the informal sector.

. It is important to bear in mind that thesefragmented distribution channels are serving frag-mented consumer markets. Tianguis vendors andaboneros, for example, frequently serve consumerswho do not have easy access to department stores orself-service outlets due to a poor urban transporta-tion infrastructure and traffic congestion that raisethe time and money costs of shopping. In addition,aboneros sell goods on credit to consumers whooften do not qualify for credit cards accepted bylarger-scale clothing outlets in the formal sector.This complexity in terms of consumer access to dif-ferent market segments also means it is difficult tomake across-the-board statements as to whetherinformal and small-scale sector prices are higher orlower than those charged by large-scale, formal en-terprises. As a consequence, the former are largelyable to keep for themselves the additional profitsgained by purchasing garments directly in LosAngeles. The more important point is that marketfragmentation helps protect informal garment sell-ers from price competition by the department storesand self-service outlets.

. Data reported in Table . are based onPozos’s field interviews in Guadalajara and LosAngeles. At least three interviews were conductedwith sellers at each transactional level in the chan-nel for each type of garment. (Some firms sold more

than one of three garment types shown in the table.)With regard to men’s printed T-shirts and chil-dren’s outfits, little variance in markup or valueadded was encountered from one firm to another.Somewhat more variance was found with regard towomen’s dresses, due to the difficulty of findingidentical dresses being sold by several firms at eachtransactional level. Generally speaking, Pozos foundsimilar prices being charged for similar productsthroughout the Guadalajara market.

. Light, Bernard, and Kim () provide fig-ures on the nativity of owners of garment busi-nesses in Los Angeles in . Forty percent wereAsian-born, with Koreans constituting . percentof the total; . percent were born in the MiddleEast, with nearly all of these from Iran (. per-cent) or Iraq (. percent); . percent were bornin Mexico, Central, or South America; and . per-cent were U.S-born.

. This information derives from fieldwork andinterviews performed by Pozos in the Los Angelesgarment district in . The authors wish to thankJudi Kessler, then at the Department of Sociologyof the University of California at Santa Barbara,and Raul Hinojosa of the North American Integra-tion and Development Center of the University ofCalifornia at Los Angeles for a helpful orientationto the workings of the Los Angeles garment district.

. Garments produced in Taiwan, Hong Kong,Malaysia, and South Korea entered Mexico throughintermediaries located in the Los Angeles garmentdistrict.

. We were unable, in our case study of Gua-dalajara, to follow the commodity chain beyond thepoint of purchase of garments by Mexican entre-preneurs in Los Angeles. As a consequence, wecannot comment on the power relations betweenLos Angeles garment sellers (some of whom werealso manufacturers) and their suppliers, whetherthese were in Los Angeles or in Asia. In particularwe are unable to characterize the chain leading“upstream” from that point as “buyer-driven” or“producer-driven.” More important for our pur-poses is the finding that Guadalajara’s entre-preneurs were independent of their suppliers inLos Angeles and served the Guadalajara marketautonomously.

, ,

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———. b. “Indices comparativos de ventas‒.” Mimeograph. Mexico City: ANTAD.

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Dannhaeuser, Norbert. . “La comercializaciónen las areas urbanas en desarrollo.” In Antro-pología económica, ed. Stuart Plattner, pp. ‒.

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, ,

Part VCentral America and the Caribbean

Michael Mortimore

When Does Apparel Become a Peril?

On the Nature of Industrialization

in the Caribbean Basin

A Stylized History of the EconomicGrowth of Countries

In a world of over two hundred countries, it canbe argued that only about or percent ofthem—basically the members of the Organi-zation of Economic Cooperation and Devel-opment (OECD)—can be considered to have“made it” in terms of growth and develop-ment. They have done so in the sense that theyhave enjoyed a sustained economic growth overmany decades, if not centuries, that has allowedthem to reach a significant level of per capitaincome; the level may be set at U.S.$,

a year (Mortimore ). Figure . cap-tures this notion in terms of the “winners’circle” of prominent examples of such suc-cessful countries.

The remarkable rise of some nations interms of their growth and development beganwith the Industrial Revolution in England. Itcan be argued that the original winners (such asthe United Kingdom and the United States)advanced at relatively low annual rates ofgrowth (at percent or less) over centuries toreach a level of sustained income per capita

that placed them in the winners’ circle. Rela-tive latecomers from the Old World, such asFrance and Germany, achieved the same goalin less time by growing at a faster rate (about. percent a year). Japan, the first of the Asiannations to achieve winner status, advanced atabout double the rate of the original Anglo-Saxon winners. Other European countries,such as Italy and Spain, boosted the Japaneserate of growth by percent. East Asian newlyindustrializing countries (such as South Korea,Taiwan, and Hong Kong) were, until recently,outdoing even these speedsters (. percent a year) in approaching the targeted incomelevels, and China, while far from the goal, isadvancing at an even faster rate (. percent ayear). Within this small group of prominentcountries in or approaching the winners’ cir-cle, latecomers have been able to outperformtheir predecessors by “making it” in less timeby increasing their per capita income at aquicker pace.

What explains the success of these winners?Undoubtedly, numerous factors influence thisoutcome. Three central factors taken into ac-count here are:

• an intense process of industrialization;• the extension of that process into the inter-

national market in the form of exports ofmanufactures; and

• the creation of firms that might be considerednational champions in the sense that they arenurtured in the national economy but de-velop into world-class global competitors.

A glance at any of the countries in the win-ners’ circle brings to mind some of the princi-pal aspects of their original industrial spe-cialization, the nature of their successes inexporting manufactures, and even the namesof some of their national champions that oper-ate in the international market. Examples rangefrom U.S. electrical machinery producers (Gen-eral Electric and Westinghouse), automobilemakers (General Motors and Ford), and com-puter companies (IBM and Microsoft); to Jap-anese consumer electronics companies (Mat-sushita, Sony, and Toshiba) and automobilemakers (Toyota, Nissan, and Honda); to new-comers from East Asian newly industrializing

countries (NICs) in the computer (Acer, Hyun-dai), consumer electronics (Samsung, LuckyGoldstar), and automotive industries (Hyundai,Kia, Daewoo), to name but a few.

Apparel as an Engine of Growth

The apparel industry was an important man-ufacturing activity and an element of the suc-cess in the industrialization processes of thewinner countries before those processes shiftedthe center of value, adding more sophisticatedactivities such as the manufacture of comput-ers, electronics, and automobiles. Vestiges ofthat original industry can still be encounteredin the export profiles of those countries. Theupgrading of OECD countries’ industrial ac-tivities opened the door to developing coun-tries with the right competitive situations,especially Asian ones, to deepen their indus-trialization processes with regard to apparel,gaining international market shares at the sametime. Over the last quarter century the apparel

1760 1800 1850 1900 1950 2000

20,000

10,000

1,000

100

100,000P

er c

apit

a in

com

e, lo

gar

ith

mic

sca

le (

U.S

.$)

1.5% 1.9% 2.4% 3.0% 4.5% 5.5% 7.5%

UnitedKingdom

UnitedStates

Germany,France Japan Italy,

Spain

EastAsianNICs

China

.. The Winners’ Circle: A Stylized History of the Economic Growth of Nations.Source: Based on J. Ramos, “Industrial Policy and Competitiveness in Open Economies,”CEPAL Review, no. 34 (September 1996).

industry has developed along two axes: () theAsian competitors that supply all markets and() the specific clusters of regional supplierscreated around the principal markets (NorthAmerica, Europe, and Japan).

Although apparel is an activity of decliningimportance in the OECD economies as theirindustrialization processes move into moretechnologically sophisticated activities, manywinner countries are still formidable apparelexporters according to the Competitive Analy-sis of Nations (CAN) computer program ofthe United Nations Economic Commissionfor Latin America and the Caribbean (UN-ECLAC).1 Italy is the third most importantsupplier (even though its world import mar-ket share dropped from . to . percentduring ‒); the United States is sixth(actually increasing its share from . to .

percent); Germany is eighth (a drop from .

to . percent); France is thirteenth (. to .

percent); and Portugal is sixteenth (falling from. to . percent). With the exception of Italy,which has specialized more in high fashion,and Portugal, which is at a less technologicallyadvanced stage of its industrialization process(apparel still accounts for a significant pro-portion of their exports—. percent and .

percent, respectively, in ), apparel rep-resented less than percent of the exports ofthe other OECD winner countries by .

The apparel industry was an engine of growthin the early phases of industrialization, espe-cially when these countries were improvingtheir international competitiveness in that in-dustry, but that is no longer the case for thosecountries.

Two other important surges in apparel im-ports during ‒ are noteworthy. Withregard to Asian countries there are three as-pects to point out. The first is the central roleof Chinese exports (rising from . to . per-cent of the market), a feature that firmly en-sconced that country as the world’s most im-

portant exporter of apparel. Second, the moredynamic Asian economies generally saw theirapparel exports peak during this period both interms of market share and the proportion oftheir total exports represented by apparel. Eventhough they retained important positions asworld exporters of apparel (Hong Kong, sec-ond; Indonesia, tenth; South Korea, eleventh;Thailand, thirteenth; Taiwan, sixteenth; thePhilippines, twenty-first), the impulse apparelhad given their industrialization processes wasweakening. Just the opposite was happening toa group of less-dynamic Asian economies, forwhich apparel constituted a growing part ofmarket share and a higher proportion of totalexports. These countries were working theirway up the ranking (India, eighth; Bangladesh,ninth; Sri Lanka, twenty-third). This wouldsuggest that, in Asia, apparel as the engine ofgrowth was most apparent in China but wasshifting from the more-dynamic East andSoutheast Asian economies to the less-dynamicSouth Asian ones.

The most novel aspect of the evolution ofapparel exports to the world market during‒ was that groupings of new entrantswere forming around regional markets. Forexample, around the European market a num-ber of new supplier countries were winningmarket shares and increasing the proportionof apparel in their total exports (Turkey, fifth;Tunisia, fourteenth; Romania, eighteenth; Mo-rocco, nineteenth; Poland, twenty-fifth). In thecase of the North American market a similarsituation was occurring (Mexico, fourth; Hon-duras, twentieth; the Dominican Republic,twenty-second). In other words, great changeswere taking place in the apparel market inwhich new suppliers were displacing old. How-ever, many of the new supplier countries ex-ported only to regional markets, rather than toall major markets, and it was not clear whateffect this had on the use of apparel as anengine for industrialization.

Evidently, the apparel industry has been animportant stepping-stone for winner countries(both those in the OECD and several of theirAsian challengers) to get their industrializa-tion processes rolling and to generate solidexport streams to the international market.During ‒ the importance of apparel(Standard International Trade Classification,or SITC, through ) in the total importsof the OECD rose from . to about . per-cent, placing it among the dynamic industriesin international trade, though that dynamismdeclined toward the end of the s. More-over, the import market share of countriesother than OECD ones jumped from . to. percent of the total. This situation offeredconcrete opportunities to developing countriesthat were internationally competitive. Thatdynamism stemmed in good part from the re-location of existing apparel production, espe-cially to developing countries, rather than fromsurges in world demand for apparel products(Audet ; ILO ; van Liemt ).

Table . indicates the twenty-five mostimportant country suppliers of apparel to theNorth American market (Canada and theUnited States together) by import marketshares during ‒. To a certain extentthe North American market reflects the globaltrends apparent in the OECD market—thatis, Italy still retains a strong participation,occupying fourteenth place with an importmarket share of . percent in , and theAsian challengers are very present. China wasin second place with an import market shareof . percent in , while dynamic Asianeconomies occupied positions three, six, seven,nine, and ten, but with sharply declining mar-ket shares over ‒. The surprise ofthe North American apparel market is thatMexico is in the first spot, challenging theAsian countries, and several Caribbean Basincountries (Honduras, the Dominican Re-public, El Salvador, Guatemala, and CostaRica) are doing the same thing. Although

the twenty-five principal suppliers still ac-count for over percent of total imports ofapparel to the North American market, thecomposition changed considerably over theperiod and a regional cluster involving sup-plier networks in Mexico and the CaribbeanBasin was evident.

The Situation of Small Countries

Small countries face an especially difficulttask in making it to the winners’ circle. Inscale-based industries (those that need mini-mum production volumes to be competitive),for example, they are challenged to reach min-imum efficient economic scales of production.They cannot rely on a sufficiently large na-tional market, one that allows them to reachthe required levels of productive efficiency, inorder to develop the kind of operations thatwill permit them to venture into the inter-national market with the aim to become sig-nificant competitors. They often start off theirindustrialization processes in simpler, morelabor-intensive industries, such as apparel,and look to trade agreements or economicintegration initiatives to expand their mar-kets in order to sustain their industrializationprocesses and to permit national championcompanies to arise and evolve into worldplayers.

This is by no means a trivial observation.Small countries are increasingly becoming thenorm in today’s world. Eighty-seven countrieshave populations under million; fifty-eightpossess populations of fewer than . million;and thirty-five have fewer than half a million.Measured in another way, half of the coun-tries of the world have a smaller populationthan the U.S. state of Massachusetts (TheEconomist , ).

The Caribbean Basin is a case in point. Fiveof the small countries of the Caribbean Basinare found in the list of the twenty-five main

suppliers of apparel to the North Americanmarket. These small countries possessed im-port market shares of much less than percenteach in , and all are making dramaticadvances. Honduras rose to fourth position,increasing its share from . to . percentduring ‒. The Dominican Republicwas in fifth position (an increase from . to

. percent); El Salvador in thirteenth (. to. percent); Guatemala in sixteenth (. to. percent); and Costa Rica in twenty-first(. to . percent). In the case of every one ofthese countries, apparel accounts for betweenone-fifth (Costa Rica) and about four-fifths(Honduras and El Salvador) of the country’stotal exports to the North American market.

.. The Principal Country Sources of Apparel (SITC ‒) for the NorthAmerican Marketa during ‒

Market Share in Apparel as % ofNorth Americab Country’s Total Exports

Rank Country 1985 2000 % Changec 1985 2000 % Changec

1 Mexico 1.6 14.0 754.4 1.3 6.2 371.02 China 8.3 11.2 34.3 28.7 6.4 �77.53 Hong Kong 22.7 8.2 �63.7 36.7 39.4 7.54 Honduras 0.2 4.0 2,201.6 5.7 78.2 1,277.05 Dominican Republic 1.4 4.0 183.1 19.9 52.6 164.36 South Korea 13.7 3.8 �72.3 18.0 5.6 �68.87 Indonesia 1.6 3.4 115.6 5.0 18.2 261.98 India 2.4 3.3 37.3 14.1 17.8 25.99 Taiwan 15.5 3.3 �78.6 13.4 4.6 �65.5

10 Philippines 2.7 3.2 21.5 17.2 13.3 �22.811 Bangladesh 0.8 3.2 303.3 53.7 79.6 48.212 Thailand 1.6 3.1 85.7 15.5 10.6 �31.713 El Salvador 0.1 2.6 3,811.4 2.3 78.6 3,300.214 Italy 4.3 2.5 �42.4 6.4 5.4 �15.115 Sri Lanka 1.6 2.4 50.4 70.0 69.6 �0.616 Guatemala 0.1 2.4 2,737.0 2.3 52.9 2,181.417 Macao 1.4 1.9 41.0 54.2 87.5 61.418 Turkey 0.6 1.7 165.9 15.4 31.9 106.819 Pakistan 0.5 1.5 190.1 25.1 40.3 60.820 Malaysia 1.4 1.4 �1.7 8.3 3.2 �61.121 Costa Rica 0.7 1.3 93.3 16.7 19.7 18.522 Cambodia 0.0 1.2 — 16.4 97.1 491.223 Israel 0.3 0.8 206.7 1.9 3.9 107.324 Colombia 0.3 0.7 134.5 2.7 5.6 107.925 Egypt 0.0 0.7 — 1.6 47.2 2,886.2

Total top 25 (percent) 83.8 85.9 2.5 Avg. 13.4 Avg. 10.5 �21.6

Value world imports (U.S.$ billion)d 15.6 58.2

Source: Calculated from the United Nations Economic Commission for Latin America and the Caribbean (UN-ECLAC) computerprogram on international competitiveness, TradeCAN (Competitive Analysis of Nations), edition.

aNorth American market � Canada and United States.

bThe import value for is a three-year average (‒); for , a two-year average (‒).

cPercentages are based on actual values for the years indicated, rather than the rounded figures shown in the table.

dImports of apparel (SITC ‒) to North American market from all countries.

The apparel industry represents their principalexport link with the international economy,with the exception of Costa Rica. As shall bedemonstrated, however, this is a peculiar linkin the case of the Caribbean Basin.

Figure . indicates that in the NorthAmerican market there are two major apparel-

supplying groups of developing countries:Asian ones and Latin American (essentially,Caribbean Basin and Mexican) ones. Mexico isthe principal supplier, followed by China,Hong Kong, Honduras, and the DominicanRepublic. The next level of suppliers is basi-cally Asian (Korea, Indonesia, India, Taiwan,

Japan

Taiwan

South Korea

Philippines

Macao

China

HongKong

Malaysia

Sri Lanka

ThailandPakistan

SingaporeIndiaBangladesh

Indonesia

Turkey

Italy

UnitedKingdom

France

Guatemala

CostaRica

El Salvador

Honduras

DominicanRepublic

Mexico

1.25%

2.5%

5%

10%

20%

North America

CaribbeanBasin

NortheastAsia

South andSoutheast

Asia

European Rim

WesternEurope

.. Shifts in the Regional Structure of North American (U.S. and Canadian)Apparel Imports (SITC ‒), –.

The rings indicate the share of total North American imports in U.S.$ by partner country:Ring (innermost), %�; ring , ‒.%; ring , ‒.%; ring , .‒.%; ring (out-ermost), .‒.%. The total value of North American apparel imports (SITC ‒) wasU.S.$. billion in ‒ and U.S.$. billion in ‒. The position corre-sponds to the ring where the country’s name is located; the ‒ position, if different, isindicated by a circle. The arrows represent the magnitude and direction of change over time.Source: Calculated using the TradeCAN edition computer program of UN-ECLAC.

the Philippines, Bangladesh, and Thailand).In the next group figure El Salvador, Guate-mala, and Costa Rica. The Caribbean Basin isa significant and growing apparel supplier basefor the North American market.

Other major markets also display regionalaspects. In the Western European market theprincipal developing-country suppliers areChina, Turkey, and Hong Kong. The next levelof suppliers come mainly from the EuropeanRim (Tunisia, Romania, and Morocco) butinclude Bangladesh and India. The next groupof suppliers is a mixture of European Rim andAsian suppliers. The Caribbean Basin suppli-ers are completely absent. The European Rimrepresents an important and growing supplierbase for the Western European market, similarto the relationship between the North Ameri-can market and its Caribbean Basin suppliers.The Japanese market is supplied basically byone source country: China. South Korea rep-resents the second most important developing-country source of apparel. The next level ofdeveloping-country suppliers consists of HongKong, Thailand, and Indonesia and, to a lesserextent, Taiwan. The Japanese market is sup-plied almost exclusively by other Asian coun-tries; major suppliers from both the EuropeanRim and the Caribbean Basin are totally absent.

In other words, there are two predominantrealities in the supply of apparel to the dis-tinct constituents of the OECD market. Onthe one hand are the Asian countries led byChina, the dynamic Asian economies, and thenewcomers from South Asia, which haveimpressive import market shares in all majorelements of the world market: North America,Western Europe, and Japan. On the otherhand, one encounters significant and growingimport market shares for Mexico and theCaribbean Basin in the North American mar-ket and for the European Rim in the WesternEuropean market. The Caribbean Basin playsa significant supplier role solely in the NorthAmerican market.

The examples of the Dominican Republicand Costa Rica illustrate this point. Tables .

and . provide the relevant information onthe competitive situation of these countries inthe North American market. Table . indi-cates that the Dominican Republic has sig-nificantly increased its overall import marketshare in that market (from . to . percentduring ‒).2 That improvement wasconcentrated in manufactures not based onnational resources (. to . percent); inboth manufactures based on natural resources(. to . percent) and primary products(. to . percent) the Dominican Repub-lic saw its import market shares contract. Dur-ing the ‒ period the structure of Do-minican exports to the North American marketwas transformed from natural resource–based(. percent of total exports in ) to man-ufactures not based on natural resources ( percent of the total in ). Over three-quarters (. percent) of Dominican exportswere concentrated in just ten product groupsat three digits of the second revision of theSITC (SITC—Rev. ) in . The Domini-can Republic was gaining market share inall of them, and eight of the products corre-sponded to the group of fifty most dynamicitems in the North American market. Four ofthese ten principal export items pertain to theapparel industry, and their share increasedfrom . percent of total exports in to. percent in . Without doubt, the ap-parel industry is the principal link between theDominican and the North American marketsand should therefore represent the extensionof the national industrialization process intothe international market.

Table . presents similar information forCosta Rica. That country also improved itsimport market share in the North Americanmarket, from . to . percent during ‒

. This improvement was rooted in manu-factures not based on natural resources (. to. percent). During this period, the export

.. Dominican Republic: Its Competitiveness in the North American Market,‒

1985 1990 1995 2000

I. Market Shares 0.26 0.31 0.38 0.32

1. Primary productsa 0.40 0.25 0.20 0.092. Manufactures based on natural resourcesb 0.38 0.25 0.26 0.203. Manufactures not based on natural resourcesc 0.16 0.32 0.44 0.39

Low-technologyd 0.54 1.02 1.46 1.31Medium-technologye 0.04 0.11 0.15 0.15High-technologyf 0.03 0.03 0.05 0.05

4. Othersg 0.77 0.47 0.33 0.20

II. Export Structure 100 100 100 100

1. Primary productsa 23.6 10.4 5.6 2.92. Manufactures based on natural resourcesb 24.3 11.9 8.9 8.03. Manufactures not based on natural resourcesc 39.3 71.3 81.9 86.0

Low-technologyd 32.9 56.7 65.9 67.6Medium-technologye 5.1 12.8 13.5 15.2High-technologyf 1.2 1.8 2.6 3.2

4. Othersg 12.9 6.4 3.7 3.2

III. 10 Principal Exports (SITC—Rev. 2) (x) (y) 29.7 59.9 70.6 77.9

842 Outer garments, men’s and boys’ oftextile fabrics * � 5.4 13.4 16.5 18.5

846 Undergarments, knitted or crocheted * � 5.6 8.1 12.6 15.4843 Outer garments, women’s and girls’ of

textile fabrics * � 5.7 10.2 10.6 9.2872 Medical instruments and appliances,

not elsewhere specified * � 0.0 4.3 7.0 7.9845 Outer garments, other articles, knitted

or crocheted * � 0.9 4.7 5.7 7.6772 Electrical apparatus for making and

breaking electrical circuits * � 1.3 3.9 4.2 5.4122 Tobacco, manufactured � 1.8 1.3 1.9 4.2897 Jewelery, goldsmiths’ and silversmiths’

wares, etc. * � 3.7 4.8 3.5 3.7612 Manufactures of leather, parts of

footwear, etc. � 3.4 6.3 6.1 3.5931 Special transactions and commodities

not classified * � 1.8 2.9 2.4 2.5

Source: Calculated initially by way of TradeCAN , then checked using the original COMTRADE database. Product groupsdefined according to the second revision of the Standard International Trade Classification (SITC—Rev. ).a primary products usually with simple processing; includes concentrates.

b manufactures: from agro-industrial/forestry, others (mainly metals—excluding steel—petroleum products, cement, glass,etc.).

c non-resource-based manufactures that represent the sum of the low-technology, medium-technology, and high-technologyproduct groups (groups marked d, e, and f, below).

d low-technology manufactures: from the textile/apparel cluster and others (paper products, glass products, jewelery, etc.).e medium-technology manufactures: from the automobile industry, from processing industries, and from engineeringindustries.

f high-technology manufactures: from the electronics/electrical equipment cluster, others from pharmaceutical products,turbines, aircraft, scientific and precision instruments.

g unclassified product groups, mainly from Chapter of the SITC.

(x) Product groups included (*) in the most dynamic ones that correspond to the indicated market during ‒.

(y) Product groups in which market share was gained (�) or lost (�) by the indicated exporting country during ‒.

