the international manufacturing and sourcing pattern and

Mälardalen University Västerås SCHOOL OF BUSINESS MIMA �International Marketing 2006-05-31 Master Thesis EX0110 Supervisor: Carl G. thunman Tutor: Claes Jonsson Group: 1238

The international manufacturing and sourcing pattern and practices of Swedish garment industry

Authors:

Muhammad Takbeer Hossain

Wajih Ullah Khattak

Fozia Bibi

ABSTRACT Program Course

International Marketing Master Thesis

Authors

Wajih Ullah Khattak Mohammad Takbeer Hossain Fozia Bibi

[email protected] [email protected] [email protected]

+46704777241 +46704778477 +46735552088

Title: �The international manufacturing and sourcing pattern and practices of Swedish

garment industry�

Problem: This paper is to investigate �Why�, �Where� and �How� the companies are sourcing

and dealing with their international clients.

Purpose: This research paper is aimed to examine and to see how the international

manufacturing and sourcing strategies are used by the Swedish clothing companies and

recommend the new companies how to adopt them in order to get benefit from it.

Method: After a lot of discussion and meetings with our tutor we decided to make a research

about the international manufacturing and outsourcing and the reasons for outsourcing. In the

beginning a market survey was done by roaming around the market and asking questions at

the retail stores, and then we selected some leading companies about which secondary data

and previous studies were done while we gathered the rest of the information directly from

them which were not covered by the previous studies. When the final selection was done

about the companies, information from secondary resources was gathered and some of the

employees were contacted in order to get the information which was not available in

secondary data. After getting the information from the companies, we tried to analyze the

information according to the model.

Usability: This thesis is useful for people who want to know about how the companies make

the international manufacturing and sourcing strategy and also for the companies which want

to review their international manufacturing and sourcing process.

Conclusions: The study of the Swedish garment sector revealed that the primary motive of

companies going abroad is to achieve cost effectiveness and availability of low priced and

good quality raw material, therefore most of the companies before globalization started

business in Hong Kong, Portugal, Turkey, Italy and the Baltic States but after globalization

most of the production is going towards Far East due to much cheaper labor and high quality

raw material. The supply strategy differs among the companies and their business culture,

therefore almost three ways are found; firstly by those companies which acquire their own

brand are investing in foreign market and have overseas offices, secondly some companies

which are running different brands are dealing with independent suppliers and different

producers, the third way of doing business we found in those companies, which don�t have

their own brand and keep different type of brands and are targeting variety seeking customers,

they are dealing mostly with agents abroad and few importers within Sweden and rarely give

big orders to suppliers.

Acknowledgement Completing this master thesis on time seemed impossible most of the times, we are really

thankful to �Allah� who blessed us with giving us the courage and motivation to complete the

task on time. Many people have been involved in helping us complete this master thesis and

we would like to thank all of them for their kind help and support. We specially thank our

tutor �Claes Jonsson� who helped us in all the difficult times. We would also like to thank the

following people who took part in our thesis, and without their contribution and support we

could not have achieved the results; our family, friends, and parents for giving us moral

support. Our teachers Tobias Eltebrandt, Charlotta Edlund and Carl Thunman for teaching us

throughout the program and making us work on the master thesis. The employees of the

companies, who responded, helped us in getting the information and giving us some overview

of the market. The opposition group whose creative criticism gave this thesis a good structure.

Without the help of these people we wouldn�t have succeeded in completing the thesis how it

is now.

Västerås, Wednesday, 31 May 2006

Muhammad Takbeer Hossain

Wajih Ullah Khattak

Fozia Bibi

Table of contents

Introduction:_______________________________________________________________ 1 Back ground___________________________________________________________________ 1 Problem ______________________________________________________________________ 2 Purpose_______________________________________________________________________ 2 Usability ______________________________________________________________________ 2 Disposition ____________________________________________________________________ 3

Literature review____________________________________________________________ 4 Outsourcing ___________________________________________________________________ 6 International manufacturing strategy: _____________________________________________ 9 Global Sourcing_______________________________________________________________ 10

Feasibility _________________________________________________________________________ 12 Vendor Selection ____________________________________________________________________ 12 Planning___________________________________________________________________________ 12 Transition__________________________________________________________________________ 12 Operations _________________________________________________________________________ 12 Why ______________________________________________________________________________ 13 Where ____________________________________________________________________________ 14 How ______________________________________________________________________________ 14

Supply strategies ______________________________________________________________ 15 Make or buy decisions________________________________________________________________ 15 Supply base alternatives ______________________________________________________________ 15 Low-cost sourcing ___________________________________________________________________ 16

Theoretical Framework _____________________________________________________ 17 WHY________________________________________________________________________ 18 Where _______________________________________________________________________ 19 How_________________________________________________________________________ 21

Methodology ______________________________________________________________ 23 Study Design:_________________________________________________________________ 25 Interviews____________________________________________________________________ 25

Interviewee selection _________________________________________________________________ 26 Validity and reliability________________________________________________________________ 26

Survey_______________________________________________________________________ 26 Selection __________________________________________________________________________ 26

Empirical Findings_________________________________________________________ 27 Market condition: Comparison to European market ________________________________ 27

Availability of local resources and capabilities: ____________________________________________ 28 Tariff Barriers and Government facilitations_______________________________________________ 30 Delivery Time and Logistics Cost _______________________________________________________ 30

Market Condition: Swedish clothing Industry______________________________________ 30 Availability of local resources and capabilities _____________________________________________ 32 Delivery Time and Logistics Cost _______________________________________________________ 32 Labor cost _________________________________________________________________________ 34

Exports and imports condition: _________________________________________________________ 35 Local market Västerås ________________________________________________________________ 36

Swedish market: examples of leading companies____________________________________ 37 H & M (Hennes & Mauritz) AB ________________________________________________________ 38 KappAhl AB _______________________________________________________________________ 40 JC AB ____________________________________________________________________________ 41

Analysis__________________________________________________________________ 46 Overall Market _______________________________________________________________ 46

European market ____________________________________________________________________ 46 Swedish market _____________________________________________________________________ 46

Why ________________________________________________________________________ 46 Where _______________________________________________________________________ 47 How_________________________________________________________________________ 47

Conclusion _______________________________________________________________ 49

Recommendations _________________________________________________________ 50 References________________________________________________________________ 52

Interviews____________________________________________________________________ 61 Appendix 1 _______________________________________________________________ 62

Questionnaire for survey _______________________________________________________ 62 Replies to survey ___________________________________________________________ 64 Appendix 2 _______________________________________________________________ 69

Questionnaire for Interview through E mail and face to face__________________________ 69 Company Name: ____________________________________________________________________ 70 Answered by:_______________________________________________________________________ 70 Employee designation: _______________________________________________________________ 70 Date of reply:_______________________________________________________________________ 70

Replies to Executive questionnaire _______________________________________________ 72 Company Name: JC AB (head office Gothenburg)__________________________________________ 72 Answered by: Niklas Odequist _________________________________________________________ 72 Employee designation: Production Director _______________________________________________ 72 Company Name: H&M (head office Stockholm) ___________________________________________ 74 Answered by: Per Lundin _____________________________________________________________ 74 Employee designation: H&M Production Dept_____________________________________________ 74 Company Name: KappAhl AB (head office Gothenburg)_____________________________________ 74 Answered by: Lena Bengtsson _________________________________________________________ 74 Employee designation: manager Supply & Sourcing ________________________________________ 74 Company Name: Rock Zone (Västerås) __________________________________________________ 76 Answered by: Mazhar Shah____________________________________________________________ 76 Employee designation: Manager ________________________________________________________ 76 Company Name: Budo& Fitness (Västerås) _______________________________________________ 78 Answered by: Camilla ________________________________________________________________ 78 Employee designation:: Company s owner ________________________________________________ 78 Company Name: Jeans 22: an (Västerås) _________________________________________________ 80 Answered by: Thomas Hndersson_______________________________________________________ 80 Employee designation: Company s owner_________________________________________________ 80

Table of Figures Figure 1................................................................................................................................17 Figure 2................................................................................................................................25 Figure 3................................................................................................................................29 Figure 4................................................................................................................................30 Figure 5................................................................................................................................32 Figure 6................................................................................................................................33 Figure 7................................................................................................................................33 Figure 8................................................................................................................................34 Figure 9................................................................................................................................35 Figure 11 ..............................................................................................................................36

Introduction: The objective of this research paper is to investigate international manufacturing and

outsourcing strategies of Swedish clothing industry. We hope that the results of this study

would help the Swedish companies to embark on international business. We will analyze the

global sourcing strategies of the Swedish clothing retailers with their current suppliers in

order to understand how they became international and the factors that lead to this change.

Global sourcing involves setting up production operations in different countries to serve

various markets, for buying and assembling components, parts or finished products worldwide

(Kotabe and Murray 1990; Kotabe and Omura 1989; Moxon 1975). Outsourcing is defined as

the procurement of products or services from sources that are external to the organization

(William M. Lankford 1999, Faramarz Parsa1999). Corporate outsourcing has been

interesting for both academic and practitioners. Many companies realized that the peripheral

functions such as cleaning, transport and facilities management is not one of their core

competences and this can be easily and economically contracted out to different companies.

In recent years it has been done to extreme e.g. outsourcing the HR department and

manufacturing departments as well. Companies have realized their added value is in fewer

firms such as designing and marketing whereas the other functions are inefficient, cost-raising

complexity, which is reducing market competitiveness (Andy Winterton).

Where the companies of today have a lot of opportunities to outsource still they need to have

some guideline about the decisions. As a part of the company�s strategic development, the

decision of international manufacturing and outsourcing needs to consider different factors,

including conditions to the final product market, facility, cost, expertise and supply market

condition.

Back ground

Studying the international manufacturing and sourcing side of the clothing industry is of

prime interest and importance for several reasons. This industry has always been immaculate

at making the best out of the opportunities offered by global trade, even while dealing with

the more serious and challenging issues concerning this business. As fashion continues to

change seasonally, it further shortens the already short product life cycle. Companies have to

think twice before outsourcing their production facilities or creating relationships with

suppliers (Datamonitor, Menswear in Sweden Industry Profile).

As mentioned earlier, the importance and the opportunities that companies find in outsourcing

and exploiting the offers made by global trade, its becoming necessary for companies to think

twice about their supply strategies. Global sourcing and Organizational Relationship are

intertwined unfasten-ably, and affects each to an appreciable degree when some decision is

made in a sector.

This paper will focus on some of the market leaders how they are sourcing, and which

strategies are they using in global sourcing, and does it affect their supplier relationship in any

way. In order to arrive at appropriate conclusions, we ought to ask a few pertinent questions.

First of all we need to know how the Swedish companies are evaluating their suppliers.

Secondly we want to know how the companies are dealing with the supplier, regarding the

issues of labor employed at the production facilities. This is very vital and hard to neglect

before making a sourcing decision. This paper will also provide the information about the

significance of international purchasing.

Problem

This paper is to investigate �Why�, �Where� and �How� the companies are having international

manufacturing and sourcing strategies in Swedish garment sector.

Purpose

This research paper is aimed to examine and to see how the international manufacturing and

sourcing strategies are used by the Swedish clothing companies and recommend the new

companies how to adopt them in order to get benefit from it.

The main purpose and the side purposes set an agenda for the thesis, which can be

summarized as follow:

• To find the country and company specific factors that influenced the

internationalization of the firm in order to understand the �WHY�.

• To find different types of applied sourcing strategies

• Which countries were their first choices and did globalization affect the choice

• To find out the problems related with international manufacturing and sourcing

• To recommend the new companies how to apply the global sourcing strategy.

