Cost Leadership in Apperal Industry
... Cost leadership The company works hard to achieve the lowest costs of production and distribution so that it can price lower than its competitors and win a large market share. ... Productivity improvement is a high priority for managers following the cost leadership strategy. ... Differentiation The company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in the industry. ... (Michael Porter) For this strategy to succeed, a companys product or service must be considered unique by most of the customers in its industry. ... Specialized design, a widely recognized brand, leading-edge technology, or reliable service also may serve to differentiate a service in the industry. Because customers with brand loyalty will usually spend more for what they perceive to be a superior product, the differentiation strategy can yield larger profit margins than the low-cost strategy. ... The cost-benefit relation alters because buyers demand relatively high standards of quality, service, variety or functionality even when the sales price is favourable or vice versa, suppliers have to meet additional requirements in pricing when a product is marketed differentiated. Companies operating successfully under this condition have to start out from both the cost as well as the differentiation position at the same time. ... Differentiation, cost leadership, and focus strategies , which became the precepts on which countless companies based their operations. ... While this conception became widely accepted among scholars and managers alike, empirical studies and a detailed theoretical argumentation demonstrate that competitive strategy does not necessitate choosing between cost leadership or differentiation. ... New manufacturing technologies (computer-integrated production and flexible manufacturing systems) reduce the trade-off between a wide range of variants (flexibility) and production cost (productivity). ... INTRODUCTION Approximately one-third of total industrial value added in Sri Lanka now comes from the apparel industry. The industry has also been the leading export and a leading source of new foreign investment and new jobs. ... Industry experts in Sri Lanka estimated that about 40-50% of the industry would be competitive without quotas today. ... The garment industry in Sri Lanka is nervous but is asking the right questions. The industry needs to understand more profoundly what it will have to be doing to survive after 2005 and whether it is doing the right things today to move in that direction. The beginning of 2005 will mark a dramatic change for the Sri Lankan garment industry and the countrys economy. Sri Lankan industry has benefited significantly from the Multi-fibre Agreement (hereafter MFA). ... The MFA governed trade in the textile and clothing industry and consisted of a framework of bilateral agreements or unilateral actions that established quotas limiting the amount of imports to countries whose domestic industries were facing serious damage from rapidly increasing imports. ... Or threatened to cause damage to the industry of the importing country. ... This lobby should be supplemented by a pool of world-class negotiators who would negotiate on behalf of the country regardless of the industry, Mr. ... Alignment to a strong and lucrative trading bloc would also help the local industry, he said. ... The need to provide investment incentives to foster areas such as fabric, design capabilities and information technology to enable a full service industry to develop was also highlighted by the MAS chief, who is a recognised figure in the local industry. The Sri Lankan apparel industry has been a success story primarily due to quotas under the Multi-Fibre Agreement. ... Sri Lankan apparel manufacturers cannot compete with the foreign market on cost leadership because of several factors such as Ø Cheap labour When compared to China, Bangladesh, Vietnam and Madagascar our labour cost is so high. ... Ø Cost of Production and Overheads During the last decade cost of production and overheads went higher and higher due to government bad economics and development policies. Especially the cost of power increased rapidly. ... Also the cost of fuel increased dramatically during last few years. ... As such the transport cost increased with the increase of diesel cost. The result is increased cost of all consumable items. ... Company owners had to increased the salaries of their employees due to increase of cost of living. When companies produce their power by themselves they had to spend more and more due to increase of fuel cost. The ultimate result is increase of cost of production. ... Moreover they have their own production of raw materials, which reduce the price of raw material and also the cost of transportation. ... This brings down their cost of production dramatically. So Sri Lankan apparel industry cannot compete in cost leadership! ... The possibility of such accelerated turnaround and delivery, provoked by the international labour conditions of the industry, has its effect then in the consumer markets.