.. Costa Rica: Its Competitiveness in the North American Market, ‒

1985 1990 1995 2000

I. Market Shares 0.15 0.19 0.23 0.29

1. Primary productsa 0.65 0.68 0.83 0.712. Manufactures based on natural resourcesb 0.07 0.07 0.10 0.113. Manufactures not based on natural resourcesc 0.06 0.13 0.17 0.28

Low-technologyd 0.19 0.46 0.57 0.43Medium-technologye 0.02 0.03 0.05 0.08High-technologyf 0.02 0.02 0.02 0.44

4. Othersg 0.03 0.07 0.12 0.16

II. Export Structure 100 100 100 100

1. Primary productsa 64.5 45.9 38.4 24.32. Manufactures based on natural resourcesb 7.9 5.4 5.9 4.83. Manufactures not based on natural resourcesc 26.7 47.2 53.5 68.1

Low-technologyd 20.2 40.6 43.3 25.0Medium-technologye 5.3 5.2 7.9 8.6High-technologyf 1.2 1.4 2.3 34.5

4. Othersg 0.9 1.6 2.3 2.8

III. 10 Principal Exports (SITC—Rev. 2) (x) (y) 62.2 64.5 62.6 75.9

759 Parts and accessories for computers, etc. * � 0.2 0.0 0.2 29.0057 Fruit and nuts (not oil nuts) fresh or dried � 33.9 27.2 24.1 15.5846 Undergarments, knitted or crocheted * � 5.0 9.8 12.1 8.1842 Outer garments, men’s and boys’ of

textile fabrics � 3.7 9.6 10.9 5.7776 Thermionic valves and other semiconductors,

not elsewhere specified * � 0.3 0.1 0.1 3.8071 Coffee and coffee substitutes � 12.5 6.0 4.1 3.6872 Medical instruments and appliances,

not elsewhere specified * � 0.0 0.5 1.9 3.4931 Special transactions and commodities

not classified * � 0.8 1.3 1.7 2.6845 Outer garments, other articles, knitted

or crocheted * � 0.5 3.1 4.0 2.3843 Outer garments, women’s and girls’ of

textile fabrics � 5.4 6.8 3.5 1.9

Source: Calculated initially by way of TradeCAN , then checked using the original COMTRADE database. Product groupsdefined according to the second revision of the Standard International Trade Classification (SITC—Rev. ).

a primary products usually with simple processing; includes concentrates.

b manufactures: from agro-industrial/forestry, 30 others (mainly metals—excluding steel—petroleum products, cement, glass,etc.).

c non-resource-based manufactures that represent the sum of the low-technology, medium-technology, and high-technologyproduct groups (groups marked d, e, and f, below).

d low-technology manufactures: from the textile/apparel cluster and others (paper products, glass products, jewelery, etc.).

e medium-technology manufactures: from the automobile industry, from processing industries, and from engineeringindustries.

f high-technology manufactures: from the electronics/electrical equipment cluster, others from pharmaceutical products,turbines, aircraft, scientific and precision instruments.

g unclassified product groups, mainly from Chapter of the SITC.

(x) Product groups included (*) in the most dynamic ones that correspond to the indicated market during ‒.

(y) Product groups in which market share was gained (�) or lost (�) by the indicated exporting country during ‒.

structure of Costa Rica was transformed fromone heavily based on natural resources (.

percent of total exports in ) to one inwhich manufactures not based on naturalresources came to represent the larger part(. percent in ). Seventy-six percent oftotal exports are accounted in the top ten, andfour of those export items are from the apparelindustry, representing four of the eight dy-namic items. The share of apparel in CostaRica’s total exports to the North Americanmarket rose appreciably, from . percent in to . percent in . Costa Rica gainedmarket share in nine of these ten items. In thiscase, while apparel was a significant link be-tween the Costa Rican and North Americanmarkets and represented in part the extensionof the Costa Rican industrialization processinto the international market, the new invest-ment by Intel to assemble and test micro-processors in Costa Rica caused those items toconstitute that country’s principal export.

These countries are representative of thegeneral situation in the Caribbean Basin: Todifferent degrees, these small countries hadplaced their eggs in the apparel basket of theNorth American market. Their apparel exportsgo solely to that market, suggesting that eitherthey are not plentiful enough to be spreadaround or they are not competitive enough toenter other markets. We shall see that the man-ner in which these countries supply the NorthAmerican market determines to a large extentthe impact that the apparel industry has on thegrowth and development trajectories of theCaribbean Basin countries.

The Caribbean Basin Assembly Model

Gary Gereffi () has demonstrated that thenature of the apparel commodity chain haschanged considerably over time. Buyer-driven

chains have progressively supplanted producer-driven chains—that is, companies that buyapparel (usually by contracting out fashionarticles of their own design) for sale to theirupscale clientele are increasingly calling theshots in the U.S. industry, compared to com-panies that produce standard clothing for dis-tribution to retailers. In the U.S. market largeretail stores (Sears, Wal-Mart, JCPenney,Kmart, etc.) and branded marketers (Liz Clai-borne, Donna Karan, Polo, Tommy Hilfiger,Nike, etc.) have come to possess greater influ-ence over the whole chain itself.

Gereffi () has also suggested that thisevolution allowed “full-package” suppliersfrom developing countries in East Asia to playa more important role by providing the com-plete article that the buyers required, cuttingthe U.S. clothing manufacturers out of therelationship. East Asian national companiescapable of organizing the complete productionof the article, from inputs to assembly, werefortified in the process. The national compa-nies capable of providing all the organizationnecessary to convert retailers’ or branded mar-keters’ designs into finished products that metthe buyers’ required volumes on time, as wellas fulfilling their quality standards, becamesignificant competitive forces in the apparelindustry, particularly in women’s wear. More-over, they also provided a strong boost to thenational growth and development trajectory.

East Asian full-package suppliers from Tai-wan, Hong Kong, and South Korea achievedthis status by establishing their own regionalproduction systems, which organized inte-grated production from textiles and cloththrough the apparel assembly process to finaldelivery to the retailers or branded marketers.Some even developed into international com-petitors of their original clients. This gave asignificant impulse to their domestic econ-omies. Although these countries appear to belosing import market shares in the OECD mar-

ket, in fact, for production-cost and quota rea-sons, their apparel companies often export theirproducts from overseas factories that assemblecomponents from the home country of theAsian manufacturers and traders. Hence, whiletheir market shares in final markets for directapparel exports decline, their exports of textileand cloth inputs to offshore assembly sites (suchas China, Thailand, and Indonesia, and even inthe Caribbean Basin) rise. Thus full-packagesuppliers in Taiwan, South Korea, and HongKong have developed their own networks ofassembly operations in other parts of Asia and,increasingly, around the world. Full-packagesuppliers and simple assembly for export oper-ations coexist in Asia, unlike in other regionsof developing countries.

The situation is considerably different forapparel production in the Caribbean Basin.The apparel companies operating there tendto be subsidiaries of branded manufacturers(especially for women’s underwear) or for-eign or national companies that compete forassembly contracts (for men’s outerwearmostly) from the overseas buyers of the largeU.S. retailers. The latter do not provide full-package services. The overseas buyers or thebranded manufacturers themselves handle allthe other aspects of the package. Thus, sim-plifying somewhat, one can distinguish tworealities in the apparel industry of developing-country suppliers of the international mar-ket: an Asian version, in which local compa-nies of the East Asian NICs act as full-packagesuppliers of mostly women’s wear to largeretailers and branded marketers, and a Ca-ribbean Basin model, which isolates the as-sembly process itself in those countries,mainly by providing women’s underwearthrough subsidiaries of branded manufac-turers or men’s outerwear through foreign ornational subcontractors to overseas buyers.The Asian “full-package” manufacturer-trader version can be starkly contrasted with

what can be called the Caribbean Basin specialaccess–export processing zone–low-wage version(hereafter the Caribbean Basin assembly mod-el). These differences are of central impor-tance for defining apparel’s local impact interms of national growth and development.

The North American apparel connectionhas been responsible for the huge increase inapparel exports from Latin America. Textileand apparel exports from Latin America to theU.S. market grew from $. billion ( per-cent of total U.S. imports of such) in to$. billion ( percent) in ; . per-cent of apparel exports originated in the Ca-ribbean Basin and percent came from Mex-ico during (USITC ). CaribbeanBasin countries were gaining ground as apparelsuppliers to the U.S. market; however, they didit in a very different manner from the EastAsian competitors.

The original Caribbean Basin (but not Mex-ican)3 assembly model was considered to havespecial access because it rested heavily on theso-called production-sharing mechanism ofthe U.S. tariff code. This Harmonized TariffSchedule (HTS)4 provision allows U.S.-sourced apparel inputs to be assembled off-shore, with tax paid upon reentry to the U.S.market solely on the value added (essentiallywages) outside the country. The share of U.S.textile and clothing imports following thisscheme has risen from $. billion ( percentof all such imports) in to $. billion (

percent) in . The Caribbean Basin ( per-cent of the apparel imports by way of HTS), together with Mexico ( percent ofsuch), provided over percent of textile andapparel imports to the United States throughthis mechanism (USITC a). Quite dis-tinct from Asian countries, a substantial pro-portion of all Latin American exports to theUnited States entered by way of the HTS mechanism in : Dominican Repub-lic (. percent), Costa Rica (. percent),

Honduras (. percent), Guatemala (.

percent), El Salvador (. percent), andJamaica (. percent). It is in this sense thatone can speak of a special access for apparelfrom the Caribbean Basin.

The Caribbean Basin also made increasinguse of export processing zones to give an incen-tive to the assembly trade related to the HTS mechanism. Between and , forexample, the importance of export-processingzone (EPZ) operations to total exports rosefrom to percent in the case of the Do-minican Republic and from virtually nothing to percent in Costa Rica (Willmore ). TheEPZ provides total tax exemption for theimports of inputs and components and theexport of final products, as well as total or tem-porary exemption from income, profit, andprofit-remittance taxes. Complementary aspectsconcern providing operational facilities interms of foreign exchange, limited access to thenational market, and expedited customs ser-vice. The EPZ facilities and tax exemptionsrepresent the national counterpart to the U.S.

HTS mechanism intended to provideadditional incentive to U.S.-based apparel firmsto make use of assembly operations in theCaribbean Basin.

The third element of the original CaribbeanBasin model of apparel exports to the U.S.market rested on low labor costs. Figure ., forexample, shows that after the massive devalu-ation of the national currency in the Domini-can Republic in , the relative wage costthere declined from the equivalent of per-cent of that in the United States to a little over percent. At the same time employment in theEPZs exploded from fewer than , work-ers to about , in . Reduced wagerates (measured in dollars) resulting from thehuge Dominican currency devaluation of ,

itself related to the external debt crisis, explainmore than any other single factor why EPZstook off between and . For example,the number of EPZs in the Dominican Repub-lic grew from eight to thirty; the number ofcompanies installed in them jumped from

to ; the value of gross exports shot from

1980 1982 1984 1986 1988 1990 1992 1994

160

140

120

100

80

60

40

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.. Dominican Republic: Relationship between RelativeLabor Costs and EPZ Employment

$. to $, million; and the value of netforeign exchange earnings from EPZs blos-somed from $. to $. million (ReyesCastro and Dominguez ). This was a sig-nificant factor in the recuperation of the econ-omy of the Dominican Republic. Moreover,exports (mostly natural resources) from thenon-EPZ part of the economy had entered intoa nosedive, falling from about $ million in to about $ million in . Exportsfrom the EPZs rocketed from $ million toabout $, million over the same period(Mortimore, Duthoo, and Guerrero ).

Thus the example of the Dominican Re-public poignantly captures the relationship ofspecial access to the U.S. market, the use ofEPZs, and low wages, which characterize theCaribbean Basin assembly model, to wildlyincreased exports of apparel to the U.S. mar-ket. Unfortunately, the Caribbean model alsohas its costs.

The Downside of the Caribbean Basin Assembly Model

Each of the three components underlying theCaribbean Basin model of apparel exports tothe United States possesses severe deficiencieswith respect to its ability to assist these smallcountries in making it to the winners’ circle.First, special access represents a direct challengeto the national industrialization process. TheHTS mechanism penalizes practically allvalue added outside the United States. Thislimits its use to activities in which low wagesare prominent (and compensate for the U.S.duty on value added) and in which local phys-ical inputs are not needed or desired by themanufacturer or buyer. It is extremely difficultfor the national government of the assemblingcountry to implement policies that effectivelypromote further local integration of the indus-try. This is the case for both higher-level train-

ing of the workforce, which would eventuallyrequire higher wages for more skilled and com-plex work performance, and the incorporationof local suppliers of product inputs (thread,buttons, let alone major inputs such as clothor cutting operations). Thus the HTS

mechanism tends to truncate the industrializa-tion process itself, isolating the assembly oper-ation in the Caribbean Basin to the detrimentof any integrated national industrializationprocess in the assembly country.

Another weak point in the special-accessrelationship between the Caribbean Basin andthe U.S. market has to do with what are knownas “calls” in U.S. legislation. A U.S. firm thatfeels it has been unduly affected by what maybe considered an abnormal increase in importsto the United States can request a decision bythe U.S. Department of Commerce to deter-mine if import disruption has taken place. TheDepartment of Commerce can issue “calls”(or warnings) to the local textile offices thatallocate quotas in exporting countries in orderto restrain the growth of such items. This phe-nomenon took place in March , when callswere issued to Caribbean Basin producers ofunderwear and pajamas, some of the moreimportant apparel exports of the region. Whilemost assemblers of these items adapted to theU.S. demands, Costa Rica—which was one ofthe more severely impacted countries—tookthe case to the World Trade Organization andwon, although the damage done to that coun-try’s underwear and pajama exports was notcompensated. In this sense special accesssometimes is less special than it appears for thecountries involved.

Another problem associated with specialaccess is that some assembly countries becomemore special than others. For example, theimplementation of the North American FreeTrade Agreement (NAFTA) in effec-tively gave Mexico advantages that the Ca-ribbean Basin countries did not possess

(USITC b). Mexico enjoyed the equiva-lent of a six-point tariff-rate advantage in theU.S. market, was no longer subject to importquotas on many apparel items, and, mostnotably, could count Mexican inputs as part ofthe requisite NAFTA content. That gaveMexico a huge advantage compared to theCaribbean Basin countries. For that reason,since the inception of NAFTA the apparelassemblers of the Caribbean Basin have beenlobbying the U.S. Congress in search of“NAFTA parity” for their apparel exports.The U.S. Congress has turned them down sev-eral times. The U.S.–Caribbean Basin TradePartnership Act of May did help Ca-ribbean Basin apparel assemblers cut theNAFTA disadvantage with regard to tariffs;however, it didn’t affect the NAFTA rules oforigin that allow Mexican inputs to count asNAFTA inputs, unlike those involved in as-sembly in the Caribbean Basin. Thus not allassemblers are special in the same way.

Deficiencies are also encountered with re-spect to the export-processing zone mechanism,which is the local counterpart to the HTS

mechanism. The intense interest in CaribbeanBasin countries to develop new exports in thecontext of the debt crisis of the s and thestructural decline of natural-resource exportsled them to enter into “incentive wars” toattract foreign direct investment (Mortimoreand Peres ). That competition was sosevere that the level of incentives came to sig-nify that huge assembly operations, account-ing for percent or more of all exports ofthese countries to the United States, providedvirtually no fiscal income for the local govern-ment. Moreover, competitive pressures pro-duced the effect that incentives intended to betemporary (eight to twelve years) becamerenewable and, in practice, endless. Thus, inthe heat of the battle to attract foreign directinvestment to local EPZs, many governmentshave given away as incentives virtually all thepotential fiscal income to be derived from such

activities. These lost resources could have beenused to strengthen the local industrializationprocess, to promote other exports, or to im-prove the international competitiveness of thenational economy through investments in infra-structure (ports, airports, roads) and basic(electricity, water) and other services (telecom-munications, financial services, etc.). Ratherthan representing a starting point for manyindustries, as was the case for some of the EastAsian NICs (UN-ESCAP ), EPZs becamean end in themselves that eventually came tolimit and distort the nascent industrializationprocess of many of these Caribbean Basincountries.

Finally, the low-wage element of the Ca-ribbean Basin assembly model also demon-strates significant deficiencies. More than fif-teen years after the massive national currencydevaluations of the s, the labor costs (in-cluding the social and fringe benefits) in theapparel industry of the Caribbean Basin coun-tries have been rising steadily (measured in dol-lars). This translates into pricing many of theirapparel-assembly operations out of the mar-ket, rather than any real manifestation of in-dustrial upgrading or specialization in higher-value output. Table . presents labor costdata for forty apparel producers during ‒

, ordered from the highest (Germany, Swit-zerland, Italy, and Japan had hourly labor costsover $. in ) to the lowest (four Asiancountries had hourly labor costs of $. orunder in the same year). The Caribbean Basincountries are generally found in the middle ofthe pack (ranging from positions thirteen totwenty-five). All the Caribbean Basin countrieshad significant increases in their hourly laborcosts during ‒: Costa Rica, from $.

to $.; Dominican Republic, from $. to$.; El Salvador, from $. to $.; andGuatemala, from $. to $.. In otherwords, labor costs in the Caribbean Basin areincreasing faster than in most other areas andare substantially higher than the costs of many

of the assemblers of standard apparel found inAsia. Even within the Caribbean Basin regionthere is considerable distance between higher-cost Costa Rica and lower-cost Guatemala. Thissuggests that as the level of competition in thisindustry increases in keeping with the demise

of the Multifiber Arrangement (replaced bythe Textile and Clothing Agreement endorsedby the World Trade Organization), these coun-tries may be tempted to follow a strategy ofcompetitive devaluations of their national cur-rencies in order to artificially prolong the life of

.. Labor Costs in the Apparel Industry, 1990–98

Hourly Costsa (U.S.$)1990–98 Annual

Rank Country 1990 1995 1998 Growth Rate (%)

1 Germany 7.23 20.35 18.04 18.72 Switzerland 14.19 22.42 17.58 3.03 Italy 12.50 13.68 13.60 1.14 Japan 6.34 20.95 13.55 14.25 U.S.A. 6.56 9.62 10.12 6.86 Spain 7.08 7.78 6.79 �0.57 Greece 4.33 7.19 6.55 6.48 Hong Kong 3.05 4.32 5.20 8.89 Taiwan 3.41 5.18 4.68 4.7

10 Portugal 2.30 3.85 3.70 7.611 Poland 0.50 1.42 2.77 56.812 South Korea 2.46 3.29 2.69 1.213 Costa Rica 1.09 2.23 2.52 16.414 Hungary 0.92 1.68 2.12 16.315 Czech Republic 2.79 1.55 1.85 �4.216 Turkey 1.35 1.52 1.84 4.517 Mexico 0.92 1.61 1.51 8.018 Dominican Republic 0.67 1.52 1.48 15.119 South Africa 1.07 1.58 1.39 3.720 Morocco 0.92 1.22 1.36 6.021 El Salvador 0.69 1.43 1.35 12.022 Malaysia 0.56 1.59 1.30 16.523 Guatemala 0.45 1.30 1.28 23.124 Mauritius — 1.28 1.03 —25 Honduras — — 0.91 —26 Thailand 0.63 1.11 0.78 3.027 Philippines 0.46 0.72 0.76 8.228 Nigeria 0.2 0.24 0.69 30.629 Egypt 0.34 0.51 0.68 12.530 Sri Lanka 0.24 0.41 0.44 10.431 China 0.26 0.25 0.43 8.232 India 0.33 0.29 0.39 2.333 Kenya 0.47 0.34 0.34 �3.534 Bangladesh — 0.20 0.30 —35 Pakistan 0.24 0.29 0.26 1.036 Vietnam — 0.29 0.22 —37 Indonesia 0.16 0.33 0.16 0.0

Source: Werner International, Inc., “Hourly Labor Costs in the Apparel Industry” ().

aCosts include social and fringe benefits.

their apparel exports. That would only makematters worse.

A more fundamental concern is that theCaribbean Basin assembly model of exportingapparel to the U.S. market simply does notmeet the requirements of the stylized view ofthe growth of countries presented in the firstsection of this chapter. It is evident that ap-parel assembly in the Caribbean Basin resultedin an impressive explosion of exports. How-ever, given the characteristics of this particularmanner of exporting, this phenomenon did notrepresent an intensification of the nationalindustrialization process. Instead, it truncatesit. The exports are not the extension of thenational apparel industry into the internationalmarket; they simply represent the localizationof the assembly function itself. As a conse-quence, national-champion companies are notcreated in the process. There is no transfor-mation of the industry so that the assemblercountry extends its industrialization into themore organizationally sophisticated, techno-logically complex, or fashion-centric aspects ofthe apparel industry.

The Example of Costa Rica

Costa Rica’s apparel exports to the U.S. mar-ket increased steadily until , when theydeclined by over percent, falling from $.

million in that year to $. million in

(USITC ). Costa Rica saw its apparelexports decline in four of the five principalapparel categories (at three digits of the Har-monized Tariff Schedule) that together ac-counted for over one-half of such exports:

HTS —cotton men’s trousers (from$. to $. million);

HTS —cotton underwear (from $.

to $. million);HTS —synthetic fiber brassieres (from

$. to $. million); and

HTS —synthetic fiber underwear (from$. to $. million).

In this context it could be said that the CostaRican apparel industry apparently had devel-oped wrinkles.

A detailed analysis of ten of the principalexport items of this industry in (at sixdigits of the HTS) revealed that by eachitem had lost import market shares, on averageby . percent.5 Costa Rica was losing U.S.import market shares primarily to Mexico andCentral American countries such as Honduras,El Salvador and Guatemala, but not to theDominican Republic. Was Costa Rica beingpriced out of the market?

An in-depth study of the international com-petitiveness of the Costa Rican apparel indus-try was carried out to respond to that preoc-cupation (Mortimore and Zamora ). Aformal questionnaire was administered to six-teen firms in the sector. The information fromthe interviews and the analysis of results ofthe questionnaire threw light on the specificcompetitive situations of these enterprises.

The sixteen firms could be classified intothree different groups:

• Group I: Very large subsidiaries of U.S.transnational corporations that assembledundergarments for export to the U.S. mar-ket by way of HTS , which faced“calls” in but which had improvedtheir international market shares consider-ably during ‒. They accounted forthe lion’s share of Costa Rica’s apparelexports to the United States. An indicatorof their success, aside from their domina-tion of Costa Rican clothing exports, isthat their employment doubled between and and doubled again between and . Examples are the sub-sidiaries of large U.S. branded manufac-turers such as Hanes (Sara Lee), Warnaco,and Lovable.

• Group II: Other, mostly new foreign sub-sidiaries that mainly assemble clothing fac-ing quotas in the U.S. market, which theyaccess through HTS , and which havehad a less successful performance in generalduring ‒. This group accounts for anappreciable portion of remaining CostaRican clothing exports, and the employmentof this group grew by percent between and and by about percent be-tween and . They are smaller em-ployers than Group I companies and alsoless dynamic. Examples are the subsidiariesof U.S. firms such as Tropical Sportswear,Cluett Peabody, Todd Uniform, and Gil-mour Trading.

• Group III: Old national firms, mostly smallones, using the export contract regime thataccessed the U.S. market through non-HTSmechanisms and that have had some suc-cess at improving their international marketshares. Their exports are not significant inthe context of the Costa Rican clothing in-dustry. While the employment of these com-panies doubled between and , itfell by one-third between and .

Their national market shares have been col-lapsing due to increased import competi-tion. Examples include the Compañia Tex-til Centroamericana, El Acorozado, andTejidos El Aguila.

Given their distinct competitive situations,these companies had different corporate strat-egies. Group I firms, which possessed moresophisticated, specialized operations in whichquality is extremely important, had set up inte-grated regional production systems in theCaribbean Basin some time ago. Typically, theyhad subsidiaries in four or five different sites,such as the Dominican Republic, Jamaica,Honduras, El Salvador, and Mexico, as well asin Costa Rica. In this fashion they could adaptto changing national competitive situations(labor costs, social benefits, exchange-rate vari-

ations, and other changed circumstances) byadding or dropping lines of production in par-ticular sites. They had no need to be “foot-loose.” Generally they assembled apparel prod-ucts for their headquarter firm, which sold theoutput to retailers in the U.S. market. Theirsuccess in Costa Rica allowed them to imple-ment “expansive” strategies until the

“calls” were made.Group II enterprises had less-sophisticated

and less-specialized operations. Low wagesrather than quality constituted the principalelement of their international competitiveness.In this sense they had more of a strict “cost-center” mentality. They tended to have muchsmaller corporate networks in the Caribbean,based on only one or two main sites. Theywere more prone to adapt to changing nationalcompetitive situations by moving away whenthe going got rough; they were more “foot-loose.” Rather than producing for their head-quarter corporation, these firms generallycompeted for the assembly portion of buyers’contracts, often delivering the product directlyto the contractor. Given their more limitedsuccess, their strategies tended to be more neu-tral than expansive.

Group III companies were the least so-phisticated and least specialized of the threegroups. These national firms considered for-eign technology to be the principal element oftheir competitiveness both in Costa Rica andin the international market. They possessedno international corporate network to speak ofand were effectively stuck with the nationalcompetitive situation. Given the collapse oftheir national market shares with import lib-eration,6 these companies were obliged to com-pete increasingly for the assembly portion ofbuyers’ contracts in the international market inorder to survive. Their strategies can be con-sidered defensive.

The exceptionally interesting finding of thisempirical study in Costa Rica is that these threedifferent groups of firms, which implemented

different corporate strategies, all provided someexceptionally alarming indications of the prob-lems associated with the Caribbean Basin as-sembly model for exporting apparel to the U.S.market. For example, one of the parent firms—a major U.S. branded manufacturer, owner oftwo of the five large Group I firms in Costa Rica(and others in Dominican Republic, Mexico,and more recently other Central Americancountries)—announced that it was to be re-structured (selling off its U.S. yarn and textileoperations). It would no longer manufacturemany of the goods that it sells. What does thatforebode for the relatively high-cost plants inCosta Rica? Closure? Sale? It is to be hoped itwill not follow the example of its archrival,Fruit of the Loom.7 Another example of aGroup I firm concerns one that closed one ofits three plants in Costa Rica only to expandactivities in neighboring Panama.

A Group II company in simply dis-appeared from Costa Rica, leaving behind hugeoutstanding payments, especially wages andsocial security payments. Workers claimedthere was no forewarning of this “fly-by-night” exit over the weekend. Will more fol-low this example as Costa Rica’s internationalcompetitiveness in this industry wanes?

The final example has to do with a GroupIII enterprise. In one of the four nationalcompanies, owned by a prominent local busi-nessman (then president of the National Man-ufacturers Association), that attempted tosurvive by competing for export assembly con-tracts simply went broke due to the increasingcompetitive pressures.