Usability

This paper will be help to the companies which are not international at the moment and desire

expanding their business through international manufacturing and sourcing. It will help them

understand how other companies started international sourcing and manufacturing, what

criteria they took into consideration while choosing to make/buy from abroad and how it

affected their business. This paper can also be used by the producers of Far East countries to

understand what the company look for in producers.

Disposition

This master thesis is the study of �International manufacturing and sourcing pattern and

practices of Swedish Garment industry�. The research paper is structured in the following

way. The paper starts with the �Introduction� chapter which deals with the background of the

study, problem statement, purpose and the usability of this research. After the introduction

part in the �Literature Review� the concepts and the earlier studies about the related problem

are stated in order to have a clear idea about what kind of tools can be used to analyze such

problem. After stating the literature, about the specific problem, in the �Theoretical

framework� we go much deeper into that selected areas and select the most appropriate theory

with a model already have been used by other scholars in order to understand the international

manufacturing and sourcing strategies in the garment industry with some addition from

sourcing theories. When all the concepts have been explained we include another chapter

�Methodology� where the way of how the research paper was carried out and which means

were used to collect the information required. Following the theoretical framework and the

model, we include facts and figures with the heading of �Empirical findings�; examples of the

garment industry as a whole in EU, the overall market structure of Sweden and leading

companies� information is given which is further analyzed by the preceding chapter called

�Analysis� according to the specified model. In the end, separate chapter are made which are

done through the addition and analysis of all related chapter to draw some �Conclusion�. In

the end of the report, some samples of questionnaires and answers that contributed to this

research paper are given in the �Appendix�.

Literature review There are three areas that are directly related to our purpose. The three areas can namely be;

the garment retailers of Sweden, their international manufacturing and sourcing strategies.

The first area will provide us with the specific information about the clothing industry

whereas the other two will help us in analyzing and exploring the theoretical ideas and explain

the models with relevant data. Other three areas which will support the thesis and its purpose

academically are; Outsourcing, Global Outsourcing and International Manufacturing.

The companies that are vertically integrated and doing their business in different departments

might be seen as a result of particular industrial context. In the past, given the absence of

developed external markets, organizations (out of necessity) sourced a wide range of upstream

and downstream activities in-house (chandler, 1962). Later, in the wake of globalization,

companies began to outsource their production facilities. This became a big challenge for the

vertically integrated companies. This gave rise to the notion that any part of the value chain

could be outsourced.

Global outsourcing is the tactical use of external resources to perform activities that are

usually handled by in-house employees and capital. It is a executive strategy by which a

company delegates main, non-core functions to expert and professional service providers, or

as Corbett, a top consultant on global outsourcing says, �outsourcing is nothing less than the

wholesale restructuring of the corporation around core competencies and outside

relationships� (Corbett, 1999).

As outsourcing is a rapidly growing part of the today�s business, surveys concluded different

results of its effects on business. A report was generated by the Shreeveport Management

Consultancy (1997) which was based on 500 of UK�s private and public sector organizations.

In that survey, 88% of the respondents reported to believe that their business was running

smoothly before they outsourced it. The survey also found out that after outsourcing more

than half of the companies were achieving more profit than before. Another survey which was

done by Lonsdale (1999) concluded that most of the managers were dissatisfied with the

results of outsourcing. After reading what these surveys concluded, it is easy to say that

outsourcing benefits the company in financial terms but somehow for the managers it gets

difficult to control the process which results in dissatisfaction.

In principle outsourcing can provide access to �best in the world� for particular activities or

components (Quinn et al., 1999). With outsourcing a company is unbounded to the limitation

of their own production in meeting the change in demand capacity. The potential for

improved flexibility is not only beneficial for the volume of output but also enable the

organization to change its product line according to the demand in market. In the business of

garments Richardson (1996) explains how rapid information exchange, rather than ownership

of various stages of production, enables the company to respond to the short life cycle and the

changes in trend. Most of the authors (Ozanne & Marg, 1997) (Csoka, L.S., & Hackett, R.

1998) (Brown, Stephen M., Harkins, Philip J., Sullivan, Russell, 1995) (Bassi, Laurie J.,

Benson, George, S., Van Buren, Mark E., & Bugarin, Rosio, 1997) also stated that

outsourcing makes the company focus those areas where they are the best and enables them to

respond to the rapid changes in the market. Studying the supply strategies of different

industries, it is clear that the motor industry and clothing industry have general development

towards the outside supply (Van Hoek, 1999), firms within industry (Blumberg, 1998), and

product characteristics (Fisher, 1997). Company�s sourcing strategy depends upon their own

approach to develop competitiveness and its business culture.

A company needs to be consistent with competitive environment and the development of

competitive advantage (Quinn and Hilmer, 1994; Harrigan, 1986). The short term proposition

of the sourcing strategy can be analyzed by using Porter�s (1980) model of industry analysis.

Within the resource based observation of the firm, resource and capabilities are seen as the

basis for the firm�s long term strategy and profit (Grant, 1991). The core activities of a

business are essential parts of its capability, the set of business processes that consistently

provide superior value (Stalk et al., 1992).

The conventional international outsourcing emphasize on planned benefits like cost reduction,

cheaper labor cost in low-cost countries have more recently been replaced by productivity,

flexibility, speed and innovation in developing business applications, and access to new

technologies and skills (Wild et al., 1999).

The market for providers of outsourced services of all types is growing rapidly. In 1996,

American firms spent over $100 billion in outsourced business activities. Globally,

outsourcing usage grew by 35 per cent in 1997 and the total market for outsourced services is

expected to increase to $200 billion by the year 2000 (Buss, 1995; Corbett; 1996; Jones, 1997;

Greer et al., 1999).

The trend is for global outsourcing relationships to function more and more as partnerships.

Outsourcing providers are taking increasing responsibility in realms that have traditionally

remained in-house, such as corporate strategy, information management, business investment,

and internal quality initiatives (Sinderman, 1995). Byrne (1996) reported that activities most

frequently outsourced are manufacturing (40 per cent), and transportation and distribution (30

per cent). A survey of US CEO�s shows that 42 per cent of communication firms, 40 per cent

of computer manufactures, and 37 per cent of semiconductor companies rely on global

outsourcing (Fullar and Millar, 1995; Malhorta, 1997). The reason for high number of

communications that is outsourced is partly due to the lack of communication experts. Most

companies can not afford to hire a communication expert full time, so they outsource this

duty. Payroll, inventory, communication systems, and database functions are just a few of the

many areas that can be outsourced effectively. In another survey conducted by Duncan and

Groves-Rowan (1997), more than 65 per cent of banks surveyed indicated that they were

already involved in at least one type of outsourcing function. ``The five most commonly used

outsourcing functions were taxes, bankruptcy/foreclosures, systems, cashiering, and

insurance'' (Jennings, 1996). Personnel expenses were the primary reason behind banking

outsourcing. However, it also improves operating efficiency and reduces service costs.

How is successful global outsourcing performed? Literature identifies high level approaches

to global outsourcing (Heywood, 1994; Jennings, 1996; Casale and Overton, 1997; Bender,

1999; Corbett, 1999), but not detailed methodologies. Furthermore, there is little statistical

research demonstrating effective global outsourcing tools, methods and outcomes (Kleppes

and Jones, 1999). Additionally, while consultants identify the success of their approach, they

do not identify the failures or problems of their approach as readily (Crowley, 1999). On the

other hand, Lau and Hurley (1997) find a significant relationship between global outsourcing

and profitability margin where they found that Chrysler's profit margin is four times as high

as that of GM due to effective global outsourcing through strategic alliances.

Outsourcing Outsourcing is a corporate process, having main motive as cost reduction because most of the

firms prefer the suppliers that have low production cost. Most of the companies that are

running their business smoothly and successfully know the importance of outsourcing. They

believe that outsourcing is a tool to drive their business independently along the cost reducing

mechanism. A lot of experiments show that high performance can be achieved through

outsourcing (outsourcing, Acceture consultancy, 1996 - 2006).

There are many advantages of outsourcing that actually depends on the arrangement and

location of organization. There are many reasons of why to outsource; One of the most

important and considerable issue is availing low cost and the reason behind this is the

economy of scale. Most of the companies have core functions, through outsourcing a

company can only focus on these core functions whereas outsourcing the not so profitable

functions to supplier which can work more efficiently on those functions. From the supplier

point of view, benefits become special in terms of better security. In the out sourcing supplier

are focusing on these functions to improve the quality of service (The outsourcing

management Zone).

Some of the business processes are non core functions. Outsourcing gives the opportunity in

regarding the business through the network of supplier and also can gain the access in the

market. In the business processes some costs are fixed outsourcing give the possibility to turn

fixed costs into variable costs according to the condition of business.

Most of the American workers are against of outsourcing reasoning as they are eliminating

the jobs in the domestic market, lowering the salary, hurting the nation�s economy.

According to most of the American company�s point of view outsourcing is very good

process and very smart strategy for the business because it�s good for the nation�s economy.

According to the corporate executive point of view outsourcing is giving benefits to the

American consumer through reducing the cost of services and goods in some of the

companies along with the lower cost, increase profits and stay competitive in other

companies. According to Some economist point of view outsourcing is giving the advantages

to the American companies as it increase the economic efficiency through concentrating on

those core functions where they are good at, whereas outsource the rest functions to other

countries and workers which they can do efficiently . According to some other economist pint

of view the outsourcing is weakening the American longer economy. They predicts if U.S.

Keeps on moving the software jobs to India and china then America will lose software jobs

and it will decrease the ability of American technological leadership resulting in creating jobs

and wealth(Outsourcing: How Outsourcing Developed).

Communication plays a very important role in the business strategy specially the internet;

phone calls, videoconferencing etc are helping many businesses in moving their production to

country. Fibre optics and satellites making the international calls cheaper also play a very

important role in the business process. International agreement has encouraged the

outsourcing. By the reduction of tariff and the removal of protectionist barriers it made it easy

for the countries to communicate with each other. (Outsourcing: How Outsourcing

Developed)

Operation in overseas reduced the tariffs and barriers. Some of the agreements for example

North American Free Trade Agreement (NAFTA) always support the outsourcing against the

economic threats. (Outsourcing: How Outsourcing Developed)

Out sourcing is not a new process; Firstly outsourcing is carried out by the Europeans, by

employing the local people in the Latin American countries. The theory �comparative

advantages� that was written by David Richardo (Ricardo, 1817) includes the basic of

outsourcing.

There are also some disadvantages of outsourcing. Firstly is political risk .When one company

takes a decision of outsourcing then this factor becomes very important. The second factor is

growing dependence on the third party contractors. Thirdly is difficult to innovate. (Kendra

Parker, 2006)

Actually the outsourcing is a long term phenomenon and the companies that acquire it as a

long term strategy they will be succeeded in the business process. On the other hand that

companies that do not acquire such a strategy in outsourcing regarding the business process

will not succeed. (Kendra Parker, 2006)

In the particular country where there is availability of demand and supply of available sources

the future of outsourcing will be decided through that factor

For example in the cold war all the activities regarding outsourcing were carried out from the

United States and England to Ireland and Israel. As the trend of globalization increases many

other countries participates like China, India Russia, Philippines and South Africa.

China is known as the leader in manufacturing part while in the information technology India

is name firstly considered. (Kendra Parker, 2006)

Outsourcing is not a simple process the introductory part of outsourcing includes complexity,

increased cost and friction in the value chain. All of theses require that the management have

to pay fully attention to that part. Some authors call it as an extraordinary complex process.

Cost savings versus growth, speed versus quality of service delivery, and maintaining

organizational cohesion versus knowledge and innovation are the necessary part of

outsourcing in term of complex serious trade offs (Arvind Singhatiya, 28 October, 2005).

