The Information-Integrated Channel: A Study of the U.S. Apparel Industry in Transition

Abstract

Many U.S. manufacturers face intense competition from foreign competitors. Frequently, foreign competitors have much lower labor costs than U.S. manufacturers. To compete, U.S. manufacturers often try to keep ahead technologically through investments in capital. The U.S. apparel industry is used as an example of a U.S. manufacturing industry hurt by cheap foreign labor and price competition. The authors argue that technological and organizational changes in the apparel industry are rapidly transforming firms and the nature of competition. To understand how industry competition is likely to evolve, one must understand these changes. The authors base their study on an extensive field study, gathering sales, technology, inventory method, and supplier and retailer data from eighty-four apparel manufacturing companies. The data reveal that U.S. apparel firms have responded to foreign competition by increased integration to better manage costs. Central to this strategy has been the introduction of information systems that collect, process, and manage information on consumer demands and firm inventories. These systems permit apparel firms to reduce inventory costs and risks associated with shifts in consumer tastes. When domestic apparel firms can keep this information and their information systems proprietary, they gain a comparative advantage over foreign competitors. The paper begins by describing the history of competition and the structures of-apparel firms, suppliers, and retailers. The authors note that the industry has recently shifted from an arms-length vertical structure to an increasingly integrated manufacturing-retailing channel. The survey data suggest that changes in information acquisition and information technologies have facilitated many of these changes. They also find that firms that have the greatest incentive to manage inventory costs are also the most likely to make investments in information technologies and inventory control systems. Perhaps the most intriguing finding is that firms that make these investments tend to perform better than firms that do not. Although it is unclear whether this result appears because better performing firms have more funds to invest or the opposite is true, this association suggests that information technologies are important sources of competitive advantage in the apparel industry.