What does all this mean? At a minimum, itwould seem to suggest that the problems ofapparel exports by means of the CaribbeanBasin assembly model appear to be systemic,not temporary. They do not relate to any par-ticular kind of firm with any particular corpo-rate strategy; rather, all apparel firms see theirinternational competitiveness crumble. If one

was to prepare a kind of Costa Rican scorecardon the capacity of the apparel industry to pro-pel the country toward “the winners’ circle”mentioned at the beginning of this chapter,some interesting conclusions can be drawnabout this experience.

First, in terms of intensifying the nationalindustrialization process, the reliance on theHTS format actually truncates the na-tional industrialization process with respectto apparel. Only the assembly stage is locatedin the country, and aside from wages no sig-nificant local inputs are incorporated into thefinal products. Moreover, the tax incentivesrelated to the EPZ so limit the fiscal incomeof the state from this central export activitythat it cannot be said to provide resources forother urgent developmental activities. The lat-ter include stimulating the national industri-alization process, promoting new exports, andimproving the international competitivenessof the economy as a whole through infra-structure, basic services, or, indeed, the train-ing of human resources for more sophisticatedand better-remunerated tasks.

Second, with respect to extending thenational industrialization process into theinternational market by way of exports ofmanufactures, it is abundantly clear that theseapparel exports are in no integral way linked tothe national economy. These exports were“competitive” only in the U.S. market, andthey could not be directed to other marketswhen problems arose in that one, such as the“calls” on pajamas and underwear in March. In the particular case of Costa Rica, onecould go so far as to say that the World TradeOrganization dispute proved that the UnitedStates can be a lousy trade partner when onetweaks its nose in international forums.

Finally, does the apparel industry in CostaRica create national-champion companies thatevolve into major players in international mar-kets? The opposite took place when the open-

ing up of the economy produced the importcompetition that destroyed most of the importsubstitution–based integrated operations of na-tional firms. These firms do not possess a Ca-ribbean network of assembly operations; hencethey advance or decline in keeping with theevolution of the international competitivenessof the Costa Rican economy. Even their abil-ity to compete for buyers’ contracts is severelylimited by the size and characteristics of thelocal economy, let alone their ability to manu-facture (rather than simply assemble) apparel.They have a hard time surviving.

Conclusion

So, when does apparel become a peril?

• When it takes place by way of a mechanismthat is designed exclusively to make U.S.apparel firms more competitive in their ownmarket (by taking advantage of low wages inthe Caribbean). What is needed is a policythat explicitly and consciously aims at rais-ing the long-term growth of the host econ-omy, especially to reach the goal of sus-tained per capita income that will place it inthe winners’ circle.

• When instead of deepening national indus-trialization it truncates it.

• When instead of producing exports thatrepresent the international extension of theindustrialization process it represents thesimple assembly of foreign components.

• When instead of giving birth to national-champion companies that evolve into globalcompetitors it threatens their very existence.

Clearly, when an activity that generates a majorpart of a country’s exports does not serve toraise that economy to a higher level, closer tothe goal of a significant and sustained percapita income achieved by the winner coun-tries, that is when apparel becomes a peril.

Dire consequences are foreseen for thoseapparel exporters that do not possess a localindustrialization process at the time that theMultifiber Arrangement comes to an end in, under the auspices of the Textile andClothing Agreement of the Uruguay Round ofthe General Agreement on Tariffs and Trade.Then the quotas placed on apparel by theUnited States and other countries are termi-nated. These Caribbean Basin apparel assem-blers will have a difficult task to compete inthe United States (or other markets) againstthe integrated apparel producers of Asia. Thelatter produce textiles and apparel at scales ofproduction far beyond the reach of the trun-cated Caribbean Basin operations. Lacking acompetitive local or subregional industrializa-tion process to sustain apparel exports, mostCaribbean Basin assemblers probably will col-lapse in the face of the Asian steamroller.

In the few years remaining before that even-tuality, the Caribbean Basin apparel industrycan attempt to improve its situation. It mustreceive NAFTA parity in the North Americanmarket not just in terms of tariffs but in termsof national or subregional local inputs countingas NAFTA inputs, thereby promoting somedegree of industrial integration. It must lookfor opportunities for associating in some waywith the full-package suppliers appearing inMexico as a consequence of NAFTA. Finally,it must learn from the East Asian experience interms of becoming full-package suppliers them-selves. All of this requires a stitch in time.

Notes

. The TradeCAN computer program of theUN-ECLAC measures the international competi-tiveness of countries. It does so in terms of importmarket shares (at three digits of the Standard Inter-national Trade Classification, SITC—Rev. ) in fiveprincipal markets (Western Europe, North America,

Africa, Asia, and Latin America). A Windows-com-patible version in CD-ROM can be purchased fromUN-ECLAC. Contact <CAN@eclac.cl>.

. Two decimal points are needed to capture thechanges in import market shares of small countries.

. Since the inception of the North AmericanFree Trade Agreement in , the first indicationsof full-package suppliers, mostly U.S. companies,have appeared in Mexico. See Gereffi and Bair ().

. The HTS, a newer classification system thanSITC, is superior to the latter because it is used forboth trade statistics and trade negotiations.

. Calculated using the Module to Analyze theGrowth of International Commerce (MAGIC)computer program, which measures internationalcompetitiveness in terms of import market sharesin the U.S. market, at up to ten digits of the HTS.Available from the Mexico subregional office ofUN-ECLAC. Contact <cepal@un.org.mx>.

. That is, by lowering national tariffs, moreapparel products from outside Costa Rica enter thenational market and take local market share awayfrom national apparel firms.

. Fruit of the Loom has been imploding, layingoff , of its , U.S. workers since ,

suffering operating losses of $ million in ,

and provoking complaints of poor service from keyclients, such as Wal-Mart and Kmart. The solutionproposed by its CEO: Move its domicile to the Cay-man Islands to make tax savings. See Business Week().

References

Audet, Denis. . “Globalisation in the ClothingIndustry.” In Globalisation of Industry: Overviewand Sector Reports, by the Organization of Eco-nomic Cooperation and Development (OECD).Paris: OECD.

Business Week. . “Strategies: A Killing in theCaymans.” Business Week, May , ‒.

The Economist. . “Little Countries: Small butPerfectly Formed.” The Economist, January .

Gereffi, Gary. . “The Organization of Buyer-Driven Global Commodity Chains: How U.S.Retailers Shape Overseas Production Networks.”

In Commodity Chains and Global Capitalism, ed.Gary Gereffi and Miguel Korzeniewicz, pp. ‒

. Westport, Conn.: Praeger.———. . “Global Shifts, Regional Response:

Can North America Meet the Full-PackageChallenge?” Bobbin , (November): ‒.

Gereffi, Gary, and Jennifer Bair. . “U.S.Companies Eye NAFTA´s Prize.” Bobbin ,

(March): ‒.

International Labor Organization (ILO). . Mun-dialización de las industrias del calzado, los textilesy el vestido. TMFTC/. Geneva: ILO.

Mortimore, Michael. . “La competitividad in-ternational: Un CANalisis de las experiencias deAsia en desarrollo y América Latina.” Desarrolloproductivo, no. . UN-ECLAC, LC/G.. San-tiago, Chile: ECLAC.

Mortimore, Michael, and Wilson Peres. . “Pol-icy Competition for Foreign Direct Investment inthe Caribbean: Costa Rica, Jamaica and Domini-can Republic.” Desarrollo productivo, no. . UN-ECLAC, LC/G.. Santiago, Chile: ECLAC.

Mortimore, Michael, and Ronney Zamora. .

“The International Competitiveness of the CostaRican Clothing Industry.” Desarrollo productivo,no. , UN-ECLAC, LC/G.. Santiago,Chile: ECLAC.

Mortimore, Michael, Henk Duthoo, and J. A.Guerrero. . “Informe sobre la competitividadde las zonas francas en la República Dominicana.”Desarrollo productivo, no. , UN-ECLAC,LC/G.. Santiago, Chile: ECLAC.

Reyes Castro, F., and A. Dominguez U. . “Zonasfrancas industriales en la República Dominicana:Su impacto económico y social.” Working Doc-ument no. . Geneva: International Labor Or-ganization.

United Nations Economic and Social Commissionfor Asia and the Pacific (UN-ESCAP). .

Transnational Corporations and Technology Trans-fer in Export Processing Zones and Science Parks.ST/ESCAP/. New York: UN-ESCAP.

U.S. International Trade Commission (USITC).a. “Production Sharing: Use of U.S. Com-ponents and Materials in Foreign AssemblyOperations, ‒.” USITC Publication no.. Washington, D.C.: USITC.

———. b. “The Impact of the North Ameri-can Free Trade Agreement on the U.S. Economyand Industries: A Three-Year Review.” USITCInvestigation no. ‒, Washington, D.C.:USITC.

———. . “Annual Statistical Report of U.S.Imports of Textiles and Apparel: .” USITCPublication no. . Washington, D.C.: USITC.

van Liemt, Gijsbert, ed. . La reubicación inter-nacional de la industria: Causas y consecuencias.Geneva: International Labor Organization.

Werner International, Inc. . “Hourly LaborCost in the Apparel Industry, ‒.” Reston,Va.: Werner International, Infotex Division.Available at <http://www.wernertex.com/index.htm>.

Willmore, Larry. . “Export Processing in theCaribbean: Lessons from Four Case Studies.”United Nations Economic Commission for LatinAmerica and the Caribbean (UN-ECLAC) Work-ing Paper no. . Port of Spain, Trinidad andTobago: UN-ECLAC.

Dale T. Mathews

Can the Dominican Republic’s

Export-Processing Zones

Survive NAFTA?

Introduction

Global and regional changes brought on by theWorld Trade Organization, the North Amer-ican Free Trade Agreement (NAFTA), andmore recently the United States–CaribbeanBasin Trade Partnership Act (CBTPA) havehad mixed repercussions for the export-oriented industries located overwhelmingly inthe export-processing zones (EPZs) of the Ca-ribbean and Central America. This chapterfocuses on the Dominican Republic, since thatcountry not only has the largest number ofEPZs in the region but also is considered asuccess in terms of the number of plantsdrawn to its zones and the number of jobs gen-erated therein (particularly in the garmentassembly sector). The Dominican Republic’sEPZs in alone employed a total of, workers and generated U.S.$. bil-lion in exports (free on board), of whichU.S.$. billion were attributed to the garmentand textile sector alone.1 In terms of industrialsectors, this chapter focuses on the clothingsector, given that it is the chief export-pro-

cessing industry in the Dominican Republic aswell as in the wider Caribbean and CentralAmerica (see Gitli and Arce , ; Willmore, ).

The prospects for creation of a lastingand sustainable industry on this basis, how-ever, were threatened by the enactment ofthe NAFTA until the recent passage of theCBTPA by the U.S. government. It was wellaccepted that trade diversion in favor of Mex-ico and at the expense of some Caribbean pro-ducers, such as the Dominican Republic, hadoccurred as a consequence of both the inau-guration of NAFTA and the percent deval-uation of the Mexican peso at the close of. Although it may be too early to tell ifthe new U.S. legislation will be decisive inreversing the declining employment in thisimportant sector for countries such as theDominican Republic, the U.S. InternationalTrade Commission reported in early thatU.S. imports from the Caribbean Basin haverisen, particularly with regard to textiles andapparel, and that this trend is expected to con-tinue (USITC , ).

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Export-Processing Zones

Export-processing zones may be considered aspecial category of free-trade zone. The lattercan be classified according to function, the typeof plant or business located therein. Amongthese are:

Export-Processing Zones: industrial parks withfirms involved in the assembly or processingof goods for export, also known as “maqui-ladoras.”

Financial Services Zones: areas that housebanks, accounting and insurance firms, andcargo companies, among others.

Free-Trade Zones or Free Ports: areas thathouse firms involved in warehousing, dis-tribution, and packaging and container han-dling.

Enterprise Zones: areas dedicated mainly tourban renewal of depressed inner cities.

The typical case in the developing world re-mains the export-processing zone.2

More precisely, the EPZ regime allows forthe temporary duty-free entry of inputs andintermediate components to be processed,assembled, or in some cases lightly trans-formed and then reexported.3 On the onehand, firms operating under these conditionsare considered privileged in the sense of notbeing stymied by cumbersome customs pro-cedures, tariffs, or taxes. In short, they areexposed to market forces that theoreticallymake them more efficient in comparison withsimilar non-EPZ firms producing for the (usu-ally) highly protected domestic markets. Onthe other hand, these industrial parks con-stitute enclaves with few linkages to the localeconomy. Firms operating therein purchaselittle more than labor power from a given hostcountry.

This is the type of free-trade zone that ispresent in the Dominican Republic as in most

of the Caribbean and Central American regionbut also in parts of North and South America.All Central American countries have EPZs orindustrial parks that operate like EPZs. A sig-nificant part of the insular Caribbean haseither EPZs or similar regimes that apply toindividual assembly or processing firms thatare not concentrated in “parks” as such. TheDominican Republic is a good case study, giventhe large number of EPZs in that country aswell as the fact that it was one of the first coun-tries to establish such parks.

By the close of some , workerswere reported employed in industrial es-tablishments located in forty-six EPZs of theDominican Republic. Employment in the coun-try’s EPZs since , as presented in Table., reflects the adverse reaction of the sectorto Mexican competition after the enact-ment of NAFTA. The value of exports, bycontrast, continues its upward trend through-out the period. The employment figures for show a recovery of around percent fromthe previous year. This contrasts with a .

percent drop registered in compared with. On that occasion the National Councilof EPZs (Consejo Nacional de Zonas Francasde la República Dominicana) also attributedthe decline to the advantage Mexico had ob-tained over the Dominican Republic with re-spect to garment exports to the U.S. market.4

The information in Table . profiles theDominican Republic’s EPZs in by indus-trial sector and employment. As has been thecase historically, the majority sector is that ofclothing and textile products. Of the EPZplants, percent belonged to the textile orgarment industry; in terms of employment, percent of the entire EPZ labor forceworked in this industry. This sector is followedby the tobacco and electronics sectors, with percent and percent shares of employment,respectively, and percent and percent of

total EPZ establishments. Among the otherEPZ industries, not listed separately in Table., are leather and sporting goods, plasticproducts, agro-industrial products, and lug-gage. Approximately percent of EPZ firmsin the Dominican Republic exported to theUnited States in .5

This concentration in apparel processing isprevalent in most of the rest of the Caribbean.According to U.S. sources, by the gar-ment sector accounted for percent of thevalue of U.S. imports originating from pro-duction-sharing operations6 in countries ben-efiting from the Caribbean Basin EconomicRecovery Act (CBERA) (USITC b, ‒).7

None of the other product categories accountfor more than percent of the total value ofU.S. production-sharing imports from CBERAnations; these other categories include medicalequipment, jewelry, and electrical componentssuch as circuit boards (USITC b, ‒).

The Apparel Industry

Although the situation is undergoing funda-mental change, the trade in apparel has his-torically been regulated through a series ofMultifiber Arrangements (MFAs) negotiatedbilaterally between importing and exportingcountries. These allowed for the establishmentof quotas on certain sensitive categories ofclothing in order to protect domestic produc-ers in the importing countries.

In the case of the United States, a portionof MFA clothing imports is subject to tariffson foreign value added under provision.. of the new Harmonized TariffSchedule (HTS). Products that qualify forentry into the United States under HTS

are those that are subject to processing orassembly abroad from mostly (but not exclu-sively) U.S. components. Since nearly all theclothing assembled in the Dominican Repub-lic’s EPZs is exported to the United States,with a large part entering, until recently, underprovision .., it naturally has beensubject to such tariff payments on foreignvalue added. It is also regulated under theMFA by a series of quantitative quotas, ofwhich HTS provision .. was themost liberal, to the point of being nearly un-limited. Although this scheme has changedwith respect to the Caribbean as a consequenceof the enactment of the CBTPA, it is still nec-essary to review it in order to understand theperformance and evolution of the EPZ sectorin the region since the late s.

The liberal quota was established in under the former Tariff Schedule of theUnited States as Item a and covers articlesimported under a “Special Access Program”applied exclusively to CBERA beneficiarycountries that have bilateral textile agreementswith the United States. Although two yearslater a similar program, known as a “SpecialRegime,” was established for Mexico, the lat-

.

.. Dominican Republic EPZEmployment and Exports, ‒

Exports (free on board,

Year Employment U.S.$ millions)

1985 30,902 2151986 51,231 2461987 66,012 3321988 83,815 5201989 122,946 7351990 130,045 8391991 135,491 1,0531992 141,056 1,1941993 164,296 2,5111994 176,311 2,7161995 165,571 2,9071996 164,639 3,1071997 182,174 3,5961998 195,193 4,1001999 189,458 4,3312000 195,660 4,655a

Source: Consejo Nacional de Zonas Francas de Exportación.

aPreliminary data.

ter reportedly was not as advantageous to thatcountry as HTS .. was initially forthe CBERA beneficiaries (USITC , A-).With the inauguration of CBTPA in October, this scheme was altered again with re-spect to the Caribbean. The new state of af-fairs is discussed later in this chapter.

The bilateral agreements under the SpecialAccess Program for the Caribbean includedtwo types of restraints: () “Guaranteed AccessLevels,” or GALs, that applied only to cloth-ing assembled from fabric formed and cut inthe United States and () regular quota limitsfor non-U.S.-formed and -cut fabric. Accord-ing to the United States International TradeCommission:

In general terms, a GAL is negotiated foreach MFA category covered by a SAP (Spe-cial Access Program) bilateral agreement,along with a Specific Limit (SL) or a Desig-nated Consultation Level (DCL) for regularquotas. It has been possible to increase GALsupon exporter request unless market disrup-tion occurs, while SLs are subject to agreedallowable annual percentage increases andDCLs are raised only after bilateral consul-tation. (USITC c, A- to A-)

In this manner the United States protects itsown textile industry (thus preserving domestic

jobs in the sector) through a sort of marriageof convenience with Caribbean clothing assem-blers, thus bolstering the competitiveness ofthe industry relative to low-cost Far Easternproducers such as China. Although there doexist operations in the EPZs of the Caribbeanthat assemble garments from cloth made in theFar East for eventual sale in the U.S. market,these are subject to the more restrictive DCLsand SLs (Bailey and Eicher , ‒).

Despite this favorable disposition of theUnited States toward production in Ca-ribbean Basin EPZs, East Asian firms tend toavoid exporting under this regime, preferringto use non-U.S.-formed fabric.8 This practicehas been confirmed by U.S. government sources(USITC , ‒), which add that suchAsian firms generate more value added in theCaribbean by performing cut, make, and trimoperations there. This distinguishes them fromU.S. production-sharing operations under pro-vision .. but also makes their ex-ports to the United States ineligible for dutyreductions under HTS ... Neverthe-less, restrictive quotas in their home countriesas well as rising costs are given as the chief rea-sons for East Asian producers to relocate to theCaribbean and Central America to supply theU.S. market. Foremost among these producers

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.. Export-Processing Zones: Industrial Sectors Accounting forMore than , Employees, December

No. of % Total No. of % Total Industrial Sector Employees Employment Establishments Establishments

1 Textiles 141,945 73 275 572 Footwear 7,067 4 18 43 Tobacco 12,107 6 27 64 Electronics 10,439 5 16 35 Medical Instruments 7,206 4 13 36 Jewelry 3,128 2 14 37 Services 5,855 3 59 128 Other Industries 7,913 4 59 12

Totals 195,660 100a 481 100a

aPercentages have been rounded to the nearest whole number and therefore may not sum to .

have been the Koreans, with investments total-ing close to U.S.$ million as of June

(USITC , ‒).Although South Korea surpasses all foreign

countries except the United States in terms ofnumber of establishments in EPZs of the Do-minican Republic, recent data attest to a strongpresence of Panamanian investment.9 Accord-ing to Table ., Panama-registered invest-ments in EPZs in the Dominican Republic totalU.S.$ million. This figure is surpassed onlyby investments of U.S.$ million originatingfrom the United States, U.S.$ million inlocal investment, and U.S.$ million originat-ing from South Korea. The Netherlands fol-lows in fifth place, with U.S.$ million in in-vestments. Table . presents data on thesourcing of inputs according to supplier coun-try. Based on the number of EPZ firms thatsource inputs from a given country, the chiefsuppliers are the United States and South Ko-rea, with and EPZ firms, respectively,sourcing inputs from these countries. Theseare followed by China and Italy, from which

and firms, respectively, source inputs. Thesedo not take into account the establishmentsthat source inputs domestically.

To get more precise information, effortswere made to interview managers of AsianEPZ firms in the Dominican Republic. The

reluctance of managers of Korean enterprisesto participate in the author’s managerialsurvey did not allow for a solid confirmation ofthe above-mentioned sourcing practice. Nev-ertheless, one Dominican–Hong Kong jointventure involved in the production of sweatersacknowledged using fabric exclusively fromHong Kong. This firm was also doing its owncutting in the Dominican Republic, whichqualified it as a manufacturing, as opposed to amere assembly, operation. In contrast to this, asecond joint venture involving a minority shareof Korean capital was carrying out mostlyHTS production of men’s and women’sclothing. No non-Asian EPZ operations in thesample of Dominican firms were sourcing clothfrom Asia at the time (Mathews , ).

The option of using fabric made in the FarEast is discouraged by the CBTPA, with itsstrict rules of origin. The future of these stric-tures is, however, less certain with the immi-nent liberalization of commerce under theAgreement on Textiles and Clothing (ATC) ofthe World Trade Organization (WTO), as wellas China’s accession to the agreement.

The responses that countries such as theDominican Republic can offer to the challengeof garment trade liberalization depend on aseries of factors that include dollar labor costs

.

.. Export-Processing ZoneInvestments by Country of Origin:Investments over U.S.$ million, December

Country Investment (U.S.$1,000,000)

United States 747Dominican Republic 312South Korea 75Panama 36The Netherlands 8Taiwan 6Others 38

Source: Consejo Nacional de Zonas Francas de Exportación.

.. Country of Origin for Importsby Number of EPZ Firms: Origin ofImports Corresponding to Greater thanTwelve Firms, December

Supplier Country No. of Importing Firms

United States 409Dominican Republic 60South Korea 33China 29Italy 18Puerto Rico 17Taiwan 15Mexico 14

Source: Consejo Nacional de Zonas Francas de Exportación.

and possible product-diversification strategies.It is important to point out that the Domini-can Republic has historically specialized in anarrow range of products, as evidenced inTable .. Over the years cotton underwearhas become a prominent export of the Do-minican Republic, rising from percent of thevalue of total garment and textile exports tothe United States in to percent in. Most other items have remained rela-tively stable in percentage terms, with men’scotton trousers registering the highest valueof between U.S.$ million and U.S.$

million. However, regional treaties have sig-nificantly affected what may otherwise appearto be a booming sector.

NAFTA has already caused major changesin the pattern of the United States’ garmenttrade with its southern neighbors. Prior to the U.S. tariff structure benefited theimportation of garments assembled offshorein the Caribbean maquiladora industry. Thisstate of affairs encouraged the growth of theclothing assembly industry, which became anincreasingly important nontraditional sector

in several Caribbean Basin countries, partic-ularly the Dominican Republic. Following theenactment of NAFTA and the devaluation ofthe peso in , Mexico became a relativelymore favorable platform for such clothingexports to the United States, to the detrimentof some Caribbean exporters. The adverseimpact of NAFTA was not uniformly distrib-uted throughout the region. Those most af-fected were the ones whose dollar wages wererelatively higher, such as the Dominican Re-public (Gitli and Arce , ).

The Impact of NAFTA and theMexican Devaluation

Mexico and the Dominican Republic areamong the principal beneficiaries of U.S.production-sharing operations in the clothingsector. This is evident from Table ., whichprovides U.S. import values of Multifiber Ar-rangement fibers that enter under HTS

according to the main beneficiary countries ofthis program in the hemisphere. The import

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.. Value of Principal U.S. Imports of Textiles and Clothing Originating from theDominican Republic: Products Exceeding U.S.$ Million in Value During at Least One ofthe Years between and

U.S.$ Millions % Total Imports

Category Description 1989 1993 1997 1999 1989 1993 1997 1999

338 Men’s cotton woven shirts 27 49 77 129 4 3 3 5339 Blouses woven of cotton 17 36 77 122 3 2 3 5347 Men’s cotton trousers 137 278 468 463 21 19 21 19348 Women’s cotton pants 40 129 175 222 6 9 8 9352 Cotton underwear 14 95 220 279 2 7 10 12435 Women’s woolen jackets 15 74 87 42 2 5 4 2633 Men’s MMFa sports jackets 17 27 63 42 3 2 3 2635 Women’s MMFa jackets 12 62 66 14 2 4 3 1647 Men’s MMFa trousers 46 84 149 168 7 6 7 7648 Women’s MMFa pants 20 42 59 45 3 3 3 2649 MMFa brassieres 48 108 151 174 7 7 7 7659 Other MMFa clothing 12 46 65 74 2 3 3 3

Source: U.S. Department of Commerce ().

aManmade fiber.

figures are divided into the categories of “Reg-ular ” production sharing and the “Spe-cial Program” that applies to clothing assem-bled from cloth both formed and cut in theUnited States.10

To highlight the impact of NAFTA and the devaluation of the Mexican currency onregional garment commerce with the UnitedStates, data for (before NAFTA) and

(after NAFTA) are provided. The evidence isquite dramatic in the case of Mexico’s SpecialRegime. Whereas before NAFTA and the de-valuation of the Mexican peso the value of theDominican Republic’s Special Access Programgarment exports to the United States surpassedthose of Mexico by a margin of U.S.$ mil-lion, the year after the enactment of NAFTAthe value of Mexican Special Regime garmentexports to the United States reached U.S.$.

billion while the Dominican Republic exportedonly a third of that in value.