Everybody wants a perfect work in the shortest possible time and without very hard work.

What�s the possibility? The answer lies in outsourcing. Through outsourcing it�s possible.

Outsourcing saves time and money. (Maynard, Wendy. (2005, June 30).

In today s world all the large and small companies are carrying out outsourcing. All kinds of

business can be beneficial from outsourcing. The businesses that are running very smoothly

in regarding the outsourcing process are very well know about the importance of outsourcing

in their organization .For carrying out business process its very important to know how can

they manage the business process. The task includes how to mange the business process,

how to agree on the payment, time, terms and how the desired results can be gain. Small and

large firms both have to pay attention to outsourcing in order to gain leading positions in the

business world. (Thompson, Jack. (2004, December 22).

International manufacturing strategy: The firms in the global competition level are also assuming international configurations in

order to act according to different activities. Now days this kind of trend is acquiring lots of

firms including small and medium. For both mangers and researchers the internationalization

manufacturing strategies shows that why to follow global strategy, where and how. These

kinds of decisions are in questions, lots of research has been done in relevance to the

questions. In industries, especially in the clothing sector during the last decades with the

strong incidence of labour cost and few opportunities become the factors in downsizing the

employment in all the advanced countries. The manufacturing internationalization is new

process which just in recent has became worth noticing (Ettore Bolisani, Enrico Scarso

(November, 1996).

A strategic decision for the company is very important because it�s affecting the whole

business. A strategy that is acquired by the company is the way to survive in the business

field. Anders Pehrsson believes this when it�s happened in the field of strategic Management

and many authors agree with him (Pehrsson, Anders).

Manufacturing strategy is like a concept and it has been evolved from the last 30 years. But

about the clarification of manufacturing strategy there are different arguments and different

concepts that lead to the decreased clarification of manufacturing strategy. In the simplest

form of manufacturing strategy it�s necessary for the firms to compare its manufacturing

capabilities. The competitive dimensions of manufacturing include cost, quality,

dependability and flexibility. According to the T.J Hill (1993) the price, quality delivery,

product design and variety can be included in the category of order winning criteria. Most of

the writers in the manufacturing strategies has developed these criteria and agree with the T.J

Hill (1993). But T.J Hill (1993) is not in the favour of just these criteria he also prefers other

criterion�s as well (C.A. Voss 1995).

Cost leadership , differentiation and focus are the porter generic strategies and it can

considered as business priorities in the manufacturing choice and management .At the same

time Stobaugh and Telesio developed three empirically groups; Cost, Technology and market

driven strategies (C.A. Voss 1995).

The strategic choice in manufacturing strategy is also an important area. The key choices

areas in the manufacturing strategy according to the skinner are plant and equipment,

production planning and control, labour and stuffing, product design and engineering and

organization and management (C.A. Voss 1995).

The climate change is a global challenge and needs global solution. So that it is necessary to

have an international agreement that can be applied to all the major countries. The agreement

is known as international strategy (Claussen Eileen, President Pew centre on global climate

change).

Global Sourcing There are two types of sourcing; Firstly, when a firm buys something in the domestic level it�s

called domestic out sourcing secondly, when a firm buys from abroad then it is called foreign

outsourcing i.e. foreign direct investment (FDI), joint ventures and acquisition. For example

Intel Corporation producing Microchips in wholly own subsidiaries in China, Costa Rica,

Malaysia and the Philippines. Nike gives the example of arms length import strategy and most

of the independent producers in Thailand, Indonesia, Cambodia and Vietnam (Pol Antras,

Elhanan Helpman, 2004).

There is an example of the Barbie doll about Mattel�s Global sourcing strategy given by citing

Tempest (1996), Feenstra (1998)

�Of the $2 export value for the dolls when they leave Hong Kong for the United States,� he

writes, �about35 cents covers Chinese labor, 65 cents covers the cost of materials [which are

imported from Taiwan, Japan, and the United States], and the remainder covers

transportation and overhead, including profits earned in Hong Kong� (p. 36).

World trade organization (1998) provides an example about the manufacturing of an

American car, �30 percent of the car value originates in Korea, 17.5 percent in Japan, 7.5

percent Germany, 4 percent in Taiwan and Singapore, 2.5 percent in the United Kingdom,

and 1.5 percent in Ireland and Barbados.� (Pol Antras, Elhanan Helpman, 2004).

From the study by Meltiz (2003), Helpman and Yeaple (2004) it has been shown that the

firms that have low productivity serve only the domestic market on the other hand the firms

that have the high productivity also serve foreign markets.

In the Japanese�s industries by Tomiyra (2005b) it has been found that that the firms that are

the most productive level out source internationally but that the firms in the less productive

level outsource domestically. It has been also fond by Tomiura (2005b) that the firms that are

in high productivity level prefer FDI, the firms that are in medium productivity level prefer

international outsourcing and the firms that are in low productivity level prefer domestic out

sourcing (Galina A. Schwartz May 9, 2006).

From the literature study, about global telecommunication network, internet and

communication technologies (ICT) it has been shown that the global sourcing is the

reallocation of business process which includes production and services to the lower cost

location, which may be in the foreign country. Actually the business process or services is

most newer phenomenon of outsourcing and from the outsourcing as the work moves through

out the world to find the lowest cost supplier that�s why outsourcing is affecting the benefits

of millions. In the global sourcing through the ICT it�s easy to search the costs for labour and

makes it possible for the workers in one country to work for the firms outside the country

(Harbhajan, Kehal S. Editor).

10% to 35% cost can be reduced by the global sourcing in US companies. It is the reason why

outsourcing and off shoring is so attractive (Tim Minahan special to CIO search.com).

Tradeoffs of cost, performance and risk should be balance concerning the sourcing decisions.

The variability of non pricing including some of the factors such as cross-border freight and

handling fees, complex inventory stocking & handling requirements, multitude of

documentation and regulatory compliance requirements becomes very special when some one

is deciding to outsource globally. The six most important factors regarding the global

sourcing are: Material cost, Transportation cost, inventory carrying cost, cross border taxes,

tariffs & duty costs, supply & operational performance, supply and operational risks. For a

supplier to understand these factors it�s necessary to have a better knowledge of trade

regulations and geographical landscape. Some variables give the attributes for global sourcing

some of those variables has the resemblance with the supplier management (Tim Minahan).

The purpose of global sourcing methodology should provide a framework that can help in

trouble free outsourcing. The frame work comprises the clear management structure. For the

success of an organization global sourcing methodology is necessary. It is the starting point of

global sourcing effort. A well established methodology provides the basic understanding for

the initial part of global sourcing. For the development of global sourcing methodology there

are variant numbers of methods. But some of those are most important which are: Feasibility,

Vendor Selection, Planning, Transition and Operations (Forbath Theodore, 2006).

Feasibility This phase is carried out with strategic vendors in order to assessing global sourcing readiness

so they can lend their expertise. When there is need to analyzed feasibility then it should be

analyzed in both an annual and as needed bases (Forbath Theodore, 2006).

Vendor Selection The next step is vendor, when it has been known that specific business and technical process

is suitable for the model. According to this phase global sourcing project management team

should work together in the searching of vendor that has power in some process including

process that are candidates for outsourcing. Single vendor bidding process and competitive

bidding process should consider. It�s the responsibility of global sourcing PMO (Project

management organization) to develop tools through which project team can determine which

process is suitable (Forbath Theodore, 2006).

Planning For a successful transition from the onshore to the offshore model or the operating

environment planning phase lays the ground work. In this stage the organization and vendor

work together to ensure that many phases of transition to operation are well prepared (Forbath

Theodore, 2006).

Transition The transition phase consists of that process that is defined in the planning phase. In order to

enable the desirable performance in new environment the organization and vendor should

prepare for the offshore transition and need to make adjustments to process and procedures

(Forbath Theodore, 2006).

Operations Considering the smooth transition operation phase should be �Business as usual� (Forbath

Theodore, 2006).The communication structure and management work are the key points for

the success of operation phase that are defined in the previous phases (Forbath Theodore,

2006).

For the improvement of production and for the reduction of cost, global sourcing is very well

and effective strategy. It�s identified by almost all of the organization for their success and

improvement. The origin of global sourcing firstly appears in 1970 in the U.S. companies

when some of the manufacturing companies start outsourcing their non core products in Asia

since then the trend is going on. Global sourcing has the effective value for all of the business.

Today the production is carried out from the higher cost market to the lower cost market and

this process is called global sourcing .Today the global sourcing is a key for the business

strategy in order to corporate through out the world. For some of the firm global sourcing is

considered as tool that can be use for the increment of efficiency and productivity (Global

sourcing 101 Hewitt Quarterly Asia pacific).

Why According to the Hewitt Associates survey, the primary force for the global sourcing is cost

reduction .There are some other procedures through which advantages can be gain by

adopting the global sourcing includes: Improved productivity level, increased flexibility &

speed, access to new network & customers, access to the global talent pool, acquiring

expertise and keeping up with the competition (Global sourcing 101 Hewitt Quarterly Asia

pacific).

Improved productivity level: Improved productivity level is a tool for global sourcing

strategy. There are two reasons, firstly, off shoring does not only give the permission to

company to pay attention on specific tasks and bring own efficiencies to the table, it also

gives the option to staff members by allowing them to concentrate on the core competences

and also for growing the business .

Increased flexibility and speed Off shoring gives the possibility to the companies by reduction of cycle time, expanding or

decreasing the projects on a real time basis. So that firms can achieve the tasks in a more

flexible manner and in a certain time. Dell computers, Microsoft , several airlines and most

of telecom companies are using a global sourcing by adopting a �follow-the-sun� work

pattern that engages teams in ifferent time zones, enabling them to offer a 24-hour service,

seven days a week for the satisfaction of their customers(Global sourcing 101 Hewitt

Quarterly Asia Pacific).

Access to new markets nod customers Global sourcing gives the ability to access in the emerging markets for example Asia Pacific

and Eastern Europe. Access to the global talent pool: In Asia and Eastern Europe the brightest

and highly skilled people are found. Now a days these highly skilled people are paid less as

compare to the U.S. workers. For example, in Russia an engineer with mathematics degree

will earn US, 650 per month, whereas his or her companion in the U.S. will earn US, 6000 per

month.

Acquiring expertise Global sourcing also shows the experts work. Most of the companies can gain advantages

from an improvement in the quality and value of an operation by adopting services from the

organization with best efficiency and management for specific tasks.

Keeping up with the competition Competition and the cost management are the reasons for global sourcing. Most of the

companies know if their competitors are going abroad for the low cost and highly skilled

workers then they will follow them. Today the most new technologies such as internet and

voice over IP are making this more advance and easy.

Where A large number of factors show that there is difference in the sourcing decisions. The factors

including are Geopolitical risk; Language proficiency; Location (travel, time zone); Cultural

compatibility; Government support; Labour cost advantage; Labour pool characteristics;

Infrastructure; Quality initiatives; Communications; Educational system; and Country laws.

(Global sourcing 101 Hewitt Quarterly Asia pacific)

How This is very critical phase of global sourcing that how to operate and decide a function. In this

decision is making how to develop a model in the global sourcing. Some aspects are: Captive

Processing Centres, Third-Party Providers, Joint Ventures build, Operate, and Transfer

(Global sourcing 101 Hewitt Quarterly Asia pacific).

Captive processing centre In the captive process centre business processes is carried only for their own multinational

business. During process migration, information security and others the company saves time

and money. Companies that are using captive centre are HSBC, American express and Dell.

Third party providers In this phase companies outsource their to third party .For example India based Daksh are

providing services to Amozon.com.