As highlighted in the introduction to thischapter, trade diversion has occurred to thebenefit of Mexico, and at the expense of muchof the Caribbean, as a consequence of the com-

bined effect of the Mexican peso devalu-ation and the enactment of NAFTA. Regard-ing the latter, the removal of the U.S. tariff onvalue added in Mexico for Special Regimeimports under NAFTA provided Mexicanclothing with an advantage in the U.S. market.Until the recent enactment of CBTPA, thistariff was still applied to imports from Ca-ribbean Basin countries under Special ProgramHTS ... According to the U.S.International Trade Commission, in theaverage landed cost for slacks from Mexico was percent lower than that for the same prod-uct from the Dominican Republic, with half ofthat difference attributable to the absence ofthe tariff (USITC , ‒).

As a consequence of this situation, Carib-bean governments adamantly petitioned forsome type of NAFTA parity in order to pre-serve their garment assembly industries. It isdifficult at this early juncture to predict ifCBTPA will help garment assembly industriesrecover in countries such as the DominicanRepublic, although there are promising signs.The future becomes even more uncertain in

.

.. Value of U.S. MFA Imports under United States TariffSchedule () by Principal Beneficiaries, and

1992 1995($U.S. millions) ($U.S. millions)

9802 Special 9802 Special Regular Program Total Regular Program Total

Dominican Republic 513 536 1,049 798 767 1,565Mexico 364 521 885 219 2,322 2,541Costa Rica 379 102 481 141 529 670Jamaica 74 146 220 203 246 449Guatemala 255 57 312 362 158 520Honduras 246 0 246 676 0 676El Salvador 131 0 131 458 19 477Haiti 62 0 62 — 5 5Colombia 204 0 204 — — —

Sources: data from U.S. Commerce Department database; data from USITC (, -).

Note: Years following are excluded due to the declining use of United States Tariff Schedule(USTS) as a mechanism for entering the U.S. market because of the gradual liberalization of marketsunder the Agreement on Textiles and Clothing of the WTO.

the face of the proposed liberalization of cloth-ing and textile markets, scheduled for com-pletion in the year under auspices of theWTO. Nevertheless, a series of influential fac-tors can be identified.

The Caribbean Basin TradePartnership Act under the Trade and Development Act of

Responding more to pressures from influentialU.S. commercial and manufacturing interests,such as the American Apparel Manufacturers’Association (AAMA) and the American Tex-tile Manufacturers’ Institute (ATMI), thanto the clamor of Caribbean governments, theU.S. government approved the Trade andDevelopment Act (TDA) in May . Thelaw, which was enacted on October , includedthe relevant section titled the “CaribbeanBasin Trade Partnership Act.” It will have aduration of eight years, until September ,

, and grants duty- and quota-free accessto the U.S. market to:

. Apparel articles assembled in one or moreCaribbean beneficiary countries from fab-rics entirely formed and cut in the UnitedStates, from yarns of percent U.S. ori-gin. This includes clothing transformedthrough embroidery or subjected to otherincidental processes, such as stonewashing.This also includes clothing formerly enter-ing under HTS .. and its pre-cursor Item a.

. Articles cut in one or more Caribbeanbeneficiary countries from fabrics entirelyformed in the United States, from yarns of percent U.S. origin, if said articles areassembled in one or more Caribbean coun-tries with thread of percent U.S. origin.

. Apparel articles (other than socks) knit toshape in a Caribbean beneficiary country

from percent U.S.-origin yarn andknitted or crocheted apparel (excepting T-shirts) cut and entirely assembled in oneor more such countries, from cloth formedin one or more such countries from yarnsof percent U.S. origin. For the first yearof CPTPA/TDA (that is, until Sep-tember , ) the allowable aggregatequantity of these imports could not exceedthe equivalent of million square meters.Since then the quota has been subject to

percent annual growth rate for a three-yearperiod.

. Similarly, a ceiling of . million dozens(batches of twelve) was established for thefirst year of aggregate imports of T-shirts,excluding underwear, made in one or moreCaribbean beneficiary countries from fabricmade in one or more such countries from percent U.S.-origin yarn. Said quotawill be subject to a percent annual growthrate until the year .

. Brassieres cut and sewn or otherwise assem-bled in one or more Caribbean beneficiarycountries or the United States or both areeligible for preferential treatment only if thecombined cost of all fabric componentsformed in the United States and used intheir production constitutes at least per-cent of the sum total customs-declaredvalue of the fabric contained therein.

. Apparel articles cut, sewn, or otherwiseassembled in one or more Caribbean coun-tries from non-U.S. fabric or yarn, as longas it is officially certified that these are notavailable in commercial quantities in theUnited States.

. Hand-loomed, handmade, or folkloric tex-tile and apparel goods.

. Textile luggage assembled in a Caribbeanbeneficiary country from fabric cut insuch a country but entirely formed in theUnited States from yarns of percentU.S. origin.

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Although some opposed the CBTPA of theTDA, it will likely benefit interests in the Ca-ribbean as well as U.S. commercial and manu-facturing interests. Charles Bremmer of theATMI estimates that U.S. importers of gar-ments assembled in the Caribbean will savesome U.S.$ million as a consequence of thelaw (Welling ). In the Dominican Repub-lic, Executive Director José Manuel Torres ofthe Asociación Dominicana de Zonas Francas(ADOZONA) estimates that some thirty thou-sand new jobs will be created in his country’s“free-zone” sector during the first year of thelaw’s application. This would mean a per-cent increase in employment and between a$ million and $ billion increase in overallfree-zone exports (Martinez Fornos ).

Although data from the Dominican Repub-lic that could indicate the impact on the coun-try of the CBTPA were not forthcoming at thetime of this writing, recent U.S. trade statis-tics compiled by the USITC for the year

show a marked increase of imports under theprogram for the Caribbean Basin. Comparingthe CBTPA program with the overall CBERA,the USITC notes that the value of U.S. im-ports under the former “with its added textilepreferences were more than twice the magni-tude of their CBERA counterparts during” (USITC , ). In the case ofimports from the Dominican Republic, thesewere just under twice the value, with totalCBTPA imports totaling $. billion com-pared with $ million worth of CBERAimports (USITC , Table ).

Despite the benefits the Caribbean expectsto derive from the TDA , the CBTPAstops short of granting the clamored-for “par-ity” with NAFTA. Furthermore, the CBTPArests on a precarious base since it is a unilat-eral noncontractual law with a limited durationof eight years. Hence the United States is freeto modify it as it sees fit or to disqualify anybeneficiary without having to justify its actions

to a dispute-settlement body or mechanism, aswould be the case under NAFTA. Other lim-itations of the CBTPA include its inherentrestrictions on value added in the Caribbean,thereby reducing the possibilities for verticalintegration of the garment export industrybeyond the stage of mere assembly.

As expected, CBTPA favors U.S. inputs andraw materials in the Caribbean garment assem-bly industry. It stipulates that at least per-cent of yarns incorporated in articles of cloth-ing produced in the region must be of U.S.origin (Manchester Trade ). In effect, noregional textile product qualifies for duty-freeentry into the U.S. market if not through itsincorporation into an article of clothing. How-ever, products made from cloth knitted inCaribbean beneficiary countries enjoy privi-leged access to the U.S. market, but only inlimited quantities. These quotas were distrib-uted among Caribbean beneficiary countriesaccording to the quantities identified in Table. (for -million-square-meter equivalentsof knitted apparel) and Table . (for . mil-lion dozens of T-shirts).

In the case of the -million-square-meterequivalents of knitted apparel, the first-yearallocation for Honduras is . percent, fol-lowed by El Salvador with . percent, Gua-temala with . percent, and the DominicanRepublic with . percent. The allocation ofdozens of T-shirts also has Honduras leadingwith . percent of the quota in the first year,followed by El Salvador with . percentand the Dominican Republic with . percent.In the years after , the U.S. Congress willdetermine the individual beneficiary quotagrowth rates. Congressional sentiment in thisregard is that these quota growth rates shoulddepend (as the chief criterion) on U.S. exportperformance to the country in question duringthe first four years of the CBTPA. In otherwords, if the increase in the quota of a ben-eficiary country is accompanied by a corre-

.

.. Quotas for the Caribbean Basin Trade Partnership Act, :Fabric

Country Year 1 Year 2 Year 3 Year 4

Dominican Republic% Share 18.13 16.88 15.61 15.54Quotaa 45,334,750 489,607,000 52,518,768 60,652,516% Growthb 8.0 7.3 15.5

CARICOM–Haitic

% Share 4.93 8.87 14.78 15.27Quotaa 12,312,500 25,708,500 49,703,100 59,583,303% Growthb 108.8 93.3 19.9

Costa Rica% Share 7.48 6.94 6.43 6.39Quotaa 18,690,250 20,138,470 21,637,248 24,947,020% Growthb 7.7 7.4 15.3

Nicaragua% Share 1.97 4.43 4.93 4.93Quotaa 4,925,000 12,854,250 16,567,700 19,218,532% Growthb 161.0 28.9 16.0

El Salvador% Share 21.40 19.90 18.40 18.28Quotaa 53,496,000 57,711,450 61,911,056 71,323,192% Growthb 7.9 7.3 15.2

Guatemala% Share 19.40 18.04 16.68 16.57Quotaa 48,496,250 52,317,740 56,124,976 64,657,775% Growthb 7.9 7.3 15.2

Honduras% Share 25.20 23.43 21.67 21.52Quotaa 62,995,250 67,959,180 72,904,608 83,988,302% Growthb 7.9 7.3 15.2

Panama% Share 1.50 1.50 1.50 1.50Quotaa 3,750,000 4,350,000 5,046,000 5,853,360% Growthb 16.0 16.0 16.0

Totals% Share 100.00 100.00 100.00 100.00Quotaa 250,000,000 290,000,290 336,413,456 390,224,000% Growthb 16.0 16.0 16.0

Source: U.S. Department of Commerce ().

a-million-square-meter equivalents.

bRelative to the previous year.

cCaribbean Community and Haiti.

.. Quotas for the Caribbean Basin Trade Partnership Act, :T-Shirts

Country Year 1 Year 2 Year 3 Year 4

Dominican Republic% Share 14.50 13.35 12.00 11.00Quotaa 609,000 650,412 678,182 721,134% Growthb 6.8 4.3 6.3

CARICOM–Haitic

% Share 5.00 10.00 16.00 17.50Quotaa 210,000 487,200 904,243 1,147,259% Growthb 132.0 85.6 26.9

Costa Rica% Share 1.50 1.50 1.50 1.50Quotaa 63,000 73,080 84,773 98,336% Growthb 16.0 16.0 16.0

Nicaragua% Share 4.00 6.00 7.00 7.00Quotaa 168,000 292,320 395,606 458,903% Growthb 74.0 35.3 16.0

El Salvador% Share 20.78 19.14 17.69 16.52Quotaa 872,655 932,257 999,697 1,083,012% Growthb 6.8 7.2 8.3

Guatemala% Share 11.22 10.34 9.55 8.30Quotaa 471,345 503,536 539,963 544,128% Growthb 6.8 7.2 0.8

Honduras% Share 42.00 38.68 35.76 37.18Quotaa 1,764,000 1,884,475 2,020,803 2,437,433% Growthb 6.8 7.2 20.6

Panama% Share 1.00 1.00 1.00 1.00Quotaa 42,000.00 48,720 56,515 65,558% Growthb 16.0 16.0 16.0

Totals% Share 100.00 100.00 100.00 100.00Quotaa 4,200,000 4,872,000 5,679,783 6,555,763% Growthb 16.0 16.6 15.4

Source: U.S. Department of Commerce ().

a. million dozens T-shirts.

bRelative to the previous year.

cCaribbean Community and Haiti.

sponding increase in U.S. exports to that coun-try, the country in question will have a greaterlikelihood of obtaining an increase in its quotagrowth rate after September , .

In judging the CBTPA, it is important tokeep in mind the U.S. preelection atmosphereout of which it arose, wherein protectionismwas an issue among the U.S. electorate. Fur-thermore, the Caribbean could not expect tomake significant gains in access to the U.S.market when the CBTPA is seen in the con-text of the wider process of globalization. Inthis respect unilateral advantages such asCBTPA are slowly being phased out in favorof reciprocal liberalization of markets amongtrading partners. Until the Caribbean agrees tosuch reciprocal liberalization of its own mar-ket, only limited gains can be made at the ne-gotiating table.

Of perhaps greater importance is the ques-tion of whether globalization, as spearheadedby the World Trade Organization, prevails inthe future over regional agreements such asNAFTA. While some aspects of the latter cur-rently provide certain bloc-member industrieswith a margin of advantage over those of non-bloc partners, this advantage may be short-lived. The ultimate outcome will hinge on theinteraction of the NAFTA with the UruguayRound agreements. This will be particularlydecisive for the future of the Caribbean gar-ment assembly industry; hence it is necessaryto examine briefly the possible implications ofthe General Agreement on Tariffs and Trade(GATT) for the textile and garment trade.

The Uruguay Round and the World Trade Organization

One of the most noteworthy achievements ofthe Uruguay Round11 for developing countriesin general was the decision to liberalize the gar-ment and textile trade through the progressive

elimination of the quota system, existent formany years under the MFA. Accordingly, theAgreement on Textiles and Clothing estab-lishes a timetable for the gradual elimination ofquotas in countries that are members of theWTO. If all members adhere to the agreement,restrictions on the garment and textile tradeshould be eliminated by the year .

However, the conclusion of the UruguayRound did not establish that free trade wouldeventually prevail with regard to clothing com-merce, as a degree of tariff protection willremain in place even after the ATC takes fulleffect. As part of the WTO-ATC, the UnitedStates pledged to reduce tariffs applied to tex-tiles in general by an average of percent(USITC , ‒). In more specific terms,the average U.S. tariff on cotton clothing wouldbe reduced to percent from a pre–UruguayRound level of . percent, while that appliedto manmade fiber clothing would drop to .

percent from a pre–Uruguay Round average of. percent (USITC , ). These two cat-egories are important components of develop-ing-country industries.

Although the elimination of the MFA alsomeans the end of the U.S. quota system underHTS provision , it does not mean thatCaribbean clothing exports to the UnitedStates under the currently restricted categoriesof SLs and DCLs will have a chance to ex-pand. It is precisely the U.S. quota systemapplied to clothing imports from the Far Eastthat has restrained those countries from dom-inating the U.S. clothing market, at the sametime motivating Asian firms to transfer assem-bly operations to the Caribbean in order to takeadvantage of unfulfilled Caribbean quotas.The elimination of quotas will likely removethe incentive for Asian clothing firms to relo-cate to the Caribbean, given that they could ex-port directly from the Far East.

What countries would ultimately benefitfrom these changes toward liberalization? If

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the timetable for the elimination of quotasunder the ATC is abided by, one possibility isthat China and other Far Eastern countrieswill benefit, at least as far as the U.S. marketis concerned. One scenario has the resultingincrease in U.S. imports from low-wage Asiancountries outcompeting the North Americantextile industry as well as its complementaryassembly segments in the Caribbean, CentralAmerica, and Mexico (USITC , ). Thiswould particularly be the case when Chinamanages to take full advantage of its member-ship in the World Trade Organization.

A clear picture of the future configurationof the hemispheric garment industry is diffi-cult to discern, owing to the numerous factorsthat must be considered. Although the issue iscomplex, it may be helpful to draw a distinc-tion between global agreements administeredby the World Trade Organization and relevantregional bloc agreements, such as NAFTA.Although they may not be sufficient to makethe U.S. textile commodity chain competitivewith Asian imports once the WTO-ATC takeseffect, NAFTA’s rules of origin clearly favortextile inputs originating from within the bloc.

NAFTA or the WTO: Will the Regional or Global Level Be Decisive?

With the advent of NAFTA at the beginningof , the United States eliminated the quo-tas on around percent of clothing importsfrom Mexico; the remaining quotas are sched-uled to be eliminated over a period of ten years(USITC , ). While tariffs on around

percent of garment imports from Mexico wereeliminated immediately, by the year tar-iffs on virtually all U.S. imports of clothingfrom Mexico that comply with NAFTA rulesof origin were supposed to have been elimi-

nated (USITC , ). It should be recalledthat the WTO-ATC establishes the elimina-tion of quotas but not tariffs on the world’stextile trade.

NAFTA, like other regional agreements,maintains elements of protectionism despitebeing considered a trade-liberalizing agree-ment, due to its restrictive rules of origin insome industrial sectors. In the case of theclothing and textile industry, NAFTA rules oforigin require the almost exclusive use of yarnoriginating within the countries that make upthe bloc. In other words, to qualify for fullNAFTA benefits (including exemption fromtariff payments, which will still be in existenceafter the WTO-ATC takes effect), clothingand textiles must be made of yarn producedwithin the bloc (the “yarn-forward” rule).

This rule has been the target of criticism byfree-trade advocates, given the protection itaffords to North American industries. GaryHufbauer and Jeffrey Schott (, ) pointout that trade diversion would occur in favorof producers within the NAFTA bloc that arenot the most efficient in the world. In the sce-nario that NAFTA prevailed over the ATC-WTO, the ultimate beneficiaries would likelybe the North American textile mills and theirMexican assembly complement, through thedisplacement of cheaper Far Eastern clothingin the U.S. market (USITC , ). Tradediversion would be reduced to the extent thatthe letter and spirit of the relevant agreementsof the Uruguay Round and the WTO are re-spected, specifically the ATC (Lustig, Bos-worth, and Lawrence , ).

Conclusions

The enclave nature of EPZs and of the gar-ment assembly industry in particular in theDominican Republic and the wider Caribbean

.

prevents the industry from becoming a sus-tainable industrial base that could contribute toeconomic development in the long run. Gar-ment assembly in the Caribbean is just onesmall link in the commodity chain and hencecontributes very little value added from anindustry-wide perspective. Furthermore, thislink rests on a precarious foundation of cheaplabor. The industry in any one country canprosper or decline depending on regional cur-rency fluctuations relative to the dollar. Thelight-manufacturing nature of assembly accen-tuates the footloose and highly mobile natureof operations, enabling firms to easily relocateto the country where labor is cheapest at amoment’s notice.

Nevertheless, the lack of viable alternativesfor employment creation and the generationof badly needed foreign exchange in the shortand medium term make the preservation ofthis sector a high priority of regional govern-ments, and particularly that of the DominicanRepublic. The World Bank reflects this senti-ment in its overview of the DominicanRepublic:

The Dominican Republic stands at an eco-nomic crossroads. The performance of theeconomy during the past years clearlydemonstrates both its ability to compete effec-tively in the international market and the in-ability of tourism and the free trade zones(EPZs) alone to revive sustainable growth. . . .During the transition to a more open andprivate-sector driven economy, however, thecountry’s medium term growth prospects willcontinue to depend heavily on the dynamismof tourism and the free trade zones. (WorldBank )

The integration of the region into NAFTAmay be necessary in the short or medium termif it contributes to vertical integration of theCaribbean clothing industry, as some authorshave suggested will occur with Mexico in the

context of NAFTA. For the time being, thepassage of the CBTPA means that EPZ firmsin the Dominican Republic have the opportu-nity (albeit limited) to integrate other stages ofgarment production beyond mere assembly.The integration of the Dominican Republicinto NAFTA, although restricting clothing in-dustry inputs to bloc members, theoreticallyenables the incorporation of yarns produced inany member country. Although the DominicanRepublic does not possess a comparativeadvantage in all the stages of garment pro-duction, it does have widely recognized designcapabilities that could be incorporated. Thequestion of vertical integration would rendergreater fruits, however, if approached from aregional or even hemispheric perspective.

Regardless of the final configuration of thehemispheric garment commodity chain underregional agreements, the reality of the situa-tion is that it will be pitted against Asian pro-ducers that can offer full-package productionat very competitive prices once the MFA iscompletely eliminated by the year . Hencethe hemisphere must pool its resources andallow the different links in the hemisphericclothing commodity chain to deploy them-selves geographically according to the relativestrengths and resources of countries in order tobecome competitive enough to confront this“Asian challenge.” NAFTA is a step in thisdirection, although the best option would be toextend the agreement to the entire hemisphere.

For the Caribbean Basin’s export industrial-ization program in general, the priority shouldbe the diversification of the industrial base.The current EPZ strategy is too dependent onthe garment assembly industry and should bereplaced by a strategy that both widens theindustrial base and deepens value added in theexisting export sector. Vertically integrateddomestic firms are content in many cases toserve the national markets from behind high

’ -

tariff barriers. This is rapidly becoming less ofan option as globalization and regionalism ad-vance. Governments should therefore createthe conditions for integrating these domesticindustries to the EPZs or for them to beginexporting on their own.

Notes

. Preliminary figures provided by the ConsejoNacional de Zonas Francas de Exportación.

. Although reference is made to “assembly”processes, this is understood to include light man-ufacturing as well.

. In some cases a limited number of these goodsare allowed to penetrate the domestic market.

. Consejo Nacional de Zonas Francas de Expor-tación, Informe estadístico , sector de zonas fran-cas (Santo Domingo: Departamento de Informa-ción y Estadísticas, ), .

. data from the Consejo Nacional deZonas Francas de Exportación.

. Production sharing, also referred to as com-plementary production, is production occurring inmore than one country. The majority of such goodsenter the U.S. market registered under section

of the new Harmonized Tariff Schedule (formerlysection ).

. A U.S. preferential market-access program.. This was an observation commonly voiced by

Dominican EPZ managers and others interviewedby the author in .

. Data for the year , supplied by the Con-sejo Nacional de Zonas Francas de la RepúblicaDominicana, place at twenty-seven the number ofestablishments operating with South Korean capi-tal, while those with Taiwanese capital total seven.

. The Special Program includes both the“Special Access Program” applied to the CBERAcountries and the “Special Regime” established bythe United States for Mexico.

. The Uruguay agreements were negotiatedunder the General Agreement on Tariffs and Tradeand came into effect at the beginning of .

References

Bailey, Thomas, and Theo Eicher. . “TheEffect of a North American Free Trade Agree-ment on Apparel Employment in the US.” Paperprepared for the Bureau of International LaborAffairs, U.S. Department of Labor, Washington,D.C. October.

Consejo Nacional de Zonas Francas de Exportación.‒. Informe estadístico, sector de zonasfrancas. Santo Domingo: Departamento de Infor-mación y Estadísticas.

Gitli, Eduardo, and Randall Arce. . “Qué sig-nifica la ampliación de beneficios para los paísesde la Cuenca del Caribe?” Report. Heredia, CostaRica: Centro Internacional de Politica Economicapara el Desarrollo Sostenible (CINPE). May.

Hufbauer, Gary Clyde, and Jeffrey J. Schott. .

NAFTA: An Assessment. Washington, D.C.: Insti-tute for International Economics. February.

Lustig, Nora, Barry P. Bosworth, and Robert Z.Lawrence, eds. . North American Free Trade:Assessing the Impact. Washington, D.C.: TheBrookings Institution.

Manchester Trade. . “MT’s Summary Reviewof CBTPA Benefits.” Report. Washington, D.C.June.

Martinez Fornos, Eva. . “The Dominican Tri-umph.” Apparel Industry International, July .

Accessed at <http://www.aiimag.com/aiieng/jul00stor2.html>.

Mathews, Dale T. . “Export Processing Zonesin the Dominican Republic: Their Nature andTrajectory.” Ph.D. diss., University of Sussex,Brighton.

United States Department of Commerce. .

Fax from Brian Fennessey of the Office of Tex-tiles and Apparel of the International Trade Ad-ministration, U.S. Department of Commerce.July .

United States Department of Labor–Bureau ofInternational Labor Affairs. . Trade andEmployment Effects of the Caribbean Basin Eco-nomic Recovery Act. Economic Discussion Paper. Washington, D.C.: U.S. Department of La-bor. October.

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United States Government. . Trade and Devel-opment Act of . Washington, D.C.: Govern-ment Printing Office. May.

United States International Trade Commission(USITC). . Tariff Schedules of the UnitedStates Annotated: . Washington, D.C.:USITC.

———. . Production Sharing: U.S. Importsunder Harmonized Tariff Schedule Provisions.. and .., ‒. USITCPublication . Washington, D.C.: USITC.February.

———. . Trade and Industry Summary: Ap-parel. USITC Publication . Washington,D.C.: USITC. January.

———. . Production Sharing: Use of U.S. Com-ponents and Materials in Foreign Assembly Oper-ations, ‒. USITC Publication .

Washington, D.C.: USITC. May.———. a. Caribbean Basin Economic Recovery

Act: Twelfth Report, . USITC Publication. Washington, D.C.: USITC. September.

———. b. Production Sharing: Use of U.S.Components and Materials in Foreign Assembly

Operations, ‒. USITC Publication .

Washington, D.C.: USITC. April.———. c. Production Sharing: Use of U.S.

Components and Materials in Foreign AssemblyOperations, ‒. USITC Publication .

Washington, D.C.: USITC. December.———. . International Economic Review.

USITC Publication . Washington, D.C.:USITC. January–February.

Welling, Holly. . “Caribbean Boon: Lurchingafter NAFTA.” Apparel Industry Magazine, Au-gust . Accessed at <http://www.aimagazine.com/archives/200008/c20000731044226i6855a.cfm>.

Willmore, Larry. . “Export Processing in theCaribbean: Lessons from Four Case Studies.”United Nations Economic Commission for LatinAmerica and the Caribbean (UN-ECLAC) Work-ing Paper no. . Port of Spain, Trinidad andTobago: UN-ECLAC. September.

World Bank. . “Dominican Republic: CountryOverview.” In Trends in Developing Economies,. Washington, D.C.: World Bank.

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Part VIConclusion

Jennifer Bair, David Spener, and Gary Gereffi

NAFTA and Uneven Development in

the North American Apparel Industry

The various contributions to this book havedocumented how NAFTA-inspired firm strat-egies are changing the geography of apparelproduction in North America. The authorsshow in myriad ways how companies at dif-ferent positions along the apparel commoditychain are responding to the new institutionaland regulatory environment that NAFTA cre-ates. By making it easier for U.S. companies totake advantage of Mexico as a nearby low-costsite for export-oriented apparel production,NAFTA is deepening the regional division oflabor within North America, and this processhas consequences for firms and workers ineach of the signatory countries. In the intro-duction to this book we alluded to the obviousimplications of shifting investment and tradepatterns in the North American apparel indus-try for employment in the different countries.In this concluding chapter we focus on Mex-ico in the NAFTA era, specifically the extentto which Mexico’s role in the North Americaneconomy facilitates or inhibits its economicdevelopment.

We begin with a discussion of the contem-porary debate about Mexico’s development,which turns on the question of how to assessthe implications of Mexico’s rapid and pro-

found process of economic reform. Second, wefocus on the textile and apparel industries assectors that have been significantly affected bychanges in regulatory environments at both theglobal and regional levels. Third, we examinethe evidence regarding Mexico’s NAFTA-eraexport dynamism, and in particular we empha-size the importance of interfirm networks, bothfor making sense of Mexico’s meteoric riseamong apparel exporters and for evaluating theimplications of this dynamism for develop-ment. Fourth, we turn to a consideration of thenational political-economic environment thatshapes developmental outcomes for all Mexi-cans. Although regional disparities withinMexico are profound, aspects of governmentpolicy, such as management of the nationalcurrency, and characteristics of the institu-tional environment, such as industrial relations,have nationwide effects, and critics of NAFTAcharge that these factors are contributing to aprocess of economic and social polarizationthat is ever more evident (Morales ; Dus-sel Peters ). Finally, we suggest that themixed consequences of Mexico’s NAFTA-eragrowth can be taken as emblematic of the con-tradictions that the process of globalizationposes for economic and social development.

The anti-sweatshop campaign in North Amer-ica is one example of transnational or cross-border movements that are emerging to addressthe negative consequences of this process. Inbringing attention to the problem of sweatshopproduction in North America, activists aredeveloping strategies that rely on a networklogic that is not dissimilar to the approachesreflected in the various chapters of this book.

Mexico’s Developmental Debate

In many ways Mexico entered the new mil-lennium with an economic and political profilefar removed from the desperate and dark daysof the s debt crisis, during what wouldcome to be called Latin America’s “lost de-cade.” Having abandoned the import-substi-tution industrialization model that served asthe foundation for five decades of developmentpolicy, Mexico appeared to be enjoying thefruits of its strict adherence to neoliberal eco-nomic orthodoxy. Across a wide variety of sec-tors, Mexico’s exports to the United Stateshave been booming since the implementationof the North American Free Trade Agreement(NAFTA) in , increasing from $. bil-lion in to $. billion in (U.S.Bureau of the Census ). Aside fromimpressive export growth, Mexico has alsomanaged to achieve many of the other objec-tives associated with Latin America’s new eco-nomic model: a stable currency, modest infla-tion, and plentiful direct foreign investment(Reinhardt and Peres ; Dussel Peters). On the political front, the historic vic-tory of opposition candidate Vicente Fox sug-gested that Mexico’s decades-long transitionfrom one-party rule had been consolidated.

Despite the seeming abundance of goodnews, there is a growing sense that all is notwell in Mexico. While the liberalization strat-egy that Mexico enthusiastically embraced in

the second half of the s and s hasbeen successful in its own terms, critics havepointed out that Mexico’s shift from an import-substituting industrialization strategy to anexport-led growth model has been associatedwith a more unequal income distribution andfalling real wages for the majority of the coun-try’s workers (de la Garza ; Robinson‒; Dussel Peters ; Mariña Flores). The most dynamic sector of the Mexi-can economy in terms of exports and job cre-ation is the maquiladora industry of in-bondplants, while small and medium-sized enter-prises have been hard hit by the country’s rapidliberalization. NAFTA skeptics claim that thetrade agreement and the export-led growthmodel it represents are leading to the “maqui-lization of Mexico,” with the entire countrybecoming converted into an export-processingzone for low-value-added activities benefitinglarge corporations on both sides of the border.

NAFTA is fundamental to the debate aboutthe country’s developmental trajectory in bothan economic and a political sense. The yearof NAFTA’s implementation, , was amomentous one in Mexico. President CarlosSalinas de Gortari (‒) waged an ener-getic battle to convince Mexicans that NAFTAwould prove a powerful, modernizing force forthe country’s development, and he made thepassage of NAFTA the central goal of hisadministration. Despite ubiquitous referencesto the modernization of Mexico throughoutthe six years of the Salinas administration, theZapatista uprising on January , proveda poignant reminder that many of the nation’scitizens continue to grapple with problems ofcrippling poverty, social marginalization, andethnic discrimination. In his Internet pressreleases the movement’s leader, Subcoman-dante Marcos, made explicit the link betweenthe Zapatista struggle and the implementationof NAFTA. Since that time NAFTA has ar-guably come to be seen as the apotheosis of

, ,

Mexico’s economic liberalization and restruc-turing program, which began with a series ofreforms implemented under President Miguelde la Madrid (‒).

The rhetorical power of NAFTA as a sym-bol for Mexico’s recent political-economic tra-jectory may make a measured appraisal of itsactual consequences more difficult, thoughsurely even more necessary. Opinion was di-vided over NAFTA before the agreement wassigned, with some arguing that its effectswould be primarily positive (Weintraub ;

Lustig ) and others warning that it wouldexacerbate Mexico’s already severe patternsof social and economic polarization (Casta-ñeda ; Conchello ). U.S. scholarsargued that the real economic impact ofNAFTA would be slight, despite the heatedpolitical rhetoric that it provoked (Krugman; Bosworth ). Within Mexico muchof the debate about NAFTA turned on thequestion of its potential implications for thecountry’s political system. While some arguedthat NAFTA and the process of economicrestructuring that it represented would notfoster democratization (Poitras and Robinson), others maintained that pressure forpolitical reforms would be the most importantunintended consequence of NAFTA (Heredia).

The election of Vicente Fox to the Mexicanpresidency in July seems to provide sup-port for this last prediction, although theexact nature of NAFTA’s causal role, if any,is unclear. Mexico’s far-reaching economic re-forms, and in particular its role in the processof North American integration, brought itunder more intense international scrutiny, pos-sibly inhibiting the ability of the ruling party(the Partido Revolucionario Institucional, orPRI) to reproduce itself through its custom-ary recourse to illegality and corruption. Muchof the tone of the campaign suggestedthat the election was a referendum on the

direction that the country’s economic reformshad been taking over the past decade. Each ofthe three major candidates—from the PRI aswell as from the Partido de la Revolución De-mocrática (the left-of-center party) and thePartido de Acción Nacional (the right-of-centerparty)—attempted to distance himself fromwhat were perceived to be the failed “neolib-eral” policies of the Salinas and Ernesto Ze-dillo (‒) administrations. Vicente Fox,whose proposed economic platform was notradically dissimilar from the status quo underthe three PRI administrations that precededhim, nevertheless embraced a more populistrhetoric at moments during his campaign (Pres-ton ).

Mexicans were undoubtedly voting againstthe PRI rather than for Fox in large numbers,and democracy, not economic policy, was theelectorate’s central concern (Hellman ).Although Fox’s election signaled a decisive endto the PRI’s grip on the levers of state power,the debate about the country’s developmenttrajectory remains fierce. Fox claimed through-out the campaign that sustained economicgrowth on the order of percent a year wouldbe necessary to help pull million poor Mex-icans above the poverty line, but Mexico fellfar short of that goal for , when the econ-omy registered percent growth. The slow-down in the U.S. economy in furtherfueled the debate about Mexico’s develop-mental prospects, with some critics arguingthat the economy is too dependent on the U.S.import market and is unable to generate en-dogenous growth (Dussel Peters ).

The chapters in this book examine one lim-ited but important aspect of this debate: howNAFTA is leading to the restructuring of theNorth American apparel industry. In theremainder of the conclusion, we reference thevarious contributions here and discuss how ananalytical approach focusing on interfirm pro-duction and trade networks helps explain the

changing geography of apparel and textile pro-duction in post-NAFTA North America. Inso doing we hope to highlight the value of thismethodology in assessing the implications ofshifting trade and production patterns forfirms and workers in the NAFTA countries.

The Post-NAFTA Apparel Industryin North America

As important starter industries for countriesattempting to industrialize, and a significantsource of manufacturing employment in manycountries (see Chapter in this book), theapparel and textile industries have long beenpolitically sensitive sectors. Although apparelworkers in developed countries have receivedsome protection from the Multifiber Arrange-ment (MFA), Chapter by Jennifer Bair andGary Gereffi documents the shifting patternsof global trade and production in this indus-try. Domestic apparel manufacturing in theUnited States declined steadily from the mid-s as imports from an ever-evolving arrayof Asian exporters penetrated the U.S. market.

However, the apparel industry is not onlyglobal in its scope; it is also increasingly re-gional in its organization. NAFTA was con-ceived, at least partly, as a means to promoteintra–North American trade vis-à-vis otherareas of the world. As domestic apparel man-ufacturers struggled to compete with cost-competitive exporters, many U.S. textile com-panies and some apparel firms argued that theindustry could benefit by using low-wage Mex-ican workers for the labor-intensive processesof garment production. In this way the NorthAmerican apparel and textile complex couldbe strengthened vis-à-vis Asian competitorsthrough a regional division of labor betweenthe NAFTA countries.

Perhaps in no other sector have the implica-tions of NAFTA been as striking as in the ap-

parel and textile industries. Although Mexicowas only the seventh largest exporter of apparelto the United States in , by decade’s closeit had overtaken China to secure the number-one spot. The explosive growth in apparel em-ployment in Mexico aptly reflects this exportdynamism. The number of garment workersincreased from , in to , in. The Mexican apparel industry today isnearly percent the size of the U.S. industryin terms of employment (compared to approx-imately percent in ), and it is far moresignificant in relative importance as a source ofmanufacturing employment in the nationaleconomy. In January employment in thegarment industry accounted for . percentof total manufacturing employment in theUnited States (Commission for Labor Coop-eration ). In contrast, the Mexican apparelindustry accounted for a full percent of totalmanufacturing employment in (INEGI).

Several of the chapters in this book notethat the reorganization of the North Americanapparel industry has had important implica-tions for employment. However, besides thewell-known trend of declining U.S. employ-ment in garment production, these authorsalso underscore the sociological aspects ofchanging employment patterns. Chapter , byJudi Kessler, documents the significance ofimmigrant labor to the renewed vitality of theLos Angeles garment district, while RobertRoss’s examination of the sweatshop issue inthe U.S. industry (Chapter ) emphasizes thevulnerability of this workforce.

Chapter , by David Spener, calls attentionto a perverse paradox created by the shiftingregulatory environment for apparel productionin North America: that many Mexican andMexican American women workers in El Paso,Texas, who came to the United States in searchof better economic opportunities, have lost theirjobs to compatriots south of the border due to

, ,

the decline of the apparel industry in southernTexas. Spener’s chapter captures many of theissues that are most relevant in interpreting thepost-NAFTA reorganization of the NorthAmerican apparel industry, including the im-portance of changes in the regulatory environ-ment, the impact of those changes on firm strat-egy and cross-border production networks, andthe devastating consequences that can resultfor garment workers and their communities.

Networks Matter: NAFTA, FirmStrategy, and Development

This book represents an effort to analyze theimportance of interfirm networks in the re-structuring of the North American apparelindustry and the implications of this restruc-turing for enterprises and workers. A networkapproach allows us to examine how NAFTAshapes the strategies and investments of thecompanies that drive the North American ap-parel and textile commodity chain, and it alsoenables us to examine the impact of chang-ing interfirm relations on particular commu-nities that are linked into this chain. This focuson networks provides some leverage over thedevelopmental debate in Mexico, insofar as wecan show the difference between pre-NAFTAmaquiladora assembly and more integratedproduction networks that have emerged inthe post-NAFTA era. Chapter , by GaryGereffi, Martha Martínez, and Jennifer Bair,shows that firms on both sides of the borderare responding to NAFTA by establishing newtypes of supply chains, while the authors alsodocument the implications of this shift in net-work structure for local development in theTorreón region.

The role of networks in promoting positivedevelopment outcomes, and their limits, is alsoemphasized by Enrique Dussel Peters, Cle-mente Ruiz Durán, and Michael J. Piore (Chap-

ter ). Ulrik Vangstrup’s discussion of knittersin central Mexico (Chapter ) examines hownetworks between local and foreign firms canpromote the development and competitivenessof apparel-producing clusters. Each of thesechapters points to the importance of networksthat specifically link local companies to foreignbuyers. Much attention has been paid in thedevelopment literature, most notably in thework on industrial districts, to the importanceof horizontal relationships between enterprisesin a cluster. The chapters presented here sug-gest that links external to the cluster are alsocritical (and perhaps even more so) for the suc-cess of export-oriented firms (see also Bair andGereffi ). Chapter , by Jorge Carrillo, Al-fredo Hualde, and Araceli Almaraz, points tothe potential tensions between local and exter-nal linkages with the authors’ finding that firmsin Monterrey and Ciudad Juárez without locallinkages are more flexible and competitive inthe free-trade environment than are companieswith such linkages.

In Part , on the Caribbean and CentralAmerica, Michael Mortimore (Chapter )and Dale Mathews (Chapter ) explore thepotentially negative implications of the assem-bly networks that dominate export-orientedproduction in the Caribbean Basin region.Again, the relationship between the regulatoryenvironment and firm strategy is emphasizedin the authors’ descriptions of the apparelindustries in Costa Rica and the DominicanRepublic, which are dominated by low-value-added assembly processes carried out in export-processing zones. The passage of the Tradeand Development Act of should help thisregion compete with Mexico, but in terms ofdevelopment outcomes the networks that con-nect apparel manufacturers in the CaribbeanBasin to U.S. firms are less promising thanthe full-package networks that are alreadyemerging in Mexico, as Chapter on Torre-ón explains.

The Limits of Networks: The Political and Economic Contextof NAFTA-Era Restructuring

While all the chapters in this book addressthe relevance of networks to analyzing theNAFTA-era apparel industry in North Amer-ica, the authors are also aware that such anapproach has its limits. NAFTA is not the onlyfactor affecting the decisions of companiesregarding their investment and operation deci-sions, and the types of interfirm networks thatstructure the industry are not the only deter-minant of how workers and their communitiesfare. The significance of the broader institu-tional environment in shaping the develop-mental implications of Mexico’s economicrestructuring is profound. The management ofthe currency and the minimum wage in Mex-ico are two factors that affect many Mexicans,including those who work in the apparel indus-try. Real wage gains owing to productivity canprove ephemeral in the wake of currency de-valuation, particularly in a consumer economythat is now highly dependent on imports.

It is difficult to measure the contribution ofNAFTA to the fact that real wages in Mexicoremain well below their predevaluationlevels. There are almost million more Mex-icans living in poverty today than in , theyear that NAFTA went into effect, whichundoubtedly reflects the devastating toll of the‒ peso crisis on Mexicans’ purchasingpower. The precarious economic position ofmany families attests to the importance of theinstitutional context within which Mexicanswork and live. Critics of Mexico’s develop-mental trajectory argue that the political-economic environment in Mexico leads to anunequal distribution of NAFTA’s rewards thatdisadvantages the majority of Mexicans, whohave seen little if any improvement in theirdaily standard of living (Soria ; MariñaFlores ).

In their contributions to this book, severalauthors note the difficulties confronting smalland medium-sized enterprises, many of whichhave been devastated by the transition to a lib-eralized economic environment for which theywere ill prepared. In the apparel industry alarge number of these companies have becomemaquiladoras, assembling apparel for foreignfirms. While the discussion of Torreón inChapter reminds us that the transition tomaquiladora production can be an initial stepin a process of industrial upgrading to higher-value-added activities, the same chapter revealsthat the manufacturers who have benefited dis-proportionately from the region’s full-packageexport boom are members of a wealthy andinterconnected local elite. Thus the optimisticinterpretation of the Torreón experience mustbe balanced by the recognition that full-package orders are filled through hierarchicalnetworks, whose bottom tiers are populated bysmall subcontractors where lower wages andpoorer working conditions prevail.

Assessing the consequences of NAFTA forMexico is made more difficult by the unevenlevels of development that characterize differ-ent parts of the country. Theoretically, NAFTAapplies equally to all of Mexico, but in realitythe dynamics of post-NAFTA dynamism haveexacerbated already-profound disparities amongthe different regions of Mexico (Ruiz Duránand Dussel Peters ). Although the maqui-ladora industry is becoming more widely dis-persed through Mexico, and indeed there hasbeen a Southern expansion of the industrial-ized North from the border to more interiorlocations, there are still areas of the countrythat remain marginal to the process of NorthAmerican integration. The significant costs ofMexico’s economic restructuring have beenparticularly burdensome for the rural poor insouthern states such as Guerrero, Oaxaca, andChiapas, and these regions have not benefitedfrom the post-NAFTA export dynamism that

, ,

has spurred employment creation not onlythroughout northern Mexico but also in someinterior regions, such as Guanajuato and Puebla.

The regional inequalities that pervade Mex-ico’s geographic and socioeconomic landscaperaise fundamental concerns about the impactof economic restructuring on social cohesionand solidarity. Denise Dresser argues that thisprocess of restructuring “cuts to the core ofMexico’s redistributive coalitions and systemof inclusionary corporatism. The shift from aprotected to an open market, and from a state-centered to a private-led economy, affectedMexicans from all walks of life” (Dresser, ). The toll that the economic reformshave exacted on these traditional redistribu-tive coalitions is particularly apparent in thecase of Mexico’s industrial workers.

As early as the late s it was obvious thatMexico’s peculiar form of postrevolutionaryauthoritarian corporatism, which linked to the state the two largest official union confed-erations (the Confederación de TrabajadoresMexicanos, or CTM, and the ConfederaciónRevolucionario de Obreros y Campesinos, orCROC), was no longer viable. The collapse ofthis model has meant real losses for Mexicanworkers. Labor’s share of manufacturing valueadded declined from percent in to percent by . Unions throughout thisperiod appeared powerless to halt the declinein organized labor’s political influence. Whilethe corporatist unions remained officially pro-government during the Salinas and Zedilloadministrations, their participation in theprocess of economic reform was minimal. Thepublic debate about NAFTA that occurred inthe United States between labor unions andbusiness associations did not have a Mexicancounterpart, as the negotiation and adoption ofthe agreement was skillfully managed by theSalinas administration to produce consensusand ensure conformity with the government’sagenda (del Castillo ; Thacker ).

The Mexican system of industrial relationsis one dimension of the institutional environ-ment that affects the distribution of rewardscreated by Mexico’s NAFTA-era economicgrowth. Interpreting NAFTA’s independentimpact on the Mexican labor movement is dif-ficult, however, because NAFTA is associatedwith the wider agenda of economic reform andrestructuring that the country has pursuedsince the mid-s (de la Garza ). To theextent that NAFTA has helped fuel Mexico’sexport dynamism and create new jobs, partic-ularly in the maquiladora sector of the econ-omy, it can be considered a positive develop-ment for Mexican workers. Indeed, recentstudies emphasize that the country is increas-ingly dependent for job creation on exportingindustries in general and the maquiladora sec-tor in particular, as these activities have becomethe primary (some say, only) engine of growthin the Mexican economy (Álvarez Galván andDussel Peters ; Mariña Flores ). Interms of its implications for industrial democ-racy, optimistic analyses of post-NAFTA de-velopments suggest that the nadir of organizedlabor in Mexico has passed and that NAFTApresents new possibilities for reforming a labormovement that has been profoundly challengedby the decline of Mexico’s corporatist systemand the defeat of the PRI.

Although unions in the United States cam-paigned hard against NAFTA, its implemen-tation has generated renewed interest in cross-border organizing (Moody ). One scholarof the Mexican labor movement argues thatthe “labor side agreement” that was added toNAFTA in order to secure its passage hasturned out to be “a viable tool for cross-bordersolidarity among key actors in the trade union,human rights, and allied movements. TheNAALC’s (North American Agreement onLabor Cooperation) principles and complaintmechanisms create new spaces for advocatesto build coalitions and take concrete action to

articulate challenges to the status quo andadvance workers’ interests” (Compa ,

). In the past the Mexican government andthe leadership of the official unions oftenignored systematic violations of workers rightsbecause it was understood that genuine free-dom of association and industrial democracywould have weakened the corporatist structurethrough which the organized labor movementwas linked to the ruling party. Under NAFTA,however, organized labor on both sides of theborder, in conjunction with nongovernmentalorganizations (NGOs), can use the side agree-ment as a tool in their struggles to redress vio-lations of Mexican labor law.

As Edna Bonacich’s chapter on organizedlabor in the North American apparel industry(Chapter ) makes clear, unions in the UnitedStates have been struggling to develop newstrategies that can effectively counter the geo-graphic mobility and organizational flexibilityof contemporary garment production. Whilethe process of developing new approaches hasbeen a contentious one at times, a substantialportion of the U.S. labor movement has rec-ognized the need to match the networkingstrategies of companies. Not only has NAFTAspurred cross-border activity on the part ofcapital, but it has also been a visible and pow-erful symbol to workers in North America thatlabor, too, must organize and operate acrossborders.

It is not only NAFTA, however, that hasprompted labor unions in the United States toreconsider their relationship to Mexico andMexican workers. At present, around per-cent of Mexico’s population resides outsidethe country, and nearly all of these more than million persons live and work in the UnitedStates (Mexican Ministry of Foreign Affairsand U.S. Commission on Immigration Reform). Of particular consequence to labor,Mexican immigrant workers are especiallyconcentrated in those domestic manufacturing

industries most negatively affected by NAFTA-induced competition, on the one hand, and inthose manual service-sector occupations towhich U.S. unions are devoting most of theirorganizing efforts, on the other (Spener andCapps ). We see this especially clearly inLos Angeles, where Mexicans form the major-ity of workers in the nation’s largest garmentdistrict and have also been the object of suc-cessful union organizing drives in the hotelindustry.

While unions have not had much success inorganizing immigrant garment workers in LosAngeles (Bonacich and Appelbaum ), theyclearly have become aware of the significanceto their own future of organizing Mexicanworkers. The potential benefits to unions ofsuccessfully organizing Mexicans (and otherimmigrants) can be seen in the increased cloutMexicans have gained in Los Angeles’ politi-cal arena, as Antonio Villaraigosa was nearlyswept into the mayor’s office in with mas-sive union and Latino voter support. And ofcourse, increased cross-border collaborationbetween U.S. and Mexican unions could wellstrengthen the hand of labor vis-à-vis capitalon both sides of the border.

Labor unions’ renewed interest in organiz-ing immigrant workers in the United Statescomes at an especially interesting moment forU.S.-Mexican relations with regard to immi-gration policy. At the time of this writing,cabinet-level negotiations were taking placebetween the executive branches of the twonations that sought to address the issue of ille-gal Mexican labor migration to the UnitedStates, and several legislative proposals wereunder consideration by the U.S. Congress aswell. In a dramatic reversal of its previous posi-tion, the U.S. labor movement now stronglysupports legalizing the status of undocu-mented immigrants residing in the country andhas renounced its support of sanctions againstemployers who knowingly employ undocu-

, ,

mented workers. Today the American labormovement recognizes that “millions of hard-working people who make enormous contribu-tions to their communities and workplace aredenied basic human rights because of theirundocumented status” (AFL-CIO ). Atthe same time the union federation stronglyopposes the revival of a Bracero-style guest-worker program for Mexicans,1 which it fearswould undermine the wages and working con-ditions of union members. Meanwhile, expertson Mexican migration to the United Statesnote that both guest-worker programs andamnesty for the undocumented in the past haveactually promoted further unauthorized movesby Mexicans across the United States’ south-ern border (see Massey ).

With regard to U.S.-Mexican relations, theissues of trade, development, and migrationhave been tightly bound together historicallyand will continue to be so well into the future.Mexican maquiladoras were born when the Bor-der Industrialization Program was inauguratedfollowing the cancellation of the Bracero pro-gram in , with the intention of providingfactory employment to thousands of Mexicanmen who had been employed as guest work-ers in U.S. agriculture and who found them-selves returned to Mexico with few employ-ment prospects. Some have argued that thesuccessful expansion of the maquiladora exportsector was later taken as a model for NAFTA,which, it must be remembered, was promotedat least in part as a job-creation solution to the“problem” of undocumented Mexican migra-tion (Orme ). Several developments mightlead us to expect that this problem would beless acute today:

• Several hundred thousand manufacturingjobs have been created for working-classMexicans as a consequence of the expand-ing maquiladora sector and the further open-ing of the U.S. market to Mexican imports;

• U.S. employers are more aware of the factthat they face sanctions if they knowinglyhire illegal immigrant workers; and

• since the late s the U.S. government hasdramatically increased the resources it di-rects toward curtailing unauthorized cross-ings of the country’s southern border (seeAndreas ; Dunn ).