Joint ventures Build Operate and Transfer Through the Build, Operate and Transfer system (BOT), company enters into joint ventures

with third party service provider. Builds the centre, sets the process rolling and helps in

process migration are the key roles of third party service provider (Global sourcing 101

Hewitt Quarterly Asia pacific).

Supply strategies

This section will present a more general overview of conceptual research in sourcing

strategies. In today�s world, where everything is becoming globalized, the businesses are

impacted deeply by sourcing issues; decreased trade barriers e.g. European Union and the

development in the transportation and information technology. Gadde and Hånkansson (2003)

claim that the emergence of purchasing as a strategically important area for companies

together with more complex logistical solutions has led to the rise of supply chain

management as an important researcher and practitioner field.

The different types of strategies a company can take into consideration or are implementing

for sourcing are stated below;

Make or buy decisions

Of central importance when it comes to supply strategies is the �make-or-buy� decision about

product components or/and entire products (Gadde and Håkansson, 2003). This is a decision

which involves the opportunity cost, which decides the best option for the companies� long

run profit. All companies face problems when choosing between two options, because both of

them have their own advantages and disadvantages e.g. the option of making a product would

take time and it might make the company to perform not so good in the areas where they are

excellent and that potential can go to the areas where they are not so good. On the other hand,

if they choose to outsource, they need to manage relationship and their success will be

dependent on the performance of another company.

Supply base alternatives

From the studies companies have found that having a closer relationship with the suppliers is

beneficial for the company but it is more resource-demanding. There have been some cases

where, in order to cut costs, a company chooses one big supplier rather than buying from

several smaller ones. This allows the company in question to avail the advantage of price-

bargaining due to the economy of scale that buying a lot of material from one sole supplier

brings about (Michael Borrus, 1996).

Low-cost sourcing

Cost reduction has been the predominant motive of outsourcing (Ford et al, 1993). While

outsourcing contracts commonly target a minimum of 15% cost saving sometime 20-25%

(Lankford and Parsa, 1999) failure to achieve perceived cost reduction is a frequently

occurred aspect of outsourcing (Cross, 1999; Darling, 1999). Low cost sourcing is gaining

more and more attention now days from the people who are practicing business and the

researchers as well. Trent and Monczka (2003) claims that companies fail to benefit from

what is potentially offered by this kind of sourcing. By this they mean that most of the

companies are interested in low-cost sourcing and are trying to apply this, but still they have

lack of knowledge about how to use it in a profitable or progressive way. Trent and Monczka

(2003) develop a �world wide sourcing framework� with two types of sourcing strategies, one

is with low scale whereas the other with high scale. Low level/scale is where companies that

are involved in �international purchasing� go abroad with the primary motive of exploiting the

cheap labour and cheap cost. These companies are more focused with their primary motive

and they sometime have problems with the maintenance of the quality level, delivery

performance and also some long and costly transportation system. Most of the time these

companies also see that after calculating the total cost somehow it�s almost the same cost and

the low price advantage is gone, due to some problematic issues concerning business in these

areas and other related problems. The second type is where the companies are called �global

sourcing�. This strategy is taken into consideration not only due to the lower price advantage

but also all other related areas which can affect the business in some way. Some of these

advantages can be: similarity in the culture, high technology relatively to the other country,

easy access to potential markets from there etc.

In an industry such as clothing, where the product life cycle is very short, the demand for

shorter lead times is creating problems for the company to get the supplies from the cheap

labour countries which are mostly situated in the other end of the world. These factors are

affecting the company�s supply side very much.

Theoretical Framework This paper will focus on the market leaders of the Swedish garments market and see how they

have gone through the inward internationalization process. According to this research paper

the inward internationalization process can be explained in a way that where and how did they

started international manufacturing and outsourcing. Foreign market entry for manufacturing

and outsourcing strategy depends on a range of techniques. Firstly, the import strategy, they

will use while entering new market. Secondly, which different methods are they using to go

through that market? In the case of individual firm it�s different because they are connected to

each other in different strategy. In the interrelationship the actors have no choice to move

from the old relationships.

In the network, actors have the opportunity to access to other actors. Another option is also

including in the network that the firm has the opportunity to move towards actors and can

gain the information .Through that information they can develop their own arrangement. The

purpose is to find out more (Why? Where? How?) About the companies that went

international.

International Manufacturing and sourcing strategy Figure 1

Source: International manufacturing strategies: experiences from the clothing industry Ettore

Bolisani & Enrico Scarso, November 1996.

International manufacturing andSourcing

Why?

Where?

Motivations are: �Natural resource seeker �Market seeker �Efficiency seeker �Strategic asset seeker

How?Depends on: �Tariff barriers and government facilitations �Availability of local resources and capabilities �Delivery time and logistics �Cultural/organizational proximity

By: �Configuration of the production resources �Co-ordination mechanisms �Technological i t t

International configurationOf the operating system

WHY

According to Porter, �the rationale of a global strategy stands on the competitive advantages it

assures� (Porter, M.E.1986). Where the Swedish clothing industry is concerned, it is important

to note that the Swedish consumers became demanding and wants to buy cloths that are good

quality and medium price. The companies are trying to make themselves distinguish in the

market among the other competitors. Big parts of the market are people who are buying

clothes that are good quality with average price (Marianne Doff-Kallenius and Ms. Inge

Jense, 2006).

The main motive of international manufacturing and outsourcing can be found out in the

literature which identifies two broad types of import motives; task related and non task related

(Webster and Wind 1972). The first type explains the motives that are directly related to the

product e.g. cost reduction, quality improvement etc. The second one non-task related

explains that still humans are involved in the decision making therefore sometimes the

company might make some decisions that are not directly related to the product e.g. reciprocal

purchasing, pet project purchasing, ego enhancement and so on.

An example of non-task related motives can be explained by the report that was given by

Jackson (1981) where he found out that many of the Israeli importers in UK are importing

from Israel just to support the exporters in their country. This kind of motives for a company

can also be showing that the company is social responsive and they want to produce from

countries where the living standard is too low and there are no jobs availability, so this way

the company is helping the people of that country.

Sweden is not a country with abundance of natural resources which are used for garment

manufacturing and the labor cost is very high. Therefore most of the companies to gain

competitive advantage are going abroad for international manufacturing and outsourcing.

There are few types of behavior for which companies are going abroad, which are explained

below;

• Natural resource seeker

These kind of companies go abroad to acquire specific types of resources at a

relatively cheaper cost. In the case of Sweden, labor and natural resources are most

demanded. This is technically a requirement, or best suited for those products that do

not need special competence to produce. Such products could be formal or informal

wears that need intensive labor force. As designers, very high quality is something that

can not be achieved with this preference (Ettore Bolisani & Enrico Scarso, November

1996).

• Market seeker

Such companies are the one who wants to expand their market share by entering into

new foreign markets which are rich and demanding, but normally has not enough

domestic competition. This not only helps in keeping the costs low but also to

eliminate and understand the domestic culture and getting accepted by the local

customers (Ettore Bolisani & Enrico Scarso, November 1996).

• Efficiency seeker

These companies are those that are looking for making the optimum solution for their

business. They are not looking for one specific activity but are actually allocating the

resources where the job is done most efficiently (Ettore Bolisani & Enrico Scarso,

November 1996).

• Strategic asset seeker

These companies are expanding their business by acquiring the businesses of foreign

markets. These kinds of acquisitions can be the trade mark or the good will of a

company as well as if there are any valuable agreements in some specialized area of

managerial or technological segment (Ettore Bolisani & Enrico Scarso, November

1996).

The decision of where and how is obviously related to their long term strategies, but still the

relationship must be studies in detail as there are always a lot of options.

Where

Main factor affecting the location of production activities is the availability of nation�s

specific resources (Grant, R.M.1995). As it has been stated before about the importance of the

labor in the production of garments, therefore the companies should take the countries which

have cheap labor into consideration first.

Location also depends on trade ability issues (Handfield, R.B.1994). Location selection also

depends on many other factors mainly the social culture, legal system, political system, infra

structure of the country etc. sometime the culture plays a quite big role e.g. for many

European countries outsourcing in the Asian countries (India, Pakistan, China and

Bangladesh) is not favorable because of the cultural difference and organizational behavior

whereas in the east Europe ,where the labor cost are not the low but relatively to rest Europe

its low, its better for them to invest (Handfield, R.B.1994).

• Availability of local resources and capabilities

The availability of minerals and the ability to generate energy are the foundations of

modern technology (Ghauri and Cateora, 2005). The distribution or the availability of

natural resources are not equally endowed neither does the nations requirement for

some natural resource is common. Most of the companies when decide to go outside

of their country are focusing on the countries with the availability of local resources

and capabilities. The companies always consider host countries community service,

education sector, government rules and regulation, weather condition, transportation

and statistic information which will help company doing their business smoothly

(Ghauri and Cateora, 2005).

• Delivery time and logistics

When a company is making their product outside of their country they always try to

fix their production, delivery time and logistics. This will make the company

competitive in the global market. Excellent service, high quality goods and time of

delivery helps the company and garments manufactures to rapidly scram their products

after which the specific delivery time and logistics will reduce product cost and save

time (Verghese Paul, Nirma Institute of Technology, Ahmedabad).

• Tariff barriers and government facilitations

To encourage the domestic industry and protect the existing industry, government may

establish such barriers to trade as tariff, quotas, boycotts, monetary barriers, non-tariff

barriers and market barriers (Ghauri and Cateora, 2005). Tariff, which are taxes on

imports of commodities into country region, are among the oldest forms of

government intervention in economic activity .They are implemented for two clear

economics purposes. Firstly, they provide revenue for the government. Secondly, they

improve economic returns to firms and suppliers of resources to domestic industry that

face competition from regional imports (Michael J. Ferrantino, 2003). Most probably

host countries protect domestic economy, that�s why government provide barriers and

tax, which will affect foreign company from entering their market. Some of the

countries provide facilitation to the foreign companies to enter their market.

There are also some activity dependent relationships that may be positive or negative.

Activity dependent relationships are more important as compared to the strong

personal interrelationships. Interrelationships can be for long periods and during those

periods actors can know each other very well and can build up that relationship in the

form of trust. Trust will give the power of that business relationship by promoting the

actor�s dependences with in the network .In the business relationship interdependences

plays an important role and with the strong of this relation it becomes a high barriers

to entry to new comers. New comers will find it difficult to get involve into that

relationship that is already strong in the network .In the network every business

strategy is different that�s why it is very difficult for an outsider to get enter into that

network (Catherine M. Daily).

• Cultural/organizational proximity

Organizational culture has been used as a holistic construction that describes the

complexity set of knowledge structures which organization members use to perform

tasks and generate social behavior. Organizational culture affects company structure,

role expectations and job descriptions, which will create opportunity to do better

organizational internal systems. Organizational culture is related with companies

control system, labor cost and multiple competitive sources (Hofstede et al. 1990.

Reichers and Schneider 1990, Gregory 1983).

How

To implement an international manufacturing or outsourcing strategy effectively, substantial

decisions about the configuration of the global operations system, the coordination

mechanisms and the allocation of the technological equipment are required (Flaherty,

M.T.1986).

• Configuration of the production resources

This decision deals with the decision of how many and how big plants should be

outsourced. The clothing manufacturing deals with many phases before it is

transformed into the final or semi final product, therefore all of the processes can not

be outsourced abroad. In particular existing links along the value chain and benefits

deriving from the close proximity among different activities can offset the advantage

of an offshore location (Dunning, J.H., 1990s). when the company�s intention is of

making the most profit and keeping the costs as low as possible than they go for

investing a big plant which can carry out all the processes, whereas on the other hand

if the company is trying to reduce political risks or make it flexible they prefer sharing

the production facilities among different locations. The design phase or the cutting of

the fabric is mostly done internally or else it�s outsourced to expert in that field.