Despite all these measures, however, undocu-mented Mexican labor migration to the UnitedStates has actually grown exponentially sincethe early s, and it has shown few signs ofabating in the post-NAFTA era (MexicanMinistry of Foreign Affairs and U.S. Com-mission on Immigration Reform ).

Although space considerations do not per-mit us to examine in any depth the reasons forthe failure of industrial-development pro-grams in Mexico to curtail emigration north,three factors are especially relevant to this con-cluding chapter. First, few of the new manu-facturing jobs offer wages, benefits, workingconditions, and employment security that aresufficiently attractive to retain workers overthe course of their careers and thus preventthem from seeking better opportunities northof the border. Second, overall job creation inMexico has been decidedly lackluster in recentyears, despite the dynamism of the maquila-dora sector. Mediocre job growth will provean inadequate break on emigration in an econ-omy that needs to absorb, on average, a mil-lion new entrants into the economically activepopulation each year. Third, the buildup oftransborder migrant social networks con-necting sending communities in Mexico withmany towns and cities throughout the UnitedStates has greatly eased the undocumentedpassage of the latest generation of labor mi-grants (Massey and García España ; Singerand Massey ). In this sense we find thatworking-class Mexicans, in much the sameway that the apparel firms examined in this

book have done, rely on their own organizednetworks to help them establish productive,income-generating units in the most prof-itable locations they can find north or south ofthe border, as structural conditions change inthe “new” North America.

The story of Gerardo Gutiérrez (a pseudo-nym), a native of Torreón, Coahuila, who wasinterviewed by Spener in San Antonio, Texas,in June , is a case in point. Now twenty-six years old, Mr. Gutiérrez started working asan operator in a maquiladora sewing TommyHilfiger jeans in Torreón when he dropped outof school at age fourteen. On the eve ofNAFTA five years later, he was still sewingjeans in the factory for just U.S.$ per week.Seeing no better future for himself in themaquiladoras, he crossed the border illegally in with the help of an uncle who was a con-struction foreman for a large commercialdeveloper based in Dallas. Later he settled inSan Antonio, where he has worked in a vari-ety of construction-related jobs. When con-struction work is slack he helps another uncleliving on the border with his business of sneak-ing fellow undocumented Mexicans across theborder to find better-paying jobs in the UnitedStates. Regardless of whether new amnestyor guest-worker programs are implemented,many thousands of Mexicans are likely to fol-low Mr. Gutiérrez in using their own network-based migratory labor strategies to cope withthe long-term macrostructural inequalities be-tween their country and the United States. Oneof the questions to be addressed by future re-search is whether the U.S. apparel industrywill continue to offer Mexican migrants mean-ingful first-job opportunities once they haveentered the United States. Another is whetherrapid apparel industry expansion into migrant-sending areas such as Puebla will offer Mexi-can workers an attractive alternative to em-ployment north of the border.

Gerardo Gutiérrez’s story is a poignant re-minder that even the regions of Mexico thathave benefited from NAFTA-era growth, suchas Torreón, can be home to workers who con-sider their jobs in export-oriented manufactur-ing industries dead-end employment, offeringfew possibilities for better wages and workingconditions. In areas such as Torreón and Aguas-calientes, the local labor market for maquiladoraemployment is saturated, but employers reportthat the availability of jobs is not sufficient todeter workers from attempts to cruzar al otrolado (cross to the other side). Fieldwork con-ducted by Bair in Aguascalientes, a boomingapparel production center, revealed that man-agers are losing more and more workers toattempted border crossings, although many areback at their old jobs in a matter of weeks (seeBair ). In fact, a causal relationship mayexist between maquiladora employment andincreased emigration flows, since an increasingpercentage of maquiladora workers (even in thesewing factories) are young men who are em-ployed for relatively brief periods and who mayuse the modest wages such factory work pays tofinance their migration attempts.

NAFTA’s Mixed Legacy:Globalization, Regionalism, andTransnational Social Movements

In the final section of this chapter, we discussthe recent transnational social activism that hasdeveloped as an anti-globalization movement.Since the “Battle in Seattle,” trans-national and cross-border movements haveemerged around a variety of issues, includingthe environment and labor rights. This bookdocuments the positive and negative impli-cations of NAFTA on the North Americanapparel industry in general, as well as the spe-cific effects of the post-NAFTA export boom

, ,

for development outcomes in Mexico. NGOs,labor unions, and student organizations inrecent years have argued that the version ofglobalization promoted by international finan-cial institutions and the World Trade Organi-zation is an undemocratic one that must bereplaced by a more transparent and inclusiveapproach to issues of global governance. Acti-vists involved in these transnational socialmovements suggest that free-trade agreementsshould include clauses guaranteeing minimallabor standards for all workers and that cor-porations should be held more accountable toconsumers in terms of revealing informationabout their international operations.

It is particularly relevant to note the emer-gence of transnational activism here, becausemuch of it has focused on the apparel indus-try. The anti-sweatshop campaign has beenamong the most visible and successful of theefforts to forge a cross-border movement basedon solidarity between First World consumersand workers in developing countries. Chaptersof the student organization United StudentsAgainst Sweatshops (USAS) exist at morethan two hundred universities in Canada andthe United States, with members pushing toensure that the T-shirts, sweatshirts, and base-ball caps that bear their school’s logo are pro-duced by workers in a sweat-free environment.

In conjunction with other NGOs, such asthe Canadian-based Maquila Solidarity Net-work and the U.S.-based Coalition for Justicein the Maquiladoras, the USAS has been pub-licizing violations of Mexican labor law in fac-tories that produce for major U.S. brands. Theirefforts have been instrumental in attractingmedia attention to the plight of Mexican work-ers in a Korean-owned factory, Kukdong,which produces Nike apparel (see Gereffi,Garcia-Johnson, and Sasser , ‒).The situation at the plant, which is also men-tioned in Chapter by Edna Bonacich, has

been monitored closely by foreign NGOs afterthe company dismissed workers who com-plained about rancid food and low wages inJanuary . Workers wanted to hold elec-tions to vote on the possibility of establishinga new union, claiming that the existing unionat the plant failed to represent their interests.The existing union was affiliated with theCROC, a corporatist union with long-standingties to the PRI (which still controls the gov-ernment of the Mexican state of Puebla, wherethe Kukdong factory is located).

One may have expected the power of theold-style corporatist unions to be weakened bythe defeat of the PRI’s presidential candidateand the victory of Vicente Fox, who ran on theplatform of cleaning up Mexico’s corrupt po-litical system. However, Fox’s administrationhas been notably silent about violations ofMexican labor law such as those that appear tohave occurred at Kukdong, where workerswere denied the right to exercise freedom ofassociation. In marked contrast to the tepidresponse of the Mexican government, NGOs,in collaboration with organized labor in theUnited States, have campaigned vigorously onbehalf of the Kukdong workers. However, themain target of their protests is not Mexicanpresident Vicente Fox, nor the Korean ownersof the plant, but rather Nike—the global re-tailer of athletic footwear and apparel that isone of the company’s clients.

Workers’ rights activists believe that the realpotential for change lies with the most visibleand powerful corporations doing business inMexico. Companies such as Nike or the Gapare sensitive to the negative publicity createdby reports of abuses or labor-law violations inplants that produce their products (Gereffi,Garcia-Johnson, and Sasser ). This strat-egy of identifying and targeting the high-visibility brand-name companies, which is atthe heart of the anti-sweatshop movement,

is based on a network methodology: Althoughthe Kukdong plant is not owned by Nike, it isidentified as a link in Nike’s production chainfor which, activists maintain, the corporationis ultimately responsible. So far the networkstrategy seems to be effective in creating ac-countability in the North American apparelindustry. Under pressure from NGOs, andparticularly the demands of students active inUSAS, Nike urged management at Kukdongto take back workers who were fired after theywent on strike. The months-long struggle atKukdong (which was renamed Mex Mode)ended in September when the company’smanagement agreed to recognize an indepen-dent union supported by the workers, and anew collective agreement was signed with theunion, SITEMEX (originally SITEKIM). Thesuccessful resolution of the conflict was hailedas a precedent-setting victory for maquiladoraworkers in their efforts to secure industrialdemocracy.

The transnational and cross-border move-ments that are emerging in response to the dis-satisfaction of wide segments of society withthe perceived consequences of globalization area development worthy of more attention thanwe can give it here. Our hope is that this bookhas helped illuminate some of the contradic-tory dynamics posed by the process of regionalintegration in the North American apparel in-dustry, especially as they relate to issues ofequity and the distribution of NAFTA’s costsand benefits. NAFTA has produced winnersand losers, and more empirical work is neededto better understand the extent to which thegains accruing from this process of regionalintegration might promote an agenda of em-ployment creation, poverty reduction, and so-cial development in Mexico. We believe thatapproaches focusing on cross-border networksare likely to contribute much to our under-standing of NAFTA’s implications and can

help illuminate the complex connections be-tween North America’s firms, workers, andconsumers.

Note

. The Bracero program was a U.S. policy thatallowed Mexicans to live and work in the UnitedStates as agricultural laborers on a seasonal basis. Itsabrupt cancellation in created severe unem-ployment on the Mexican side of the U.S.-Mexicoborder, and it was ostensibly to address this prob-lem that the maquiladoras were established.

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, ,

About the Contributors

is a research associate at El Colegio de la Frontera Norte in Tijuana,Mexico. She has worked extensively on social and economic conditions in Mexico’s maquila-dora industry.

is assistant professor of sociology at Yale University, where she also teaches inthe women’s and gender studies program. Her current research focuses on the developmentalimplications of the North American Free Trade Agreement for Mexico and on the political econ-omy of neoliberal reform in Latin America.

is a professor of sociology and ethnic studies at the University of California,Riverside, where she has taught since . Her publications include a coedited book, GlobalProduction: The Apparel Industry in the Pacific Rim (Temple University Press, ) and a co-authored volume, Behind the Label: Inequality in the Los Angeles Apparel Industry.

is director of the Social Studies Department at El Colegio de la Frontera Nortein Tijuana, Mexico. He has a Ph.D. in sociology from El Colegio de México and is a special-ist in the sociology of work. Dr. Carrillo is the author of several books and more than sixty arti-cles in national and international scientific journals.

is professor at the Graduate School of Economics, Universidad Nacio-nal Autónoma de México (UNAM), in Mexico City. He earned his Ph.D. at the University of NotreDame. His publications include Polarizing Mexico: The Impact of Liberalization Strategy and anedited volume, Claroscuros: Integración exitosa de las pequeñas y medianas empresas en México.

is professor of sociology at Duke University. He received his Ph.D. degree fromYale University and he has published extensively on development strategies and industrial up-grading in diverse regions of the world. His books include Manufacturing Miracles: Paths ofIndustrialization in Latin America and East Asia, coedited with Donald L. Wyman, and Com-modity Chains and Global Capitalism, coedited with Miguel Korzeniewicz.

is a researcher and professor in the Social Studies Department at El Colegiode la Frontera Norte in Tijuana, Mexico. His work “Aprendizaje industrial en la frontera nortede Mexico: La articulación entre el sistema educativo y el sistema productivo maquiladora”received the National Award of Mexico’s Ministry of Labor and Social Security in forresearch on labor issues.

is an assistant professor of sociology at Monmouth College. She has publishedseveral articles on the apparel industry and did her doctoral dissertation on the apparel indus-try in Southern California and Mexico.

is a graduate student in the Sociology Department at Duke Uni-versity. She is currently research coordinator for the Community Learning Center Project atMonterrey Institute of Technology, Mexico.

obtained his Ph.D. in from the Institute of Development Studies at theUniversity of Sussex in England. He has taught at several universities in the Caribbean regionand works as a researcher at the Institute of Caribbean Studies in Puerto Rico.

is an economist with a Ph.D. in business administration from Monterrey Insti-tute of Technology (Mexico) and the University of Texas at Austin. He is currently workingon a research project on industrial policy in Ireland.

is chief of the development issues section of the Division on Investment,Technology and Enterprise Development of the UN Conference on Trade and Development(UNCTAD) in Geneva, Switzerland. He received his Ph.D. in Political Economy from theUniversity of Toronto (Canada), and he has written extensively on international trade andinvestment issues.

is professor of business management at the University of Bretagne-Sud,France. She is conducting research on firms’ competitive and organizational strategies in globalindustries, focusing on apparel and food processing.

is David W. Skinner Professor of Political Economy at Massachusetts Instituteof Technology. His books include Beyond Individualism and The Second Industrial Divide (withCharles Sabel).

is professor of sociourban studies at the University of Guadalajara. Currentlyhe is conducting research on the impact that various types of employment arrangements haveon workers’ quality of life.

. . is professor of sociology and director of the international studies stream atClark University. He is the coauthor (with Kent C. Trachte) of Global Capitalism: The NewLeviathan.

is professor of economics at the Universidad Nacional Autónoma deMéxico (UNAM) in Mexico City.

teaches sociology and anthropology at Trinity University in San Antonio, Texas.In addition to writing on development issues, Spener has published a number of works on U.S.-Mexico border relations and Mexican migration to the United States.

is a Ph.D. candidate at the Institute of Development Studies at UtrechtUniversity. She is currently writing her dissertation on the local impact of globalization in thegarment industry.

received his Ph.D. in in international development studies fromRoskilde University, Denmark. Currently he is coordinator of a small-business support programof the Instituto Tecnológico Superior del Sur de Guanajuato in Guanajuato, Mexico, and boardmember of the Guanajuato Regional Development Council.

Index

Aalfs, ; joint venture with Martín family, ;Torreón operations of, t

AAMA. See American Apparel Manufacturers’ Asso-ciation

AB (California), n aboneros (door-to-door sellers), –, t, , ;

class status of customers of, t; percent share ofMexican retail clothing sales, t; profits of,

Acer Computers, Action West, operations in Mexico, , t, ACTWU. See Amalgamated Clothing and Textile

Workers UnionADOZONA. See Asociación Dominicana de Zonas

FrancasAFL-CIO, Solidarity Center of, Africa: apparel exports of, t. See also specific countriesAgreement on Textiles and Clothing (ATC), n , ,

–; beneficiaries of, Aguascalientes (Mexico): Burlington manufacturing

plant in, ; knitwear production in, ; linkageswith U.S. firms, ; worker migration from,

AIWA. See Asian Immigrant Women’s AdvocatesAlabama (U.S.), textile employment in, Alba Vega, Carlos, n ALFA, , n Almacenes Coppel, n Alpek, Altamira complex (Mexico), Amalgamated Clothing and Textile Workers Union

(ACTWU): losses in membership, ; merger withILGWU, –

American Apparel Manufacturers’ Association(AAMA),

American Textile Manufacturers’ Institute (ATMI),

Anne Klein: and Chinatown contractors, ; globalproduction network of, ; growth strategy of,

Ann Taylor, anti-globalization movement, –, , anti-sweatshop movement, , , –. See also

“No Sweat Initiative”apparel commodity chain: actors in, ; changes over

time, ; components of, ; lead firms in, –;lengthening of, in Mexico, –, f; Los Angelesin, ,

apparel industry: actors influencing, –; and economicgrowth, , –; elements of, ; globalization of,–; post-NAFTA, –; regionalization in, –,–, t–t; use of term, n . See also underspecific countries and regions

Appelbaum, Richard, , , , , Arias, Patricia, n Arizona jeans wear, , Asia: apparel as engine of growth in, ; apparel

exports of, , t; apparel exports to Mexico, ,; apparel exports to North America, , t,, f; as Caribbean basin competitor, ; trian-gle manufacturing in, . See also East Asia; SouthAsia; Southeast Asia; specific countries

Asian immigrants, in New York City apparel industry,, t, t

Asian Immigrant Women’s Advocates (AIWA), Asian Pacific American Legal Center, Asociación Dominicana de Zonas Francas (ADOZONA),

Asociación Nacional de Tiendas de Autoservicio y

Departamentales (ANTAD), n assembly, ; in Caribbean basin, –, ; Item

and, ; in maquiladora industry, –; transi-tion to full-package manufacturing from, , , ;vs. full-package manufacturing, –, n

Assembly Bill (AB) (California), n association arrangements, –, –ATC. See Agreement on Textiles and ClothingATMI. See American Textile Manufacturers’ InstituteAvante Textil, Aztex Trading Company, –

backward linkages, n ; A and prevention of, ;full-package manufacturing in Mexico and, ;NAFTA and facilitation of, ; obstacles to develop-ment of,

Bair, Jennifer, Bali,

Page numbers followed by letters f, n, and t indicate figures, notes, and tables, respectively.

Banco Nacional de Comercio Exterior (Bancomext): fairorganized by, ; knitwear producers and, ;“matchmaking” role of, , , –

Bangladesh: apparel exports of, t, ; apparel exportsto North America, t, f, ; apparel exports toU.S., t; labor costs in, t; subcontracting net-work in,

Banks: in Mexico vs. Hong Kong, . See also BancoNacional de Comercio Exterior (Bancomext)

Barba de Loza, Jaime, basic apparel, Mexican production of, , bazares (bazaars), t, ; class status of customers of,

, t, –; percent share of Mexican retailclothing sales, t

Bernard Chauss, Berton, Bruce, , n Blue Bell Corporation, n blue jeans industry: in El Paso, Texas, , , ,

; in Torreón, Mexico, –, . See also denimBonacich, Edna, , , ; on relocation of produc-

tion to Mexico, , Border Industrialization Program (U.S.-Mexico), ,

, . See also maquiladorasBoss, Boudreaux, Mike, Bracero program, n branded apparel manufacturers, , ; strategies in

response to globalization, –; strategies inresponse to NAFTA, , –; upgrading of sup-plier networks in Mexico, –. See also specificcompanies

Brazil, Sinos Valley in, Bremmer, Charles, bridge lines: foreign sourcing for, ; in lead firms’

growth strategies, Bryan, John H., Burlington Industries, –; Casual Wear division of,

; in Mexico, , , ; and NuStart (Ciudad de laConfección), ; Performance Wear division of, ,

“Buy American” campaign,

California: apparel employment in, ; garment indus-try in, evolution of, –; job gains in, ; women’swear industry in, . See also Los Angeles apparelindustry; San Francisco; Southern California

California Division of Labor Standards Enforcement(DLSE), ; and Targeted Industries PartnershipProgram (TIPP),

California Division of Occupational Safety and HealthAdministration (Cal OSHA),

“California look,” California Works Foundation, “calls,” in U.S. legislation, , Cal OSHA. See California Division of Occupational

Safety and Health AdministrationCalvin Klein: growth strategy of, ; in Monterrey,

Mexico, ; in Torreón, Mexico, tCambodia, apparel exports to North America, tCAN. See Competitive Analysis of NationsCanada: age structure of population of, ; apparel

employment in, shifts in, , t; niche in apparelindustry, –

capacity contracting,

capitalism. See global capitalismCapps, Randy, ; apparel exports to North America,

, t, f, ; apparel exports to U.S., , ,t, ; apparel production in, –, t, ;Asian competitors of, ; assembly model in,–, ; export-processing zones in, –;future of apparel industry in, ; “incentive wars”in, ; international competitiveness of, , ;labor costs in, , f, –, t; Mexico’sadvantage compared to, , , , ; NAFTAand, ; production-sharing program in, , –;small countries of, –; special access program in,–, –, –; subcontracting networksin, , ; U.S. government policies and, , , n .See also specific countries

Caribbean Basin Economic Recovery Act (CBERA),; compared with CBTPA,

Caribbean Basin Initiative (CBI), , ; and global/flexible production, ; and Los Angeles manufac-turers, n

Caribbean Basin Trade Partnership Act (), ,, –; benefits to Caribbean countries, ;compared with CBERA, ; and Dominican Repub-lic, ; quotas for fabric, t; quotas for T-shirts,t; rules of origin in, . See also Trade andDevelopment Act of (U.S.)

Casab, Ramzy, Casa Ley, Castells, Manuel, Cawthorne, Pamela, CBERA. See Caribbean Basin Economic Recovery ActCBI. See Caribbean Basin InitiativeCBTPA. See Caribbean Basin Trade Partnership Act

()Celaya company, , –CEMEX, Central America: apparel exports to U.S., , , t;

export-processing zones in, ; subcontracting net-works in, , ; U.S. government policies and, . See also Latin America; specific countries

Central Europe: apparel exports of, t; outwardprocess trade (OPT) and, . See also specific countries

certifications, , n Chaps, operations in Mexico, tChedraui, n Chic, Chiconcuac (Mexico): informal markets in, ;

knitwear producers in, tChihuahua (Mexico): Burlington laundry plant in, ;

opportunities in, –; Wrangler in, . See alsoCiudad Juárez

Chihuahua Siglo XXI, n child labor, children’s clothing, in Mexico, China: admission into WTO, controversy about, ;

Agreement on Textiles and Clothing and, ;apparel exports of, , t, , ; apparel exportsto Mexico, t; apparel exports to North America,, t, , f; apparel exports to U.S., , ,t; economic growth of, , f; labor costs in,t; Levi Strauss and Company in, , n ;subcontracting network in, ; and triangle manu-facturing,

Chinatown (New York City), –; ILGWU in, ;labor-law violations in, ,

Chinese immigrants: in New York City apparel industry,, –; in restaurant industry, n

CHIRLA. See Coalition for Humane Immigrant Rightsin Los Angeles

CIEMEX-WEFA, Cifra group, n ; joint venture with Wal-Mart,

n Ciudad de la Confección. See NuStartCiudad Hidalgo (Mexico), furniture industry in, Ciudad Juárez (Mexico), ; business climate in, ;

compared with other apparel centers, , t; com-petitive advantages of, ; economic history of, ;and El Paso, linkages between garment industries of, – (see also El Paso–Ciudad Juárez region);employment in, n ; future of, , ; garmentindustry in, n , –, , , ; globalcompetitiveness index for, ; labor market in, ;linkages of companies in, –, ; modernizationindex for, ; problems facing, , ; profile ofapparel firms in, –, t, –; regional cus-tomers in, –; socioeconomic indicators for, t;subcontractors in, ; suppliers in, ; traditionalmaquiladora networks in, , f; vertical (dis)inte-gration in, –, f

Clay, William, Clean Clothes Campaign(s) (Western Europe), clothing stores. See tiendas de ropaCluett Peabody, Costa Rican subsidiaries of, CMT (“cut, make, and trim”), CMT Industries, post-NAFTA layoffs by, Coahuila (Mexico). See TorreónCoalition for Humane Immigrant Rights in Los Angeles

(CHIRLA), Coalition for Justice in the Maquiladoras, codes of conduct, apparel companies and, , COFOCE. See Coordinadora de Fomento al Comercio

ExteriorCOITEP. See La Corporación Industrial de Tejido de

PuntoColeman, James, collective efficiency, concept of, , Colombia: apparel exports to Mexico, t; apparel

exports to North America, tComercial Mexicana, n commercial subcontracting networks, commodity chain, –; for Mexican knitwear sector,

. See also apparel commodity chain; global com-modity chain

Compañia Industrial de Parras, S.A. de C.V., , Compañia Textil Centroamericana, competition: Asian, Caribbean basin and, ; in

El Paso–Ciudad Juárez region, ; low-wage,–; of Monterrey/Ciudad Juárez, ; fromstreet vendors, n

competitive advantages: of Ciudad Juárez, Mexico, ;of El Paso, Texas, ; of industrial districts, ; ofLos Angeles apparel industry, , ; of Mexico, ,; of Monterrey, Mexico, ; of New York Cityapparel industry, –, , ,

Competitive Analysis of Nations (CAN), complementary production, n . See also production

sharing

compliance monitoring: in Los Angeles apparel indus-try, –; new global industry of, –; and relo-cation decisions, ; voluntary, , n

Cone Mills Corporation, ; operations in Mexico, ,,

Confecciones Burlmex, Confederación de Trabajadores Mexicanos (CTM), Confederación Revolucionario de Obreros y Campesinos

(CROC), , consultants, and upgrading process, –consumption, apparel, in Mexico, –, t;

NAFTA and, Contract Apparel, contracting, in apparel industry: capacity, ; justifi-

cations for, ; specification, ; and sweatshopconditions, . See also contractors; subcontractingsystem

contractors, in apparel industry, ; core, –, ;peripheral, , , , ; vs. subcontractors, n

Converters, Coordinadora de Fomento al Comercio Exterior

(COFOCE), n coordination, and full-package manufacturing, Coppel, core contractors, –; in New York City apparel

industry, La Corporación Industrial de Tejido de Punto

(COITEP), –Coscomate (Mexico), knitwear producers in, tCosta Rica: apparel exports of, t; apparel exports to

North America, , , t, f, ; apparelexports to U.S., t, , –; competitiveness of apparel industry of, –, t, ; export-processing zone operations in, ; labor costs in,, t; quotas under CBTPA, t, t;WTO dispute with U.S., ,

Crawford, Harry, credit: difficulties of securing, as barrier to upgrading,

–; empresa integradoras and problems with, ;importance of, ; U.S., Mexican partners andaccess to,

credit unions, in Mexico, –; knitwear producersand, , –,

Crewe, Louise, CROC. See Confederación Revolucionario de Obreros

y CampesinosCTM. See Confederación de Trabajadores MexicanosCuautepéc (Mexico): knitwear producers in, t,

n ; producer consortium and credit union of,–,

currency fluctuations: Caribbean apparel industry and,. See also peso devaluation

Cygne Designs, and private-label products, Czech Republic: apparel exports of, t; labor costs in,

t

daycron staple fibers, DuPont and, DCL. See Designated Consultation Leveldemocratization, NAFTA and, denim: maquiladora production of, ; production in

Mexico, , , , ; production in U.S., ,, , ; softening of market for, –. See also blue jeans industry

Denimex,

Department of Labor. See U.S. Department of Labordepartment stores. See tiendas departamentalesderegulation, de facto, and sweatshops in U.S., –,

fDesignated Consultation Level (DCL), , developing countries: apparel exports by, ; Uruguay

round of GATT and, . See also specific countriesDillards, in Mexico, discount retail chains, in Mexico, , , Disney, Avante Textil and, displaced garment workers, , distribution channel(s), n ; informal, in Mexico,

–, –division of labor: cross-border, –, ; gender, in

Los Angeles apparel industry, ; international, ,, –, ; NAFTA and, , ; regional,–

DKNY: and Aztex Trading Company, ; in Mexico, DLSE. See California Division of Labor Standards

EnforcementDockers, DOL. See U.S. Department of LaborDominican immigrants, in New York City apparel

industry, –Dominican Republic, –; apparel exports of, t,

; apparel exports to North America, , ,t, , f; apparel exports to U.S., t, , ;apparel industry of, , t; CBTPA and benefits to,; competitiveness in North American market, ,t; export-processing zones of, f, –,–, t, t; labor costs in, , t; NAFTAand, , ; peso devaluation and, ; quotasunder CBTPA, , t, t; range of products of,, t; unionism in,

Donna Karan: global subcontracting network of, ;growth strategy of, ; operations in Mexico, , t;strategies in response to globalization,

door-to-door sellers. See abonerosDresser, Denise, dresses, retail in Mexico, t, Dubinsky, David, –DuPont: in Mexico, ; and NuStart (Ciudad de la Con-

fección), Durango (Mexico), . See also TorreónDutch Clean Clothes Campaign,

Eagles, East Asia: and Caribbean EPZs, –; full-package

production in, –; Mexico compared to, , .See also East Asian newly industrialized economies;specific countries

East Asian newly industrialized economies: apparelexports to U.S., , t; apparel industry as engine of growth for, ; economic growth of, , f;export-oriented production in, ; and trianglemanufacturing,

Eastern Europe: apparel exports of, t; outwardprocess trade (OPT) and, . See also specific countries

economic growth: apparel industry as engine of, ,–; lead firms’ strategies for, –; of smallcountries, challenges to, –; winners’ circle in,–, f

EDD. See Employment Development Departmentefficiency, collective, ,

Egypt: apparel exports to North America, t; laborcosts in, t

/ production, , , , , n ; andlimits on maquiladoras, –; and offshore garmentproduction, . See also production sharing

ejidos (cooperatives), El Acorozado, El Paso, Texas, –; apparel industry in, –,

–, ; and Ciudad Juárez (see El Paso–CiudadJuárez region); compared with leading apparel citiesin U.S., t; competitive advantage of, ; employ-ment in, , f, t, , t; ethnicity of work-ers in, t, –, t; future of, –, ;history of apparel industry in, –; job gains in,, f, ; job losses in, , –, –,; maquiladora apparel production in Mexico and,, , , ; under Multifiber Agreement andItem , –; peso devaluation and impact on,; population of, , t; post-NAFTA, –;regional customers in, –; relocation of indus-tries to Mexico, –; subcontractors in, ; sub-sidiaries and contractors in Mexico’s interior, –;suppliers in, ; Torreón compared with, ; typol-ogy of companies in, –, t; unique positionin U.S. garment industry, ; wages in, , t

El Paso Apparel Group, post-NAFTA layoffs by, El Paso–Ciudad Juárez region, –; absence of

cross-border linkages in, –, –; competitionin, ; obstacles to development of interfirm link-ages in, –; subsidiaries and contractors inMexico’s interior, –

El Paso Fashion Development Center, El Salvador: apparel exports to North America, ,

, t, f, ; apparel exports to U.S., t,; apparel industry of, , t; labor costs in, ,t; quotas under CBTPA, , t, t

embedded firm, embeddedness, local, ; industrial linkages and, embroidery machines, in Mexico, Emilia-Romagna region (Italy), , n , –employee turnover rates: in Monterrey/Ciudad Juárez,

; in Torreón, Mexico, employment: in Ciudad Juárez, Mexico, n ; in

Dominican Republic EPZs, , ; in El Pasoapparel industry, , f, t, , t; in LaLaguna region, Mexico, –; in Los Angelesapparel industry, –, , –, f, t, t, ,–, t, t; in maquiladoras, , f, , ; inMexico’s apparel industry, , t, f, ; NAFTAand, –; in New York City apparel industry, –,, ; in North American apparel industry, shiftsin, , t; in retail, in Mexico, ; in Southern Cali-fornia apparel industry, ; in Torreón, Mexico, ;in U.S., impact of NAFTA on, –. See also jobgains; job losses

Employment Development Department (EDD), Cali-fornia, Tax Branch of, n

employment index, n empresa integradora (integrated enterprises), –,

, enterprise zones, EPZs. See export-processing zonesErmatinger, John, Estado de Mexico, knitwear producers in, t

ethnicity: of El Paso apparel workers, t, –,t; of Los Angeles apparel workers, , , n ,, ; of Los Angeles business owners, n ; ofNew York City apparel workers, , –, t, t;of New York City business owners, , . See alsospecific ethnic groups

Europe: outward process trade (OPT) in, . See alsoEastern Europe; Western Europe; specific countries

European Economic Community, ISO standards of, ,

export-oriented industrialization, multiple models of,

export-processing zones (EPZs), ; in Caribbeanbasin, –; in Dominican Republic, f, –,–, t, t; limitations of, ,

exports, apparel: credit unions and, ; growth in, ;Harmonized Tariff Schedule (HTS) and, –;incentives for, ; leaders in, , t–t; by maqui-ladoras, t; NAFTA and, ; to North America,–, t, f; OECD countries and, . See also imports, apparel; specific countries

Fábricas de Ropa Manjai, , Fábricas El Venado, Fair Labor Association (FLA), ; Workers Rights

Consortium (WRC) compared with, Fair Labor Standards Act (): and definition of

sweatshop, ; enforcement of, –; “hot goods”provisions of, n , ; post–World War II condi-tions and, ; regulation of homework by,

Farah, Mansour and Hannah, Farah Company, ; layoffs by, post-NAFTA, ;

operations in Mexico, , t; overseas productionof, n ; relocation of, ; strike against,

Far East: subcontracting networks in, . See also specific countries

fashion: and El Paso’s apparel industry, ; andMexico’s apparel industry, , ; and women’s wear industry,

Fashion Institute of Technology, lead firms and, Federated Department Stores, Federated Product Development, Fenton, Kelly, fiber-forward rule, n fiber industry: NAFTA and corporate strategies of,

, ; research and development in, Fideicomiso para la Cobertura de Riesgo Cambiario

(FICORCA), n Final Finish, post-NAFTA layoffs by, financial services zones, financing: in Mexico vs. Hong Kong, . See also

creditfinishers, . See also laundering operationsfirm(s): embedded, ; large, NAFTA and, ; lead

(see lead firms); niche, , ; small (see small firms)firm-centered approach, , FLA. See Fair Labor Associationflexible production, ; impact on labor unions, ,

; impact on U.S. garment workers, ; laborunions’ response to, –; U.S. government policiesand, –. See also subcontracting system

forward linkages, obstacles to development of, Fox, Vicente, ; election of, ; silence about labor-

law violations,

France: apparel exports of, ; apparel imports and, ;economic growth of, , f

Frederick de México, Free Trade Agreement of the Americas, and

global/flexible production, free-trade zones, Fruit of the Loom, , n ; and assembly orders, Fuerza Unida, n full-package manufacturing: advantages of, , ; in

East Asia, –; labor-related benefits of, –;in Mexico, , , , n , –, n , ;post-NAFTA, , , ; textile firms and, ; inTorreón, Mexico, , f, –; transition fromassembly to, , , , –; vs. assembly, –,n . See also original equipment manufacture

Fundidora Monterrey, closure of, furniture industry, in Ciudad Hidalgo (Mexico),

GALs. See Guaranteed Access LevelsGAO. See General Accounting Officethe Gap: codes of conduct of, ; and full-package

production, ; in middle-to-upper price segments,; operations in Mexico, t

Garment Enforcement Report, garment industry. See apparel industryGarment Industry Development Corporation, Garment Industry Proviso (U.S.), Garment Services International (GSI), sourcing pat-

terns of, Garment Workers’ Center (GWC), Garment Workers Justice Centers, –Garment Workers Protection Act (AB , California),

n GATT. See General Agreement on Tariffs and Tradegender: of apparel industry workers, , ; distribu-

tion of clothing purchases by, in Mexico, ; in off-shore production, . See also men; women

General Accounting Office (GAO): definition of sweat-shops, ; study of tax compliance of sweatshops,

General Agreement on Tariffs and Trade (GATT):implications for textile and garment trade, –;Mexico’s accession to, ; Multifiber Arrangement of(see Multifiber Arrangement [MFA]); Textile andClothing Agreement of, , ; Uruguay round of,, , n

Georgia (U.S.), textile employment in, Gereffi, Gary, , , , , , , Germany: apparel exports of, ; apparel imports and,

; economic growth of, , f; labor costs in,t

Gigante, n Gilmour Trading, Costa Rican subsidiaries of, Gitano Group, ; weakened position of, global capitalism, ; cross-border organizing in

response to, –; restructuring of, as labor unions’goal, –

global commodity chain: and industrial districts, ;use of term, . See also apparel commodity chain

global commodity chain perspective, –; on export-oriented industrialization, ; on obstacles to inter-firm linkages, ; on Torreón region,

global competitiveness index, n global economy, and inequality,

globalization: of apparel industry, –; bases for com-petitive advantage in, ; contradictions of, , ;firms’ strategies in response to, –; and Los Ange-les apparel industry, ; movement against, –,, ; and New York City garment industry, ,; vs. regional agreements, ,

global production, –; impact on labor unions, ,; impact on U.S. garment workers, ; laborunions’ response to, –; U.S. government policiesand, –

global working-class movement, development of, Gómez Palacio (Mexico), ; linkages with U.S. firms,

. See also Torreóngovernment development program, in Mexico, proposal

for, government policies: Mexican, limits of, –; Mexi-

can, recommendations for, –; U.S., and apparelindustry shifts, , –

Grandmaison, Lisa, Greater Texas Finishing plant, post-NAFTA layoffs by,

Greece, labor costs in, tGreen, Nancy, , Greenhouse, Steven, growth. See economic growthgrupo, , n Grupo Alfa: and DuPont, ; and NuStart (Ciudad de

la Confección), ; petrochemical division of, Grupo Confia, Grupo Guanajuato Textil, n Grupo Kaltex, Grupo Lajat, Grupo Libra, –; sales offices in U.S., ; in

Torreón, Mexico, tGryphon Development, GSI. See Garment Services InternationalGuadalajara (Mexico): informal distribution channels

for clothing in, –; knitwear production in, Guadiana, Guanajuato (Mexico): knitwear producers in, t;

manufacturing operations in, ; Southern Cali-fornia sourcing in,

Guanajuato , Guaranteed Access Levels (GALs), Guatemala: apparel exports to North America, , ,

t, f, ; apparel exports to U.S., t, ;apparel industry of, , t; labor costs in, , t;quotas under CBTPA, , t, t

Guess? Jeans: ILGWU organizing drive against,–; operations in Mexico, t; violators incontractor chain of, n

Guilford Mills, –; and NuStart (Ciudad de laConfección),

GWC. See Garment Workers’ Center

Haas, Robert, n , , –Haiti, quotas under CBTPA, t, thalf-package production, Hanes, ; Costa Rican subsidiaries of, Hanes Her Way, Harmonized Tariff Schedule (HTS), , –;

beneficiaries of, , t; negative impact on indus-trialization, , ; section of (see productionsharing); vs. SITC, n

Hayes, Chuck, –Healthtex, Helfgott, Roy, Hermanson, Jeff, , , Hermes, n Hidalgo (Mexico): knitwear producers in, t; manu-

facturing operations in, hijackings, in Mexico, , n Hill, Herbert, , –Hinojosa Ojeda, Raúl, , n Hispanic immigrants: in Los Angeles apparel industry,

; in New York City apparel industry, , t,t,

Hollander, strike against, Hollywood-style lines of clothing, homework, decline of, Honduras: apparel exports of, ; apparel exports to

North America, , , t, ; apparel exportsto U.S., t, ; apparel industry of, , t; laborcosts in, t; quotas under CBTPA, , t, t

Hong Kong: apparel exports of, , t, ; apparelexports to Mexico, , t; apparel exports toNorth America, t, , f; apparel exports toU.S., , , t; economic growth of, , f;financing in, ; full-package production in, –;joint venture in Dominican Republic, ; labor costs in, t; subcontracting network in, ; textile employment in, n ; and triangle manu-facturing,

Hopkins, Terence K., n “hot goods”: Fair Labor Standards Act provisions for,

n , ; monitoring for, Howard, Alan, HTS. See Harmonized Tariff ScheduleHuberman, A. Michael, Hufbauer, Gary, Hungary: apparel exports of, t; labor costs in, thypermarket, n

ILGWU. See International Ladies’ Garment Workers’Union

immigrant workers: in El Paso apparel industry, t,–, t; job prospects of, determinants of,n ; labor unions and, , ; in Los Angelesapparel industry, , , n , , ; NAFTA-relatedindustry transformations and, , ; in New YorkCity apparel industry, , –, t, t; racismagainst, –; in U.S. apparel industry, ; vulnera-bility to sweatshop conditions, . See also specificimmigrant groups

immigration, and new sweatshops, –Immigration Act of (U.S.), Immigration and Naturalization Service (INS), as union

buster, immigration policy: role in weakening labor’s position,

, –; U.S.-Mexican relations with regard to,–

Immigration Reform and Control Act (), imports, apparel: in Europe, ; growth in, ; in

Mexico, –, t, , –, t; NAFTAand, ; in North America, shifts in regional struc-ture of, f; in OECD countries, ; retailers and,; and sweatshop exploitation, –; in U.S., , , t–t, , t. See also exports, apparel

import-substitution industrialization model, n ;Mexico and, ,

in-bond factories. See maquiladorasIndia: apparel exports of, t, ; apparel exports to

North America, t, , f; apparel exports toU.S., t; labor costs in, t

Indonesia: apparel exports of, t, ; apparel exportsto North America, t; apparel exports to U.S., t;labor costs in, t; and triangle manufacturing,

industrial clusters/districts: barriers to development of,; competitive advantages of, ; export-process-ing zones and, ; external dis-economies in, ;Mexican knitwear sector and, –; original modelof, –; Torreón region and,

industrialization: apparel and, –; in Caribbeanbasin, –; export-oriented, ; import-substi-tution, , n , ; special access as challenge to,

industrialized nations: apparel industry in developmentof, , –. See also specific countries

industrial policy: new philosophy of, –; recom-mendations for, –

industrial subcontracting networks, industrial transformation, process of, informal distribution channels, in Mexico, –; and

class status of customers, –informal economy: ambiguity of idea of, –. See also

sweatshop(s)informal markets. See tianguisINS. See Immigration and Naturalization ServiceInstituto Tecnológico y de Estudios Superiores de

Monterrey, integrated enterprises. See empresa integradorainterest rates, in Mexico, interfirm networks, ; in Ciudad Juárez, Mexico,

–; limits of, –; Mexican knitwear produc-ers and, ; obstacles to, ; outward process trade(OPT) and, ; post-NAFTA, ; production sharing( production) and, ; in restructuring of NorthAmerican apparel industry, ; in Torreón, Mexico,, ; triangle manufacturing and,

international division of labor, , , ; challenges to theory of, –

international financial institutions, criticism of, –,

International Garment Processors, International Ladies’ Garment Workers’ Union

(ILGWU), , –; “Buy American” campaign of, ; criticism of, –; and Guess? campaign,–; losses in membership, ; merger withACTWU, –; response to labor crisis of s,–

International Monetary Fund (IMF), movement target-ing, –

International Organization for Standardization (ISO), , n ; Mexico and,

international trade agreements: concerns regarding, .See also specific agreements

interviews, strategic, –investment subsidy, in Mexico, proposal for, Iranian immigrants, in Los Angeles apparel industry,

ISO. See International Organization for StandardizationIsrael, apparel exports to North America, t

Italian contractors, in New York City apparel indus-try,

Italy: apparel exports of, ; apparel exports to Mexico,t; apparel exports to North America, , t;apparel imports and, ; economic growth of, ,f; Emilia-Romagna region in, , n , –;labor costs in, t; Mexican knitwear producers’ trip to,

Jalisco (Mexico): knitwear producers in, t; manufac-turing operations in, ; Southern California sourc-ing in,

Jamaica, apparel exports to U.S., t, JAM Enterprises, post-NAFTA layoffs by, Jansport, Jantzen, Japan: apparel exports of, ; apparel exports to Mexico,

t; apparel imports of, ; economic growth of,, f; labor costs in, t; sourcing in Mexico,; upgrading in,

JCPenney: Arizona brand of, , ; Avante Textil and,; codes of conduct of, ; Mexican knitwear pro-ducers and, ; in Mexico, , t, ; qualitystandards of,

Jesus (brand), Jewish contractors, in New York City apparel indus-

try, Jilotepec (Mexico), knitwear producers in, t“jobbers’ agreements,” job gains: in El Paso, , f, ; in Mexico, ;

NAFTA-induced, in Los Angeles apparel industry,, t; in Southern California, ,

job losses: in El Paso garment industry, , –,–, ; in Los Angeles apparel industry, ,–, t; in Mexico’s apparel industry, ; in U.S.,, –, n ,

joint ventures: Hong Kong–Dominican Republic, ;U.S.-Mexico, , n

Jones, Jackie, Jones Apparel Group, n

Kaltex, kanban system, , n Kennedy, Edward, Kentucky Apparel: in El Paso, Texas, n ; joint

venture with Grupo Lajat, ; in Torreón, Mexico,t

Kentucky-Lajat, Kenya, labor costs in, tKessler, Judi, , n KIWA. See Korean Immigrant Workers AdvocatesK-Mart, operations in Mexico, tknitwear manufacturers, Mexican, –; business

associations of, –; economic performance of,–; export experience of, –; location of,–, t; marketing strategies of, –; num-ber of, ; organization into industrial clusters,–; peso devaluation and, ; technologyacquired by, –

Korean Apparel Contractors Association of GreaterNew York,

Korean immigrants: in Los Angeles apparel industry,, n ; in New York City apparel industry, ,

Korean Immigrant Workers Advocates (KIWA), Kukdong, , Kurt Salmon Associates, , ,

labor: child, ; division of (see division of labor)labor costs: apparel industry, international comparisons

of, , t; in Caribbean basin, , f, –,t; contracting and decrease in, ; and interna-tional trade shifts, ; and relocation of production,. See also wage(s)

labor law: erosion of, . See also specific lawslabor-law violations: manufacturers’ liability for, –,

; monitoring for (see compliance monitoring); inNew York City, –; in restaurant industry, n ;retailers’ responsibility for, ; in San Francisco,; in Southern California, –; Vicente Fox’ssilence about, . See also sweatshop(s)

labor-standards erosion, concentrated market powerand, –

labor unions, –; contracting out as inhibitor to,; cross-border organizing by, –, , ; inDominican Republic, ; future of, ; immigrantworkers and, , ; immigration policy and weak-ening of, , –; institutional restructuringsought by, –; in Los Angeles, , ; losses inmembership, ; in Mexico, , , ; NAFTAand, –; response to global/flexible production,–; Southern regimes and repression of, ; on sweatshop decline, –; in U.S., . See alsospecific unions

La Laguna region (Mexico), ; apparel employmentin, –; apparel industry indicators for, t. See also Torreón (Mexico)

Lamosa, Lapp, Michael, , , , large firms: NAFTA and, . See also lead firmsLatin America: apparel exports to North America, ,

; export-oriented production in, ; “lost decade”of, ; new economic model of, . See also CentralAmerica; specific countries

laundering operations, in El Paso, lead firms, –; focus on, ; growth strategies of,

–; in New York City garment district, –; andopportunities for Mexican suppliers, ; sourcingstrategies of, ; strategies in response to globaliza-tion, –

learning process: business association and, –, ;consultants and, –; Mexican knitwear producersand, ; U.S.-Mexico linkages and, –

Lee, Kimi, Lee and Company, ; El Paso operations of, , ,

, ; Torreón operations of, ; working condi-tions in,

L’eggs, Lerdo (Mexico), . See also TorreónLeslie Fay: strike against, ; weakened position of, Levi Strauss and Company, , –; and assembly

orders, ; contractors in Latin America, ; El Pasooperations of, , , , , –, ; layoffsin U.S., , , –, n ; operations inChina, , n ; operations in Mexico, ,n ; strategic plan of, –; Torreón operationsof, t, ; working conditions under, ,

liberalization, reciprocal,

The Limited: operations in Mexico, , t; and pri-vate-label products,

linkages: among Ciudad Juárez companies, –;among maquiladoras, –, f; in El Paso–Ciudad Juárez region, –; full-package produc-tion and, ; in Monterrey, Mexico, –; obsta-cles to development of, ; U.S.-Mexico, learningprocess in, –. See also backward linkages; inter-firm networks

Liverpool, n living wage, concept of, Liz Claiborne: and Aztex Trading Company, ; and

Chinatown contractors, ; and full-package produc-tion, ; global subcontracting network of, , ;growth strategy of, ; operations in Mexico, t;strategies in response to globalization,

location: of Mexican apparel producers, –, –; of Mexican knitwear manufacturers, –, t; ofsourcing networks, factors in choice of, –, ; ofsubcontracting networks, . See also relocation ofproduction

Los Angeles apparel industry, –, t; in apparelcommodity chain, , ; competitive advantages of,, ; compliance monitoring in, –; employmentin, –, , –, f, t, t, , –, t, t;ethnicity of business owners in, n ; evolution of, –; exports to Mexico, –, , n ;future of, –; Garment Workers’ Center (GWC)in, ; gender division of labor in, ; globalizationand, ; growth of, ; immigrant workers in, , ,n , , ; job creation in, post-NAFTA, , t;job loss in, post-NAFTA, , –, t; methodol-ogy for collecting and analyzing data from, –;Mexican-born workers in, , n ; NAFTA and,–, , , –; as New York’s competitor, ;problems of, –; relocation of production to Mex-ico, , –, ; sourcing patterns in, –, f;sourcing strategies of, –; sweatshops in, , ,, –, ; women’s wear in, ,

Los Angeles Jewish Commission on Sweatshops, , , n

Lovable, Costa Rican subsidiaries of, Lycra, DuPont and,

Macao: apparel exports to North America, t; apparelexports to U.S., , , t

Madrid, Miguel de la, , MAGIC. See Module to Analyze the Growth of Inter-

national CommerceMalaysia: apparel exports of, t; apparel exports to

North America, t; apparel exports to U.S., t;labor costs in, t; subcontracting network in,

Mallorca S.A. de C.V., manufacturer(s): contracting by, –; definition of,

n ; liability for labor-law violations, –, ;mobility of, , ; and retailers, blurring of dis-tinction between, ; retailers’ pressure on, ;secrecy of, ; sourcing patterns of, –. See alsospecific manufacturers

maquiladoras, –, ; assembly in, –; BorderIndustrialization Program and, ; in Ciudad Juárez,; creation of, ; debate about, –; definitionof, , ; regime and limits on, –; and El Paso apparel industry, , , , ; and emi-

gration flows, ; employment in, , f, , ; evo-lution of, ; expansion of, , ; exports of, t;geographical distribution in Mexico, –; impact onthe rest of Mexico, –; Item and, ; link-age patterns of, –, f; Multifiber Agreementand, –; NAFTA and, , n , –, ,; OBM conversion into, ; second generation of,; subsidiaries of, ; and Torreón apparel industry,–, f; traditional model of, , f; U.S. gov-ernment policies and, ; vs. vertical integration,

Maquiladoras PAMI, Maquila Solidarity Network, Marcos, Subcomandante, market channel, n market economy, effective, elements of, –marketers, , ; strategies in response to globaliza-

tion, , ; and Torreón’s production patterns, .See also specific companies

markets on wheels. See tianguismarket stalls. See mercadosmarket typologies, development of, –Maroly, , Martín, Gerardo, Martín family, Marx, Karl, Mast Industries, Mata, Petra, n Mauritius: apparel exports of, t; labor costs in, tMazur, Jay, McAllen (U.S.), apparel industry in, , t, –MCI, Medalla Gacela (brand), megamarket, n membership clubs, in Mexico, n men, apparel industry workers, , Mendoza, Jorge, n mercados (market stalls), t, ; class status of cus-

tomers, t; percent share of Mexican retail clothingsales, t

Mérida (Yucatán peninsula), Metro, Mexicali (Mexico), wages of garment workers in, Mexican immigrants, , –; in El Paso, , ,

–, ; garment workers in U.S., , ; laborunions and, ; in Los Angeles, , n , ; own-ers of garment shops, NAFTA and, –; post-NAFTA,

Mexican integrated apparel manufacturers, strategies inresponse to NAFTA, ,

Mexican sourcing agents, strategies in response toNAFTA, , –

Mexico: advantages compared to Caribbean basin, ,, , ; age structure of population of, ;apparel employment in, , t, f, ; apparel exportsof, t, , t, t, ; apparel exports to NorthAmerica, , t, , f; apparel exports toU.S., , , t, , , , ; apparel imports in,–, t, , –, t; apparel industry in,–, –, t, t, , ; border vs. interiorsourcing in, , ; capital- and skill-intensive indus-tries in, NAFTA and advantages for, –; com-petitive advantages of, , ; consumer market forclothing in, –, t; currency devaluation in (see peso devaluation); democratization of, ; devel-

opmental trajectory of, debate about, –; eco-nomic transformations in, , ; export-processingplants in (see maquiladoras); exports, imports, andtrade balance of, t; exports to U.S., , ;export structure of, t; financing in, ; full-package manufacturing in, , , , n , –,n , ; geography of apparel production in,–, –; government policy in, limits of, –;import-substitution industrialization model in, ,; informal distribution channels in, –; inter-est rates in, ; job creation in, ; knitwear sectorin, –; labor costs in, t; labor unions in, ,, ; location of production centers in, –;maquiladora exports of garments in, t; NAFTAand, , , –, , , , , , –,, –, ; neoliberal economic policies in,; obstacles to production in, , , ; policyrecommendations for, –; postrevolutionaryauthoritarian corporatism in, ; production-sharingprogram in, ; reliance on U.S. export market, ,n ; relocation of El Paso production to, –;relocation of Los Angeles production to, –, ; as sourcing site for Los Angeles, , –; textileindustry in, foreign-trade statistics for, –, t;unilateral trade opening of, –; and UnitedStates (see U.S.-Mexico relations); wages in, –,, , n , ; Zapatista uprising in, . See also specific cities and regions

Mexico City: knitwear production in, ; SouthernCalifornia sourcing in, ; Tepito market in,

Miami (U.S.), apparel industry in, tMichoacán (Mexico): knitwear producers in, t;

manufacturing operations in, microenterprises: definition of, n ; in Mexico, .