• Co-ordination mechanisms

This is related to which extent is the company giving the authority to the supplier to

work. Coordination can be classified into four types which mainly are resource sharing

structure, decision style, level of control, and risk/reward sharing. Coordination

mechanism is mostly taken into consideration from the point of minimizing cost (Lei

Xu and Benita M. Beamon, February 2006).

McCann and Galbraith (1981) analyze coordination strategies on the bases of three

dimensions: formality (from informal personal meetings to more formal

arrangements), level of control, and decision localization (centralized or

decentralized).

• Technological investments

By outsourcing in different countries a company not only is exploiting the competitive

advantage of that country but also is allocating the technological advantage of

different countries where they are running their business. In clothing industry there are

some technological advances such as automated knitting and cutting of the fabrics

which can improve the quality and decrease the cost of production. Before allocating

such resources to countries the company needs to consider process reengineering

seriously. Mainly in the clothing industry these machines have a very minute role, as

most of the processes are needed to be done by labor.

Some of the latest technologies can have a big impact on the clothing industry such as

CAD and telematics. These technologies are a little bit problematic in the recent area

but are useful for single phase but still have the potential of doing the whole process.

Telematics can allow a better management of information flow; they could make the

co-ordination of worldwide activities easier (Gottardi, G. November 1991).

The development and use of networks in internationalization is directly connected with

organizational culture. An important part of the firm�s international resources is produced and

maintained by related actors in the firm�s network, as relationships are established with

customers, suppliers, host government officials, intermediaries, etc. taking into consideration

the importance of these actors, if something goes wrong between these actors it would be

difficult for the company to carry out its business. Also the process of internationalization

may itself yield unexpected results (Welch & Welch 1993).

Methodology There are a lot of interesting and attractive fields in both traditional and international

marketing that can be studied, but to be interesting is still not enough and many things should

be taken into consideration, such as access to the information and the ability to give valuable

prescription, recommendation and solutions to the problems which are studied. After

discussing everything in detail in our group, and consulting with �Claes Jonsson� our tutor we

choose the subject of the thesis �The international manufacturing and sourcing strategy of

Swedish garment industry�, in consideration of the availability of expected information

channels and the market situation.

The study is focused on the Swedish leading clothing companies as well as the small and

medium companies working in the same sectors to give a practical example of how they

work. The overall market of Sweden should also be analyzed and seen through how does the

garment industry works in European Union therefore this research paper will also give

valuable information about the European Union market as well. In the beginning we were not

sure about which companies to use from Swedish market for case example as getting the

information form the companies is not easy, therefore we contacted almost all the leading

companies and started gathering information about them from secondary sources, but

afterwards when we were answered by the company�s representatives and got access to the

information which was having personal contact with the purchasing department we finalized

H&M, JC AB and KappAhl. Besides gathering the information about these big companies we

also contacted and visited small shops in Västerås to analyze the market in a bigger picture,

which helped in analyzing the market situation. Unfortunately these small companies were not

having very formal kind of business and didn�t had secondary information resources, most of

them also didn�t had company�s website, which made it difficult to write about them

specifically, therefore the information that we gathered from them is used in describing the

general market and in the conclusion part. These small companies also had contact with some

agents situated in Stockholm and Gothenburg but as that was not really related to our problem

and purpose therefore those agents were not contacted.

After a thorough research about garments market in Sweden, we took into consideration about

10 companies, to do quantitative survey about them but after getting no response from them

we had to send the questionnaire to about 256 people (the contacts information were collected

from www.wwlink.se) who were related to the clothing industry in order to bypass the gate

keeper of the buying center and be in contact with the actual buyer and financial buyers, this

way we got access to 10 buying center members. We have used Google engine

(www.google.com) and (www.wwlink.se) to search for these companies and the employee�s

contact; the keywords used to search for information about these company�s were; Swedish

clothing companies, garments business in Sweden, outsourcing decision Sweden, global

sourcing affects, international clothing chains. Whereas in the second website mentioned, it

was rather easier to search for the companies as it is a Sweden based website and had all the

information about the companies and such information, and it�s possible for the user to sort

out the results through different aspects, which we did through clothing companies. We

contacted them by phone calls and by sending those emails, and then personal contacts. We

also have talked to the employee�s of Åhléns and got the contact of the regional manager of

the company, which helped us a lot in understanding the business decisions of Swedish

garments companies about outsourcing, even though we didn�t had enough information about

company Åhléns, still we got very vital information from the regional manager which helped

us in analyzing all the companies. We also studied the small scale companies which are

operating in Västerås, Sweden. We went to the city centre and distributed our questionnaire

among them and also talked to them about their business that how are they doing their

business and how are they buying from abroad and so on. We think that having detailed

interview with such small companies is easier because in the big companies we got the

problem that here in Västerås the employee�s didn�t had enough information, whereas in these

small companies the number of employee�s is relatively smaller and getting in contact with

the owner of the company or the higher level manager is not difficult.

Our work plan is simply divided into 2 phases:

1. Doing quantitative survey to add more information to the thesis by going to the

companies asking them questions in Västerås and sending questionnaires to the

companies and this includes also doing research through the internet and journals

about as much as we can about Swedish clothing companies.

2. Doing qualitative interviews with persons, through telephone, E mail and if possible

face to face, (except for Åhléns we couldn�t get face to face interview from other

companies) from the buying departments especially the decision maker in the buying

center in few chosen companies to understand what kind of strategies are they using in

relation to their international sourcing?

The method, that we used, contained both the quantitative and qualitative approach. We

collected literature, articles, related thesis and also other relevant information which was

giving us a clear picture of the companies that are interested in going abroad and start their

business internationally, all this information was not directly related to the problem and the

purpose but it helped us a lot in carrying out this thesis e.g. to understand how does the other

industries think before making the decision of outsourcing and also how can one analyze the

information gathered in contrast to outsourcing decisions. After gathering all these

information and the empirical data related to the theoretical frame work and the background

information about the company we tied them together to get the most reliable and relevant

conclusion. We also explained the clothing industry with respect to the supply strategies that a

company can adopt and some points that were taken from the model (see theoretical

framework) which we applied to get the results.

Study Design:

In order to arrive at meaningful results, we needed to find a large sample of the companies so

that we can get the whole picture of the Swedish clothing industry. Our findings from the

reviewed literature and the findings from the survey will be used to elaborate the survey

questions. Our study design can be presented in a graphical form as follow.

Study Design Figure 2

Interviews

While opting to get information through interviews, we chose to just to get the information

which is not easily accessible through secondary data like publications and other documents.

Swedish clothing companies

Interviews

Literature study

Survey

Final selection of companies

Results

Relevant topics for interviews

Companies selected for interviews

Relevant subjects

E-mail Contact

Informants invited

Interviewee selection

Since we need to obtain information about the purchasing function, we will try to get the

information from employees with central position. The case companies will probably be

selected which are situated in Västerås, due to easy access. The interview will be conducted

probably from few employees having managerial role in the company, just because that we

need to get the whole picture in general, rather than describing each case in depth.

Validity and reliability

To determine the validity and reliability we need to confirm that the companies we choose

should be able to show the diversity in doing business in the Swedish clothing industry, we

should also try to approach the right and responsible person, and lastly, see if the questions

have been directly related to the area the person in question is involved in.

Survey As the interviews will be conducted to investigate the specific areas of the industry, we need

the survey for explanatory and descriptive purpose. A questionnaire (which is designed

according to the model in the theoretical framework) will be sent to the companies through E-

mail.

Selection

The first thing that we need to take into consideration before choosing the companies for the

survey is to determine the kind of business they are doing. The companies that we are looking

for can be described as companies that are getting engaged in business of clothing items to

resell. A typical company would be one that is designing and distributing clothes and is using

suppliers in different countries to manufacture in any way, whether directly involved or doing

business through agents.

Empirical Findings

In the literature review, we discussed the outsourcing issue and international manufacturing in

general context with some results from different articles and news, now in this part we will

discuss it from the Swedish markets point of view. Our findings and statements will be mainly

focused on the companies that are operating in Swedish market. This will make it easier to

understand that how internationalization process is working in this market and will help in

understanding the market as well.

The textile and the garment industry is an important part of the global economy. Clothing

industry mainly involves manual work and needs extensive labor force. Therefore a company

to be competitive in the market and make profit needs to source their production facilities in a

market where the labor is relatively cheaper. As the world is becoming globalized and

everything has become very easy and faster due to ICT and reliable transportation system, it is

therefore easier to conduct international business than in the past.

To understand the Swedish market it�s necessary to understand the European market first, so

that we get to know how the industry is working as a whole in this big market after that we

will start explaining only the Swedish market.

Market condition: Comparison to European market

Europeans union has a huge garments and manufacturing industry, garments industry plays

important role in European market. As clothing is the second important need of human being,

therefore the products of clothing industry are in demand as ever. Textile and clothing

industry is mainly affected by globalization, because of the cheap labor cost and raw material

costs in developing countries. Garments products are made mainly from two types of raw

material; first type is natural raw material (cotton, wool, silk, flax, jute) and other side human

made fibers, syntactic fibers, polyester, nylon, acrylic etc (Werner, June 2001). Over the last

15 years, the European textiles and clothing industry has gone through large-scale

restructuring. Advancement of the industry is significant, productivity has improved, and

production has been restructured towards high quality products. However, this change has

also caused decrease of approximately one third of the employment. Further developments are

expected to affect the industry over the coming years including EU enlargement, increased

competitiveness, research, quality, skills, creation and most notably, the removal of import

quotas in 2005 and the challenges and opportunities of a recent round of multilateral talks

(Michael Keenan, Ozcan Saritas and Inge Kroener 2004).

In the last two decades European garments and clothing industry faced a lot of competition

and lost employment in the textile industry (Werner, June 2001). More than two million of

peoples are doing job for 177,000 enterprises. Where per year annual turn over £200 billion.

For the last four decades this industry increase 60 times ($6 billion to 342 billion in 2001).But

last 20 years USA and Asia increased dramatically, USA 97.7 and Asia 76.3 percent as

compeer to European countries.

According to EU Enterprise Commissioner Olli Rehn said: �The EU textiles and clothing

industry is a sector which has faced permanent competitiveness, restructuring and

modernization challenges over the last fifty years. Now it is going through profound structural

changes. At EU, national and regional levels, we need to provide adequate conditions to help

the sector strengthen its competitiveness and remain a key industry in the EU.�

On other hand according to EU Trade Commissioner Pascal Lamy added, �With anticipation

and close co-operation with the European industry we can ensure that there is a smooth

transition to a quota-free trade in textiles on 1 January 2005. And we will not leave

developing countries, in particular the poorest and more vulnerable, out in the cold. We will

re-focus our trade preferences so that they can continue to benefit from an open and fair

access to the EU.� Source: (European commission)

Asian, Turkey and North Africa garment industry is the main competitors of European

garment industry, basically European garments industry is focusing on higher productivity,

technological innovation, quality, creativity, design and fashion. Developing countries

producers focus on cheap labor cost and their natural raw material. (Michael Keenan, Ozcan

Saritas and Inga Kroener)

Availability of local resources and capabilities:

European Union has lot of resources and capabilities; day by day they are developing their

economy and industrial sector. In present European market is growing up rapidly, some

factors which helped their garments industry sector such as high quality raw materials, new

technology, skilled employee, foreign direct investment and research & development.

According to Werner 2001, the clothing and textile industry in Europe is highly globalized,

with import growth of 12% in 1990 to 23% in 1999 for the textile industry and 30% to 46%

for the clothing industry. This shows there is continuous demand for the clothing and the

textiles in Europe. The consumers are willing and can afford to buy the clothing from the EU

countries. Another reason may be due to low raw material cost compared to the rest on the

other countries like China, Pakistan, India and USA. Available data below shows that EU

countries consumed 1.0 million tonnes of ginned cotton between 1999/2000 and 2001 /2002.

This shows there they import less ginned cotton form other countries beside the EU, which

shows that the overall cost (including transportation) of cotton within the EU is probably

cheaper that the other countries like Pakistan, India, China and USA.

Main world Consumers (ginned cotton) Figure 3

It can be inferred from the above that Sweden being a member of the EU country has a greater

chance on importing from the other EU countries like Lithuania, Poland, and Estonia among

others where there is cheap labour and the raw materials like cotton and the clothing are

produced at a less cost compared to that of USA and Pakistan. Though there may be cheaper

products in China, the proximity and trade barriers make it more advantageous to import from

the EU Countries that the others.

Therefore now days we can see that most of the companies are shifting their production

facilities from developed countries to developing countries where the labor force is cheaper.

Over the last four decades of the 20th century, trade in textiles and clothing increased over 60

times (Keenan et al, 2004). UK and the Scandinavian countries show a liking for earlier

British colonies where knowledge of English is common (English is the favored foreign

language in Scandinavia).

Total Textile Industry Operator Cost in US$/hour, Summer Autumn 2000 Figure 4

Developed Mediterranean C. & E. Europe

Asia Africa

Portugal 4.31 Germany 18.10 Italy 14.71 US 14.24 UK 12.72

Israel 7.43 Turkey 2.69 Morocco 1.87 Tunisia 1.65

Hungary 2.63 Poland 2.35 Lithuania 2.23 Estonia 1.53

Taiwan 7.23 Hong Kong 6.10 South Korea 5.32 Thailand 1.18 Malaysia 1.13 China 0.69 India 0.58 Sri Lanka 0.46 Pakistan 0.37 Indonesia 0.32

Mauritius 1.87 RSA (urban) 1.82 Madagascar 0.37

Note: exchange rates as of 25 July 2000

Source: Werner International, 2001

Tariff Barriers and Government facilitations According to the European Commission on trade and Industry 2006 report, the EU market for

clothing and textile may be regarded as open, and this can be the reason for the rise in import

between 1995 and 1999 by 31%, accounting for about 50% of the general consumption in the

EU. For example according to the report EU tariffs are low: 0.7 % for raw materials, 5.3% for

yarns and fibres, 6.3% for fabrics and 11.9% for clothing, an average of 9%. It can inferred

from the this figures that it may be easier and cheaper to import from the EU member

countries that the other countries like the USA, China and India, as the EU may have different

trade barriers for goods from non member countries.

Delivery Time and Logistics Cost The delivery of goods within the EU is by three ways, namely, air, water and sea. These are

the main means of importing goods into the EU countries. Available data from some

researchers shows that the logistics cost in the EU range between 11.8% and 12.8% of GDP.

Some countries in the EU like Denmark according to the same source, has 12.9% of GDP

(Dan Magnusson and Patrik Ryden 2002).

Market Condition: Swedish clothing Industry

The Swedish textile and clothing industry is a modern, quality-oriented industry with

advanced technology, continuous product development and a strong environmental

awareness. The industry is international, in the supply of raw materials, product adaptation,

production collaboration, marketing and export. There are close to 14,000 people employed in

the textile and clothing industry in Sweden with around 350 companies (greater than five

employees). Most of these companies are geographically concentrated in the south-west of

Sweden (Textiles and clothing to Sweden, Australian Trade Commission 2006).

In Sweden production of clothing may have seen the greatest transformation. Most of the

sewing is done by production partners in other countries. However, the Swedish producers

engage in product design and development, purchase of material, cutting, quality and

environmental policies and supervision, logistics, warehousing and, of course, in marketing

the products under their own well established trademarks. In addition to fashion clothing there

are a number of successful Swedish producers of protective, work and corporate identity

clothing. Here function, quality and design constitute the competitive added values (Textiles

and clothing to Sweden, Australian Trade Commission 2006).

Swedish people are getting more and more fashion conscious which is making the companies

trying to become as distinguish as possible. The plenty of fake products flooding the market is

creating problems for brand identity. The Swedish clothing industry market is about US $

6.06 billion. In 2000, the total sale of garments, footwear and accessories increased by 6%

compared to the year before. Garments accounted for 82.4%; footwear for 14.4%; and

accessories for 3.2% of the total sale (Marianne Doff-Kallenius and Ms. Inge Jense).

If compared to different European countries, Sweden has the most percentage of producing

directly abroad. Almost 70% of Swedish companies have direct overseas manufacturers

whereas 37% for UK and 19% for France. Comparing to other countries, most of

Scandinavian retailers had a long-established practice of direct sourcing from overseas

manufacturers and most of them had made important investments in overseas offices. Most of

the Scandinavian companies are doing their business by highly concentrated sourcing

networks developed through direct relations with overseas manufacturers (Peter Gibbon and

Lotte Thomsen).

Services expected from existing suppliers Figure 5

Strategy UK France Scandinavia

Full-fabric/cloth sourcing Design services Minimum capacities Supplier-managed inventory Production flexibility Making regular visits to retailer Permanent presence at retailer HQ Product development Invoicing on 90 days

10 3 0 6 4 2 1 1 1

11 6 1 1 0 0 0 0 0

9 5 2 2 0 0 0 0 0

Availability of local resources and capabilities

With regards to this, the authors are focusing on the income levels of the people and their

access with respect the availability of the clothing shops in the cities and towns. There are

many clothing shops in almost every city and town in Sweden. The income of the people in

Sweden $266.5 billion (2005 est.), purchasing power parity $29,600 (2005 est.).Most of the

lands covered by forests, in other hand raw material grow up barley, wheat, sugar beets; meat,

milk andiron and steel, precision equipment, wood pulp and paper products, processed foods

(The world fact book, Sweden).

Delivery Time and Logistics Cost The available data shows the various delivery cost and time for the various types of

transportation system in Sweden. The data shows that the air transport cost increased from

199 to 2001 and gradually falling up to 2003. This implies there is a reduction in the cost of

air transport in Sweden.

Price index for scheduled domestic air travel, 1996=100

Figure 6

The road transport cost is Sweden, from the data shows a stead increase in cost of road

transport from 2004 to 2005. This means that there is a high demand for road transport in

Sweden.

Price index for freight transport services by road (2004=100)

Figure 7

Year Quarter Freight transport

services by road

2004 Quarter 1 99.5

Quarter 2 99.7

Quarter 3 100.2

Quarter 4 100.6

Annual Aver. 100.0

2005 Quarter 1 103.2

Quarter 2 103.0

Quarter 3 105.0

Quarter 4 105.3

Annual Aver. 104.1

2006 Quarter 1 107.1

Source: Statistics Sweden

Sea transport also keeps on increasing according to the data below. The cost for sea transport

is rapidly increasing since 2004 to the first quarter of 2006.

Price index for freight transport* services by sea (2004=100) Figure 8

Year Quarter Freight transport

services by sea

2004 Quarter 1 97.4

Quarter 2 98.9

Quarter 3 100.8

Quarter 4 102.9

Annual Aver. 100.0

2005 Quarter 1 104.7

Quarter 2 111.0

Quarter 3 117.7

Quarter 4 118.9

Annual Aver. 113.1

2006 Quarter 1 119.5

* Excluding oil transport


Labor cost The available data show that labor cost in Sweden keeps on increasing since the last two

decades. Salaries keep on increasing in Sweden affecting the cost of production in the

country.

Average monthly salary Figure 9

Full-time employees 1973-2005. SEK

Private sector

Public sector

Non-manual workers Central government

sector Municipal sector County council sector

Year Total Women Men Total Women Men Total Women Men Total Women Men

2003 29,900 25,400 31,500 24,800 22,700 26,800 19,700 19,300 21,300 24,100 22,300 31,400

2004 31,300 26,500 33,000 25,300 23,200 27,300 20,500 20,100 22,000 24,900 23,000 32,400

2005 32,000 27,400 33,700 25,900 23,900 27,900 21,000 20,600 22,500 25,700 23,700 33,200


1) From 1994 the figures for the municipal sector and the county council sector include both

full- and part-time employees. That is why the salary in 1994 is lower compared to 1993

for "Total".

2) From 1997 the figures for the central government sector include both full- and part-time

employees.

3) Not available.

4) Private sector: Full-time employees in mining, quarrying and manufacturing


Exports and imports condition: For the information about exports and imports, Sweden imports increases day by day since

2000 to the last Qatar of 2006. Because of production cost and raw material is too much high

in local market as authors mentioned before.

Exports, imports and net trade of goods Figure 10

Millions of SEK, current prices. Trend

Local market Västerås Besides the big companies, small and medium size companies and individual retailers are also

an important actor of the market. These companies mostly are not buying directly from

manufacturer but normally through agents in Stockholm. After observing and having

interviews with the small shops in Västerås, Sweden it was found that these companies are

also in contact with few manufacturers in Italy, Spain, Poland, Baltic States, Turkey, and East

Europe etc. giving much information about these companies is not easy as most of them don�t

have formal websites and information about the companies.

The small and medium size companies that are working in Västerås market have a bit

different approach towards the business than the big companies. Most of them avoid having

direct contact with the producers abroad. They are mainly in contact with middlemen and

agents from Stockholm and Gothenburg. The results that were found, from the survey and

questionnaire distributed among the local retailers, shows that most of the companies went

abroad due to high labor cost and no availability of raw material whereas some companies

also stated that even with having a small labor class still they are not skilled enough to

produce quality products. The companies started buying from different countries with

different attitudes. Mainly these companies are buying from London, Paris, Italy, Portugal and

Greece. Most of the companies took cultural similarity as a priority for making the decision of

outsourcing. Secondly they also stated the importance of shorter lead times and better control

over these independent suppliers. Some of the companies are also affected by the

globalization due to which they started buying from the Far East and China, reasoning that the

big competitors were having better products with much lower cost which forced them to buy

from these countries as well. Companies which are dealing with agents have reported not

much problems. Still come of the companies stated that getting information from the

producers is not easy and the paper work required is difficult. Due to the small size and not

enough resources, these small and medium size companies can not have direct relation with

the producers or having their own production abroad, therefore they are only in contact with

independent suppliers and agents.

Swedish market: examples of leading companies

The key players in the Swedish garments are mainly H&M, JC, KappAhl and Åhléns. H&M

is the only one who is still expanding their international branches, whereas the other leading

players have stopped expanding in the international market and some of them even closed

some of their branches in some countries.

Another problem these companies are facing is the WTO which removed quota�s from china

which pressurized the market for a downturn in the prices and high competition. The Chinese

government, in response to European political pressure, has introduced export tariffs.

In general we can say that the companies can be categorized into three different types, first of

all the companies which are having an industrial structure. Such companies will be having one

brand which is their main brand and almost everything in that company is sold with the brand

name. These companies also have the primary motive of exploiting the developing countries

in order to have access to the cheapest possible labor, raw material and other resources. These

big companies can have the incentive of taking the advantage of economy of scales and also

have big buying bargaining buyer to exploit the relationship with the suppliers of the Far East.

These kinds of incentives and advantage for smaller companies are not really an option and

even if they have contacts or suppliers from those countries still it�s very less.