See also small firmsMiles, Matthew, minimum order size, problem of, –mobility: apparel manufacturers and, , ; assembly

production and, ; in global production, ;worker, . See also social mobility

modernization index, n modular production, –Module to Analyze the Growth of International Com-

merce (MAGIC), n Monterrey (Mexico), ; competitive advantages of,

; garment industry in, , ; global competi-tiveness index for, ; linkages in, –, ; mod-ernization index for, ; original brand manufacturenetworks in, f, –; original equipment manu-facture networks in, f, –; problems facing,; profile of apparel firms in, –; traditionalnetworks in, f, –

Morelos (Mexico), NuStart (Ciudad de la Confección)in,

Morocco: apparel exports of, t, ; labor costs in,t

Moroleón (Mexico): credit union of, , ; embroi-dery machines in, ; informal markets in, ;knitwear producers in, , t, ; labor shortagesin,

La Mujer Obrera (The Woman Worker), n Multifiber Arrangement (MFA), n , , , ;

and in-bond assembly program, –; phasing outof, ,

NAALC. See North American Agreement on LaborCooperation

Nacional Financiera (NAFIN): credit unions as inter-mediaries of, –; knitwear producers and,

Nadvi, Khalid, NAFIN. See Nacional FinancieraNAFTA. See North American Free Trade AgreementNAID. See North American Integration and Develop-

mentNational Industrial Recovery Act (NRA), ; homework

prohibited by, National Labor Committee (NLC), , –National Labor Relations Act (NLRA), National Textile, nation-states, and apparel industry development, Nautica, strategies in response to globalization, Nazas, n neoliberal economic theory, –; Mexico and, Netherlands, investments in Dominican EPZs, , tnetwork(s): interfirm (see interfirm networks); trans-

national migrant, –. See also linkagesnetwork clusters, Los Angeles–Mexico, New York (U.S.), apparel employment in, , New York City apparel industry, –, t; China-

town in, –, , , ; competitive advantagesof, –, , , ; competitive pressures in, ;employment in, –, , ; future of, –; global-ization and, , ; and global production networks,–; historical perspective on, –; immigrantworkers in, , –, t, t; Korean-owned con-tracting shops and, , ; labor-law violations in,, –; large manufacturers in, rise of, –;local sourcing in, , ; methodology for collectingand analyzing data from, –; social cohesion in,limits on, –; subcontracting system in, , –;sweatshops in, , , –; women’s wear in,

Nicaragua, quotas under CBTPA, t, tniche firms: in fashion-oriented women’s wear sector,

; sourcing strategies of, Nicole Miller, growth strategy of, Nigeria, labor costs in, tNike: anti-sweatshop campaign against, , ; strate-

gies in response to globalization, ; VF Corporationand,

production. See production sharing (/production)

NLC. See National Labor CommitteeNLRA. See National Labor Relations ActNorth American Agreement on Labor Cooperation

(NAALC), North American Free Trade Agreement (NAFTA):

apparel industry after, –; and backward linkages,facilitation of, ; corporate strategies in response to(New York City), –; debate about, , –, ,; and democratization, ; and division of labor,, ; and Dominican Republic, , ; and El Paso apparel industry, –; and employmentand wages in U.S., –, –; and full-package man-ufacturing, , , ; and global/flexible produc-tion, ; and job losses, , –, n , ; andlabor unions, –; and Los Angeles apparel indus-try, –, , , –; and maquiladoras, ,n , –, , ; and Mexican apparel indus-try, , , –, , , , , , –,

, –, ; and Mexican consumer apparelmarket, ; and Mexican labor movement, ;mixed legacy of, , –; and relocation of pro-duction to Mexico, ; rules of origin under, ; and small firms, , , , , –; and Torreónapparel industry, –, f; Trade AdjustmentAssistance (TAA) under, , n , n ; vs. WTO-ATC,

North American Integration and Development (NAID)Center,

North Carolina (U.S.): apparel employment in, ; textile employment in,

North Face, North Korea, apparel exports to Mexico, tNortheast Asia: apparel exports to U.S., , t. See also

specific countries“No Sweat Initiative,” ; failure of, ; quarterly

enforcement reports in, NRA. See National Industrial Recovery ActNuStart (Ciudad de la Confección),

OBM. See original brand manufactureOccupational Safety and Health Administration

(OSHA): California Division of, ; violations ofstandards of,

OECD. See Organization of Economic Cooperation and Development

OEM. See original equipment manufactureOld Navy, operations in Mexico, tOMJC. See Original Mexican Jeans CompanyOPT. See outward process tradeOptima Cotton Wear, Organization of Economic Cooperation and Develop-

ment (OECD), ; apparel imports of, , ;apparel in economies of, ,

original brand manufacture (OBM) networks: conver-sion into maquiladoras, ; in Monterrey, Mexico,f, –

original equipment manufacture (OEM), ; networksin Monterrey, f, –; shift from assembly to,

, ; vs. assembly, –. See also full-packagemanufacturing

Originales Futura, , Original Mexican Jean Company (OMJC), , , ,

n ; and post-NAFTA full-package networks, fOrtiz, Altagracia, OSHA. See Occupational Safety and Health Adminis-

trationoutward process trade (OPT): in European clothing

sector, ; U.S. analogue to,

Pakistan: apparel exports of, t; apparel exports toNorth America, t; apparel exports to U.S., t;labor costs in, t

El Palacio de Hierro, n Palpacuer, Florence, , n Panama: apparel exports to Mexico, t; investments in

Dominican EPZs, , t; quotas under CBTPA,t, t

Parras (company), , Parras (town), Parras-Cone de México, , Parsons School of Design, lead firms and, Partido de Acción Nacional (Mexico),

Partido de la Revolución Democrática (Mexico), Partido Revolucionario Institucional (PRI, Mexico), ,

, Peck, Jamie, peripheral contractors, , ; in New York City apparel

industry, , peso devaluation, ; and Dominican Republic, ;

and El Paso garment industry, –; and imports toMexico, ; and knitwear manufacturers, ; andMexico’s garment production, ; and Mexico’s gar-ment retail, –; and relocation of production toMexico, , ; and sale of domestically producedclothing, –; and Torreón garment industry,–

Philippines: apparel exports of, t, ; apparel exportsto North America, t, f, ; apparel exports toU.S., t; labor costs in, t

Phillips–Van Heusen, piece rate, Piore, Michael, , Playtex, Poland: apparel exports of, t, ; labor costs in, tPolo, operations in Mexico, tPopulation Research Center (PRC), University of Texas

at Austin, Portes, Alejandro, Portugal: apparel exports of, ; labor costs in, tpoverty, in Mexico, PRC. See Population Research CenterPrestige, PRI. See Partido Revolucionario InstitucionalPrice Club, in Mexico, price point: production in Mexico and, ; and reloca-

tion decisions, private-label apparel, n ; New York’s, future of, ;

in retailers’ post-NAFTA strategies, , producer consortia, in Mexico, –; knitwear pro-

ducers and, –; as organizing agents, production sharing (/ production), , ,

n ; in Caribbean basin EPZs, –; criticism of, ; in Dominican Republic,

productivity, of U.S. apparel workers, protectionism, U.S., , , Puebla (Mexico): knitwear production in, ; Southern

California sourcing in, Puerto Rican sewing operators, in New York City,

–; wages of, –Puerto Rico, Sara Lee plants in,

quality, in border vs. interior regions of Mexico, , quotas, U.S., ; Caribbean Basin Trade Partnership

Act and, , t, t; progressive lifting of,

racism, against immigrant workers, –Ralph Lauren: and Chinatown contractors, ; global

production network of, ; growth strategy of, ;strategies in response to globalization,

Reach, Jim, reciprocal liberalization, Red Kap, Torreón operations of, tregionalization: in apparel industry, –, –, t–t;

vs. globalization, , . See also specific regionsrelocation of production: compliance monitoring and,

; factors in, –; impact of NAFTA on, –;

labor costs and, ; to rural communities, ,n

restaurant industry, labor-law violations in, n retail: capital intensity in, ; concentration in, –,

t; in Mexico, –, t, t, t; in Mexico,distribution of value added, t, –; in Mexico,employment in,

retailers, ; dominant role of, ; as importers, ;and manufacturers, blurring of distinction between,; pressure on manufacturers, ; and private-labelproducts, , ; responsibility for labor-law viola-tions, ; share of profits, ; strategies in responseto globalization, , ; strategies in response toNAFTA, , ; and Torreón’s production patterns,; U.S. chains, expansion into Mexican cities, .See also specific companies

Rinbros company, , n ; and Monterrey, Mexico,

Rocky Mountain company, n Romania, apparel exports of, t, Romero, Jesse, –Ross, Robert, rules of origin: Caribbean Basin Trade Partnership Act

and, ; North American Free Trade Agreementand,

rural communities, relocation of apparel production to,, n

Sabel, Charles, , sales offices, of suppliers, n Salinas de Gortari, Carlos, ; and credit unions/

producer consortia, , ; economic policy under,; and NAFTA, ; privatization of cooperativesunder,

Salinas y Rocha, n Salvatierra company, –Sam’s Club, in Mexico, San Diego (U.S.), apparel industry in, , tSan Francisco (U.S.): garment production in, –;

labor-law violations in, San José Iturbide (Mexico), knitwear producers in, tSan Miguel el Alto (Mexico), knitwear producers in,

tSan Miguel el Alto company, –Santiago Tangamandapio (Mexico), knitwear producers

in, t, n Santiago Tulantepec (Mexico), knitwear producers in,

tSantoyo, Blanca, Sara Lee Corporation, –; Costa Rican subsidiaries

of, Sassen, Saskia, , Schlesinger, Emil, , n Schmitz, Hubert, –Schott, Jeffrey, Sears: Mexican knitwear producers and, ; in Mexico,

t, n SECOFI. See Secretaría de Comercio y Fomento

Industriasecrecy: apparel manufacturers and, ; in global

production, Secretaría de Comercio y Fomento Industria (SECOFI),

–self-service outlets. See tiendas de autoservicio

seminars, proposal for, –sewing operators: characteristics of, ; job loss among,

; number in U.S., ; Puerto Rican, in New YorkCity, –

Siete Leguas, –; and post-NAFTA full-packagenetworks, f

Singapore, apparel exports to U.S., tSinos Valley (Brazil), SITEMEX, Skiny, Avante Textil and, SL. See Specific LimitSlates, small countries, challenges to economic growth of,

–small firms: difficulties confronting, ; in El Paso,

Texas, n , ; in fashion-oriented women’s wearsector, ; in Mexican knitwear sector, ; NAFTAand, , , , , –; in New York’s China-town, ; potential for collective efficiency in, ;social capital of,

Smith, Carol, social capital, in small-scale enterprise, social cohesion: impact of economic restructuring on,

; in New York City apparel industry, –social mobility: in Mexican apparel industry, ;

in New York City apparel industry, Soriana, , n Sorimex, n Soto family, sourcing. See subcontracting systemSouth, global, garment factories in, South Africa, labor costs in, tSouth Asia: apparel as engine of growth in, ; apparel

exports of, , t; apparel exports to U.S., t. See also Southeast Asia; specific countries

South Carolina (U.S.): apparel employment in, ; textileemployment in,

Southeast Asia: apparel as engine of growth in, ;apparel exports of, , t; apparel exports to U.S.,t. See also specific countries

Southern California (U.S.): garment industry in, evolu-tion of, –, ; job gains in, , ; sweatshopsin, –. See also Los Angeles apparel industry

South Korea: apparel exports of, , t, , ;apparel exports to Mexico, t; apparel exports toNorth America, t, , f; apparel exports toU.S., , , t; economic growth of, , f; full-package production in, –; investments inDominican EPZs, , t; labor costs in, t;subcontracting network in, ; and triangle manu-facturing,

Spain: apparel exports to Mexico, t; economicgrowth of, , f; labor costs in, t

SPC. See statistical process controlspecial access: in Caribbean basin model, –, ,

–; problems associated with, –specialization, in fashion-oriented women’s wear

sector, specialized loan program, in Mexico, proposal for, specification contracting, Specific Limit (SL), , Spener, David, , sportswear industry: in California, ; growth strategies

of, , –

Sri Lanka: apparel exports of, t, ; apparel exportsto North America, t; apparel exports to U.S., t;labor costs in, t

standards: government policies to encourage, ;hierarchy of, ; ISO, , , n ; as movingtarget,

statistical process control (SPC), n Stonefield Josephson (accounting firm), , n “Stop Sweatshops Act,” strategic interviews, –street vendors, in Mexico, ; unfair competition from,

n student organizations, and anti-sweatshop movement,

, subcontracting system, –; core contractors in,

–; in El Paso apparel industry, ; in El Paso–Ciudad Juárez region, ; formal and informal ar-rangements in, ; history of, ; location choicein, –; in Los Angeles garment industry, –,f; in Mexico, foreign buyers and, ; in New YorkCity garment industry, , –; offshore, –;peripheral contractors in, ; regional, advantages of,n ; relationships in, –; in Torreón apparelindustry, pre-NAFTA, , f

subcontractors, in apparel industry, ; vs. contractors,n

subsidiaries: in Costa Rica, , ; in El Paso–CiudadJuárez region, , –; of maquiladoras,

Sun Apparel: El Paso operations of, , , ,n , n ; layoffs by, post-NAFTA, ; oper-ations in Mexico, ; and Siete Leguas, ; Torreónoperations of, , t, –,

suppliers, in apparel industry, ; indirect, –; andproducers, regional relationships between,

sweater manufacturers, Mexican: location of, –,t; management practices of, ; number of, ;organization into industrial clusters, –. See alsoknitwear manufacturers

sweatshop(s): in global South, ; movement against,, , –

sweatshop(s), U.S., –; concentrated market powerand, –; contracting out and, ; decline of, to s, –; definition of, ; deregula-tion and, –; differing perspectives on, ; in El Paso, Texas, ; immigration and, –;imports and, –; in Los Angeles, , , ,–, ; as metaphor, –; new, causal factorsfor, –, ; in New York City, , , –;past, ; prevalence of, –; return of, ; skepti-cism about existence/number of, ; typology ofold and new, , t

Sweatshop Watch, Switzerland, labor costs in, tsynthetic fiber companies, NAFTA and corporate

strategies of, ,

TAA. See Trade Adjustment Assistancetacit knowledge, –; techniques for management of,

, –Taft-Hartley Act (U.S.), Taiwan: apparel exports of, , t, ; apparel exports

to Mexico, t; apparel exports to North America,t, , f; apparel exports to U.S., , , t;economic growth of, , f; full-package produc-

tion in, –; investments in Dominican EPZs, t;labor costs in, t; and triangle manufacturing,

Target, in Mexico, tTargeted Industries Partnership Program (TIPP),

–, ; failure of, tariffs: EU, ; U.S., , Tarrant Apparel Group: full-package services in Mex-

ico, ; Torreón operations of, ttechnology, knitting, –Tejidos El Aguila, Tennessee (U.S.), apparel employment in, Texas (U.S.): apparel employment in, ; Levi Strauss

layoffs in, . See also El PasoTextile and Clothing Agreement (GATT), , textile industry: capital intensity in, ; in Los Angeles,

; in Mexico, foreign-trade statistics for, –,t; strategies in response to globalization, , ;strategies in response to NAFTA, , –; inTorreón, Mexico, , ; in U.S., , ; use ofterm, n

Textiles Lajat, , n Textiles Morelos, Thailand: apparel exports of, t, ; apparel exports

to Mexico, t; apparel exports to North America,t, f, ; apparel exports to U.S., t; laborcosts in, t

tianguis (informal markets), , t, , ; classstatus of customers of, , t, ; Mexicanknitwear producers and, , , ; percent shareof Mexican retail clothing sales, t; profits of,

tiendas de autoservicio (self-service outlets), , t;class status of customers of, , t; developmentof, ; expansion of, , , n ; higher pricescharged by, n ; percent share of Mexican cloth-ing sales, t

Tiendas del Sol Unimax, tiendas departamentales (department stores), , ,

t; class status of customers of, , t, ;expansion of, , , n ; percent share ofMexican retail clothing sales, t

tiendas de ropa (clothing stores), , t; class status of customers of, , t; percent share of Mexicanretail clothing sales, t; profits of,

Tijuana (Mexico), wage of garment workers in, TIPP. See Targeted Industries Partnership ProgramTlaxcala (Mexico), Southern California sourcing in, Todd Uniform, Costa Rican subsidiaries of, Tommy Hilfiger: operations in Mexico, t; VF Cor-

poration and, Tops and Bottoms, Torreón (Mexico), –; clients for, , t; denim

production in, ; dependence on U.S. market, ;employment in, ; full-package production in, ,f, –; future of, , ; growth of apparelindustry in, –; implications for the rest of Mex-ico, –; improved working conditions in, –;interfirm networks in, , ; linkages with U.S.firms, ; local capital and knowledge in develop-ment of, –; low educational requirements in,; methodology of research on, –; NAFTAand, –, f, –; peso devaluation and,–; pre-NAFTA maquiladora production net-works in, –, f; success of, reasons for, ;textile manufacturers in, , ; transition to full-

package production, –; wages in, ; workermigration from, ; Wrangler in,

Torreón/Gómez Palacio region (Mexico): attractivenessof, ; linkages with El Paso–Ciudad Juárez region,; rural communities in, relocation of productionto, , n ; and U.S. market,

Torres, José Manuel, total quality management, n , Trachte, Kent, Trade Adjustment Assistance (TAA), , n ,

n Trade and Development Act of (U.S.), , ,

n , –. See also Caribbean Basin Trade Part-nership Act ()

training: Chinatown contractors and, ; of core con-tractors, ; lead firms and, ; post-NAFTA pro-grams,

transnational migrant networks, –transportation, cost of doing business in Mexico, ,

n triangle manufacturing, in Asia, Triangle Shirtwaist Factory fire (), , Tropical Sportswear: Costa Rican subsidiaries of, ;

Torreón operations of, ttruck robberies, in Mexico, n tsekouzisma, T-shirts, printed, Mexican market for, t, Tulancingo (Mexico), knitwear production in, Tunisia, apparel exports of, t, Turkey: apparel exports of, , t, ; apparel exports

to North America, t; labor costs in, tturn time, n ; and sourcing locations, choice of,

UN-ECLAC. See United Nations Economic Commis-sion for Latin America and the Caribbean

unemployment: in El Paso, Texas, ; in Mexico, mid-s,

Union of Needletraders, Industrial, and TextileEmployees (UNITE), ; campaigns for legal andethical change, ; creation of, , –; on defi-nition of sweatshops, ; Fair Labor Associationand, ; Guess? campaign and, ; and LeviStrauss, ; members in Southern California, ;strategies in response to global/flexible production,–

unions. See labor unionsUNITE. See Union of Needletraders, Industrial, and

Textile EmployeesUnited Kingdom: apparel imports and, ; economic

growth of, , fUnited Nations Economic Commission for Latin Amer-

ica and the Caribbean (UN-ECLAC), ; Trade-CAN computer program of, n

United Parcel Service (UPS) strike, United States: age structure of population of, ;

apparel employment in, shifts in, , t, –; apparelexports of, t, ; apparel exports to Mexico, ,, t; apparel imports in, , , t–t, ,t; corporate strategies in, post-NAFTA, –;Costa Rican dispute with, , ; economic growthof, , f; government policies, and apparel indus-try shifts, , –; investments in Dominican EPZs,, t; job losses in, , –, n , ; laborcosts in, t; major cities with apparel production

in, t; Mexican apparel exports to, , , t, ,, , ; and Mexico (see U.S.-Mexico relations);production sharing in, , ; protectionism of, ,, ; quotas in, , ; textile industry in, , ;trade policy of, ; upgrading in, –. See alsospecific cities and states

United States Against Sweatshops, United States International Trade Commission, ,

University Students Against Sweatshops (USAS), ,

; oversight institution created by, upgrading, industrial: bootstrapping strategy for,

–, –; through consultants, –, ;credit problems as barrier to, –; governmentprograms and, –; learning process in, –;public awareness of need for,

UPS strike, Uriangato (Mexico): embroidery machines in, ; in-

formal markets in, ; knitwear producers in, tUruguay, apparel exports to Mexico, tUruguay round of GATT, , n ; achievements

for developing countries, USAS. See University Students Against SweatshopsU.S. Department of Labor (DOL): California garment-

industry survey, ; compliance monitoring by, ;Wage and Hours Division, , , , , f

U.S. legislation, “calls” in, , U.S.-Mexico relations: immigration policy and, –;

learning process in linkages between, –; produc-tion networks between, ; transborder linkages in,, ; transnational migrant networks between,–

Vanity Fair, Vassarette, Vazquez, Cristina, VF Corporation, –, n ; El Paso operations of,

, ; Kaltex and, ; offshore production of, Vietnam: apparel exports of, t; labor costs in, t;

and triangle manufacturing, Villa Hidalgo (Mexico): informal markets in, ; knit-

wear producers in, t; producer consortium of,–,

Villaraigosa, Antonio, Virginia (U.S.), textile employment in, Visser, Evert-Jan, VITRO, , n voluntary compliance monitoring, , n

wage(s): in border vs. interior regions of Mexico, ; inEl Paso, ; and international trade shifts, ; living,concept of, ; of Mexican immigrants in U.S., ;

in Mexico, –, , , n , ; of PuertoRican sewing operators, –; in Torreón (Mexico),; in U.S., impact of NAFTA on, ; of U.S. apparelworkers,

Wage and Hours Division (U.S. Department of Labor),, , ; declining capacity of, , f

Wakefield, Dan, , Waldinger, Roger, , , , , Wallerstein, Immanuel, n Wal-Mart, , n ; joint venture with Cifra group,

n ; stores in Mexico, , t, Warnaco, Costa Rican subsidiaries of, Warner Brothers, Avante Textil and, welfare state, attack on, Western Europe: apparel exports to, f, ; upgrad-

ing in, –. See also specific countriesWilson, Fiona, n Wilson (brand), The Woman Worker (La Mujer Obrera), n women: in offshore production, ; vulnerability to

sweatshop conditions, women’s wear industry: in California, ; contracting

out in, ; in El Paso, ; large manufacturers in,emergence of, ; in Los Angeles, , ; in NewYork City, ; specialization in,

Wong, Linda, , , Workers Rights Consortium (WRC), , , working-class movement, global, World Bank: on Dominican Republic, ; movement

targeting, –World Trade Organization (WTO): Agreement on

Textiles and Clothing (ATC), n , , –;China’s admission into, controversy about, ; CostaRican dispute with U.S., , ; criticism of,–, ; and global/flexible production, ;Seattle meeting of (), protests surrounding,

Wrangler, , , n ; El Paso operations of, ,, , , n ; operations in Mexico, ;Torreón operations of, t, , ; working con-ditions in,

WRC. See Workers Rights ConsortiumWTO. See World Trade Organization

yarn-forward rule, NAFTA, ; exceptions to, n Young, David, , Yucatán (Mexico), sourcing in, , –

Zapata, Emiliano, Zapatista uprising (Mexico), Zedillo, Ernesto, ; Guilford Mills and, Zhou, Min, Zwezerijnen, Cor, ,