The second type of business which we can distinguish from the first one is an enterprise

system of business. These businesses mainly have big chain of stores, and their way of doing

business is similar. The products that they offer are mainly in a big variety and have a shorter

product life cycle. This type of company will be marketing different brands which to a

customer might seem as different company. Mostly these companies have different brands,

probably having different stores as well, but the purchasing department is centralized and is

the one which is responsible for the whole business operations and supply chain management.

The last type of company that we categorized can come under the ownership structure. The

business culture of these companies will have; same kind of business style, having centralized

command, standardization of supply chain management, focusing on few suppliers but rather

big ones, and taking the suppliers having many services.

H & M (Hennes & Mauritz) AB

The leading and outstanding company which is taking the full advantage of international

purchasing is H&M. H&M (Hennes & Mauritz) is well known all over Europe as a very

successful company selling low-priced fashion clothing and accessories. Erling Persson

established the company in Sweden in 1947, and still the Persson family is on the board. In

the past few years H&M has been one of the most successful companies, expanding firmly.

Hennes & Mauritz (H&M) is mainly involved in the fashion design, and retail sale business.

The company operates stores in 21 countries and is headquartered in Stockholm, Sweden. It

employs about 31,700 people. The company recorded revenues of $7505.9 million during the

fiscal year ended November 2004, an increase of 11.3% over 2003. The raise was largely

attributable to higher amount sales as a result of cheap pricing. The working profit of the

company during fiscal 2004 was $1491.2 million, an increase of 15.7% over fiscal 2003. The

net profit was $1016.9 million during fiscal year 2004, an increase of 13.9% over 2003.

(Source: datamonitor, menswear in Sweden, industry profile, august 2005)

For having low cost they started producing abroad, as the labor cost of the domestic market is

really high plus according to them availability of raw material was also one of the biggest

problems. It started by opening its first store (as Hennes) in Sweden in 1947, the company

entered into the Danish and Norwegian markets in the 1960s and to the British market in

1976. In 1965, after acquisition of Mauritz, the company became Hennes & Mauritz. Since

then, Hennes & Mauritz has been entering into several other European countries successfully,

being present in the USA since the year 2000. Now a day Hennes & Mauritz is operating in

13 countries and has plans of expanding into Eastern Europe. Hennes & Mauritz is a

financially strong company and the approach of the company focuses on continuous growth; a

10-15 % increase in profitability and in the number of new stores per year (Hennes &

Mauritz, Annual report 2002 and 2003).

In H&M the most important driver of competitiveness and profitability is the emphasis on

cost-effective production of goods. As they demand for clothing is relatively higher in

Sweden than the neighboring countries therefore they first start producing from the

neighboring countries in the north and some countries in the mid Europe. After globalization

and their investment in some of the neighboring countries specially Germany which is

producing the biggest revenue for H&M they needed to have bigger production facilities and

also this way they could achieve economy of scales, so they took the Far East into

consideration and invested their so that they get good quality and better prices than before.

The head office of H&M is located in Stockholm, Sweden and this is also where company

management and other staff departments (finance, logistics, procurement, HR, etc) are to be

found. In addition, Hennes & Mauritz has 14 country offices with 21 production offices that

are in charge for checking that orders are placed with the right suppliers, for identifying new

suppliers, and for making sure that suppliers make up to the Hennes & Mauritz code of

conduct (EMCC case studies, H&M).

Like many other textile companies H&M as well has shifted their production from one place

to another. When the company first started, almost all production took place in Sweden, but

during the 1960s it shifted to the other Scandinavian countries and the United Kingdom.

Nearly in the 1970s the production moved from there to the Southern Europe mainly Italy and

Portugal. However they were also producing to an extent in Hungary, Poland and former

Yugoslavia. In the mid 1970s production moved to the Far East, where the initial production

office opened in Hong Kong in 1978. At the moment, Hennes & Mauritz has 21 production

offices, which reflect the location of suppliers: 10 are located in Europe, 10 in the Far East,

and one in Africa (EMCC case studies, H&M).

This company (H&M) is one of the best example of moving production to location where

there is good supply of labor, low wages, and good quality. It is comparatively cheaper to

produce in the Far East due to low labor cost, whereas the goods produced there are of good

quality. This can explain the reason of H&M having local offices with local employees. The

first and the important job of the local offices are to coordinate between the internal buying

department and the independent suppliers. The second job is to find and ensure doing business

with new and potential suppliers (Hennes & Mauritz, Annual report 2002 and 2003).

One of the reasons why H&M is so competitive is due to the importance they give to reduce

the lead time and improve logistics. In the past two three years the lead time from the

manufacturer to store has been decreased to about 15% to 20%. This has been achieved

through making the procurement personnel works directly with the production offices and

information and communication technologies (ICT) are a vital tool used to follow sales and

make intelligent choices. In recent years after the removal of the quotas from WTO countries

(China still have Quotas on some of the garment sector) the business of H&M with these

countries have been never better, and it seems so that they are happy with their suppliers and

will keep doing business with them for the following years.

KappAhl AB

The business of KappAhl started in 1950 when Per-Olof ("Pelle") Ahl opened a shop selling

coats in a basement near Gothenburg. The idea of selling low price but good quality coats was

soon successful and the sale was about 400 coats daily (KappAhl, �Company history�). Cash

sales, small profit margins, big volumes, few middlemen and skilled co-workers were the

main strategy of KappAhl which made it famous soon all over the Sweden. In 1963, ten years

after the company came into being; KappAhl has 25 stores and an annual turnover of SEK 50

million (KappAhl, �Company history�). Still in the 1960�s KappAhl was producing within

Sweden with the focus product as coats. In 1985 they step forward to make billion Swedish

kronor. This was their lucky year as KappAhl opened its first store outside Sweden, in

Switzerland. After few years they expanded their business to Norway and after that to

Finland. In 1990 KappAhl was sold to the Swedish Cooperative Union (KF). In 1997

KappAhl acquires the Danish MacCoy chain. Two years later KappAhl opened two stores in

Poland and became famous on the Norwegian. In 2003 KappAhl celebrated its 50th

anniversary. In 2004 KappAhl gets new owners, Nordic Capital and Accent Equity Partners.

KappAhl sells clothes for women, men and children in more than 250 stores in Sweden,

Norway, Finland and Poland. The company generated sales of £3.1 billion in 2004. The

companies operating profit for 2004 was $179.4 million compared with $99.8 million in 2003.


The first countries that KappAhl started purchasing from were countries in Europe like

Portugal, Italy and Greece. After the globalization impact the company now had better chance

to start buying from the better price producers in the Far East. The problem mentioned by the

Lena Bengtsson, Manager of supply and sourcing, about producing in the Far East is longer

lead time as well as they also mentioned that some labor and communication related problems

are also faced by the company.

This concept of selling low priced goods was not possible with producing in the domestic

market as the labor cost was too high and also there was no availability of raw material. Right

after the company started their business they soon became very famous among the people due

to their business concept of selling low priced goods but with high quality which they used to

manage through, low profit margin but high sale, few middle men to cut down the over head

cost and using the skilled employees. To meet this demand the company soon realized that

they need to buy from outside the country, therefore they contacted the agents in Italy,

Portugal, Greece and such European countries. The reason behind the company buying from

European producers was; first of all the geographical distance was short, the culture was

almost the same and above all the countries were economically and politically stable. After

globalization, the ever increasing demand of customer and having operations now in countries

other than Sweden, the company searched for suppliers which can provide them with lower

and better quality than the one they already had therefore the started buying from Far East and

as the company had now experience from the past there fore they cut off the middle men and

started buying directly from the producers. Success after success made the company bold

enough to acquire other business therefore they first acquisition they made was of a Danish

company MacCoy.

The company�s head office is situated in Mölndal, near Gothenburg (Göteborg). This is where

the work of designing, buying and marketing clothes is coordinated, jointly with a number of

other central tasks. Stock management and distribution to stores in markets are carried out by

the Distribution Centre next door to the head office. Most of the products in KappAhl are

bought from independent suppliers and producers in Asia and Europe. KappAhl is not

producing products by themselves; they are buying from the suppliers abroad. In the

beginning they used to buy through agents, but afterwards when they became used to the

buying process and where familiar with the international purchasing process they started

buying directly from the suppliers. First when they became international they used to buy

from abroad and sell them in the local market but after realizing the potential of the business

they also started selling abroad. The answer behind the motive of going abroad was the same

as for the rest of the firms; they went abroad due to high labor cost.

JC AB

The company JC was founded in 1962 by Gunnar Lenfors in Varberg and Arne Karlsson in

Halmstad with the idea of creating a brand which should serve the young generation. This

idea became very famous among young people and soon on 26th march 1962 the company

was registered by the name of Junior Center (JC). During the 1970s, the business became

successful with the market trends and the number of stores started rising. In 1980�s the

company was now getting developed and becoming famous especially with their new store

opened in Norway. The business in Norway started profitable and the number of stores also

started to grow, few stores also opened in Germany, the Brother concept was also launched

and the turn over was in billion SEK. In 1999, the company changed from being a voluntary

chain stores to company owned and franchise stores. Three stores also opened in Finland that

year. JC was listed on the Stockholm Stock Exchange in 2000 and the Sisters brand was

introduced, with 24 stores.

The company now has 259 stores, of which it owns and operates 85 stores. Stores are located

in Sweden, Norway and Finland. Sales are generated in franchise stores, company stores, and

a wholesale business. The company generated net sales of $1.32 billion in 2004 compared

with $1.29 billion in 2003.


JC sells cloths according to the concept JC, Brothers and Sisters. All these brands have their

clearly defined target market and brand positioning. The main brand of JC which is JC is

presented in all three countries whereas the Brother and Sister brand is sold only in Sweden.

Having these different concepts of three different brands is to follow the customers with their

age. The long term objective of JC is to achieve the annual organic growth which exceeds the

market growth in the surroundings (JC corporate info, Official website).

To make the most of the potential of the JC�s concepts, they are trying to constantly focus and

refine their concepts. They are continually working on the enhancement of the JC concept and

its related brands. JC's purpose is to reach an optimal store structure with regard to geography,

location and the proportion of JC-owned stores and franchise stores, which is a continuous

continuing process. The objective requires a continued reformation of the total store portfolio,

to achieve a best possible utilization of both JC-owned stores and franchise stores (JC

corporate info, Official website).

They have three basic concepts for achieving this concept

1. Brand building and marketing: an increased focus on the maintenance of the JC,

Brothers and Sisters brands and sub-brands, to protect a steady stream of serious

customers to the stores. This will mainly be implemented through more aggressive

marketing both locally and nationally. An important tool in this activity is JC's

customer club, which can also be used for local marketing activities.

2. Store efficiency: an increased focus on a more capable utilization of the local

entrepreneurship of the franchisee and the concepts developed by JC. Store efficiency

will be further developed through increased management by objectives and continuous

benchmarking between the stores.

3. Range development: an increased focus on a clearer range and more frequent product

development, together with a higher degree of demand-led control.

The purpose of the improved demand led control requires shorter lead time and elastic

purchasing process. They try to achieve this through a continued concentration of the number

of suppliers, more flexible production markets and a more demand-led merchandise

allocation.

Through training and increased internal exchange a good understanding of the whole and the

factors that create success in the sector is a decisive factor for stable development and

profitability. Continuous efforts are made to utilize the organization's total competence and

capability. These include enabling employees to acquire stores.

Operations should be marked by good ethics and environmental consideration

JC has a clear attitude towards environmental and ethical issues. As a result, JC makes high

demands that all operations carried on in JC's name take place in a sound manner. This also

involves high demands on suppliers to comply with JC's ethical and environmental

requirements. JC's active commitment to these issues is seen in its membership of the BSCI

(Business Social Compliance Initiative). This is a union of European retail companies, within

the framework of the EU, which promotes common ethical rules and monitors agreement by

member companies and their suppliers (JC corporate info, official website).

Since the autumn of 2004, JC has a centralized purchasing and production organization center

for all the concepts that are running under the parent company JC. The department is

responsible for the right price purchase, right quality and delivery at the right time.

�Our organization has now settled down and in 2005 we were able to work on generating

synergy effects by coordinating purchasing,� says Niklas Odequist, Production Director.

The production department was very devoted towards their work in reducing the cost of

purchasing and supplying it on the right time. Even though, they had problems regarding the

import quotas and the higher exchange rate of US dollar, still they managed to improve the

quality of the merchandise and the delivery on right time.

�We strengthened the central purchasing process, but above all we increased our presence in

our production countries. Our Hong Kong office was expanded and we also established

ourselves in Hangzhou in central China. Proximity to our purchasing markets is essential and

we increased our purchasing in both China and Bangladesh,� says Niklas.

In 2005 JC identified some of their Asian suppliers which were big for them as they needed to

have local presence as well. Most of the suppliers were checked by the quality department not

only for the assurance of the quality and delivery at the right time but also for checking on the

work condition, the strict ethical and environmental requirement. According to their annual

report they are also planning to decrease the number of suppliers which got increased in 2005

due to the overwhelming competition by big companies.

�We now also have a good geographical spread of production to optimize the mix of cost-

effectiveness and delivery flexibility.� says Niklas.

The primary motive of having international purchasing strategy for this company was availing

the cheap labor and the availability of good quality raw material at lower prices. Their central

purchasing department is responsible for the right quality, right price and the delivering at the

right time. JC is trying to have as shorter lead times as possible, and this is one of the reasons

of their competitiveness. Even after some problems with the quota and the exchange rate of

dollar which made the business affected still the company managed to expand their business

in the first country (Hong Kong) where they started their production, and after that they

entered into the Chinese market where they were getting cheaper and good quality raw

material and the labor cost was comparatively cheaper. After entering the Far East, company

realized that they can produce much better quality with relatively cheaper price, therefore they

production was taken away from the first countries towards China and Bangladesh. Another

reason why the company is happy with these countries is that the company is not facing any

problem from the host country and is warmly welcomed. This sudden increase in the Far East

made the company have relation with a lot of suppliers due to the competition in 2005, but

now as they are established and know the good suppliers therefore they have intentions of

decreasing the supplier�s number. Besides these big suppliers the company also is doing

business with some suppliers in the Baltic States and Turkey for the fast delivery in the mid

season, and according to the company they will not terminate these suppliers. In the beginning

when the company started their business in new markets for production, the suppliers were

assisted by the company and were helped in different way e.g. having financial support,

transfer of technology, giving them access to other markets to get the know how and how to

be efficient in production, but now days according to the company they are dealing with

independent suppliers which they are not helping in many ways, the reason which the

company gave was that now days the suppliers are more advanced and developed in

technological aspect and have their own way of doing business.

Apart from the Asian suppliers JC also have offices in Istanbul and Florence. In their Annual

report of 2005 it�s stated that they will try to wound up their business from some of their

offices and relocate it to the Asian offices, whereas the Turkish and the Baltic states offices

will be used for the rapid delivery of the mid season products. This way they will try to keep

up with the latest trends and will keep up to the demand from their Asian offices.

Work on demand-led control started in 2004, when a web-based budget planning tool was

introduced into the stores. It provided a fine beginning for designing a system in which

merchandise replacement in the store is based on sales instead of budgeted volumes. This

technique and system resulted in less capital tied up in the stores collection, smaller clearance

sales, improved profitability and not least a higher level of customer service.

Analysis

Overall Market In this chapter we will discuss all the experience we got from studying these companies and

the information that we got from the companies through survey, so that it is possible to

categorize all the companies according to their strategy about why, where and how are the

allocating their internationalization process.

European market In European market the availability of local resources was found low, still due to high

technological innovations and efficiency the companies are successful and competitive.

Another reason for the European companies to be competitive is there designing skills and

specially their brand names from France, Italy and UK. The growth of developing countries in

textile industry is still a big challenge for these big companies due to much lower prices with

quality products. The countries of European market are trying to protect the local producers

through tariff and barriers on developing countries. Also due to high transportation cost with

in the local market of Europe also increases the price of end product which is also affecting

the competitiveness of these companies to the foreign companies.

Swedish market

From the quantitative research we found out that the lack of natural resources and low

population is a big problem for the garments industry which leaves no other rational option

than to outsource the production and HR departments to foreign countries. Therefore

outsourcing is the most preferred decision in the Scandinavia and Sweden. Even with the

increase of transportation cost day by day is making them outsource as many functions as

possible. According to the statistics of Sweden it�s been found that imported products have

good demand and is favored by the nation having low demand flexibility. All the information

has been classified according to the model by WHY, WHERE and HOW as shown below;

Why

The main motive of the company as ever has been to decrease the cost and be competitive in

the market, therefore the main reason of the Swedish companies as well is to gain access to

the market with low labor cost and have good quality raw material. Some companies also

have the intention of having production near to big markets so that the lead time and the

transportation cost can be reduced, this way production of such good which have shorter life

cycle is mostly produced in the countries which are near to big markets whereas the rest of the

products having longer life cycle are still produced in the Far East, this way the company can

take the full advantage of economy of scales, transportation cost low and delivery at the right

time. We also found some companies which first started the business outside of the countries

due to higher labor cost, of the domestic market, but afterwards when they became stable and

used to the international purchasing they also went to some countries where they acquired the

local chains and brands to get into the market without any resistance by the country or

customers.

Where The decision of entering a new market for production is not easy and takes time before

making the decision by taking a lot of factors into consideration e.g. labor cots, availability of

natural resources, geographical placement, political risk, economic risk, and cultural

difference/similarity, access to end markets and distance from the end customer. The decision

of entering into a new market not only depends upon the above factors, it�s also affected a lot

by the organizational behavior/culture and their experience from the past. This way we can

say that having choice of one country might have different motives fro different companies.

The first countries that Swedish companies take into consideration are mostly the European

countries e.g. East Europe, Portugal, Italy, Greece etc. but now days or we can say that after

globalization the company have different attitude towards outsourcing they are trying to

produce at as lower price as possible but also to keep the European suppliers with them in

order to meet the demand which occurs to sudden change in fashion or trend. Keeping these

suppliers in Europe helps them in having the products at the right time because contacting and

changing things in the Far East and than getting the shipment from the suppliers takes a lot of

time which a company can not afford to have. Therefore we can say that the garments

companies need to keep both suppliers, like the European suppliers can be used to produce

those product which have shorter life cycle and the production should be monitored closely,

whereas the Asian suppliers are good for producing in bulk and taking advantage from the

economy of scales and lower prices.

How

About carrying out business in international market, the companies have a lot of different

options especially in the garments industry as the product has to go through different stages

before coming to the end product. The company can outsource the full procedure of the

product getting into final shape as well as they can outsource different parts of the process

flow of the production, which depends upon the choice of the company. Outsourcing different

phases to different countries is taking the country best operation into consideration and further

transferring the product to other countries where other processes are very good. However this

is not possible in the reality due to high transportation cost and lead times therefore the

garment companies mostly decentralize all the activities except the designing and few other

important activities.

In general most of the Swedish companies are having independent suppliers, whereas very

few of the companies are having direct investment in the overseas manufacturing. We found

out that there are no formal relations between the Swedish companies and their suppliers as

their relation depends upon informal face to face meetings and the selection been done

through very basic standards.

Conclusion

Global outsourcing has been agreed as an important tool to be competitive in the today�s

market. Global sourcing is nothing less than the whole sale restructuring of the corporation

around core competencies and outside relationship (Corbett, 1999). The decision to outsource

peripheral functions can lead to competitive advantages in different companies. Outsourcing

to be efficient, the decision taken should be informed. After studying and analyzing the

Swedish garment sector we found out that there are a lot of different ways of outsourcing and

the motive is not the same, but to an extent we found out that the main motive or the force

which is making them go abroad is almost a common factor. Well the firms didn�t showed the

same result as the other firms but still it can easily be said that the reason most of the firms

went abroad for production was the unavailability of natural resources, high labor cost and the

weather condition in the country. The process of internationalization which took place in

these companies can be explained in a way that they first looked at the competitive advantage

of the domestic market, which was found low and the way out of this was outsourcing but

before outsourcing the company also needs to see the demand flexibility of the market, which

in case of Sweden was again low this showed a clear decision of outsourcing. After making

the decision of which countries to go, most of the companies took the one which were having

less geographical distance, some of the companies said that the reason of taking the countries

in Europe was because the transportation cost and control was better whereas few of the

companies also claimed that the business culture and the overall culture of the countries was

also found similar that�s why they went to those countries. After the decision of which

country the company�s needed to make a decision on which suppliers to opt for, as they call it

process capability of supplier, some of the companies helped the suppliers to get advanced

and how to work whereas the other company�s didn�t interfere into the suppliers business,

now days all of the company are not interfering with the business of independent suppliers.

Recommendations It is important for Swedish garments companies to have direct relation with the manufacturer;

firstly to cut the overhead costs of middle men and secondly for the communication reasons.

Generally it is found that the big firms will most likely import from countries which are

having low labour cost with ignoring the geographical distance as those companies relies on

economy of scale and produce in bulk quantity. The big companies and the big retail chains

are efficient in the purchasing operations using designers and buying centers. They will rarely

buy some ready made garments; mostly they are using their own designers and make the

manufacturer produce according to their choice. A neglected part from the big companies is

also that if they start marketing that the reasons of their production in these Far East countries

is not only task related like reducing the cost and increasing the quality but also non-task

related which is improving the life standard of these developing country. This will help the

company have goodwill in the mind of consumers. Also it has been found while collecting

information form the companies that most of the companies don�t give much importance to

the purchasing department whereas marketing department which is responsible for export and

other activities is given much importance and funds. Solving this problem will also help the

companies to get to the best suppliers and have better decisions.

The small and medium size retailers buy their products through agents or fashion fairs. The

fashion world is changing faster than the past and the trends never lasts more than year or so

therefore the small and medium size companies which are trying to be in contact with the

manufacturer themselves should take this into consideration that giving order in the Far East

can result in longer lead time and the product might get delivered after few months which

might be the ending time of that specific trend. One option which has been used by the

companies in the past was to outsource such kind of products to nearby countries (Baltic

States, Portugal, Italy, Poland etc.) and the products which product life cycle is long enough

e.g. formal shirts, children wear, and formal pants etc. can be outsourced to the Far East.

For producers of the developing countries they can come in contact with such companies

through agents which charges commission and can help them in being updated to the trends in

the Sweden and upcoming fashions. As the time and communication are what the companies

in Sweden have problems with producing in Far East therefore the manufacturer should better

try to be in contact with them directly which can reduce the lead time, communication

problems and commissions. The manufacturer should also keep an eye on the upcoming

festivals in Sweden and Europe where they can meet or contact the companies or present

themselves and their business. The manufacturer should also keep them updated to new laws

which might have some affect on their business or the relation with such importers from

Sweden or Europe. The manufacturer should also make sure by themselves that there is

nothing going wrong in their production facilities which might not be according to ethics or

some how might affect the credibility of manufacturer in European importers e.g. child labor,

unsafe working conditions, use of chemicals, no proper dumping etc.

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Appendix 1

Questionnaire for survey

COMPANY�S NAME: ____________________________________________________ Which kinds of clothing your company has?

• Casual • Dressed • Sports • Uniform • Netted clothes • Leather accessories • Others___________________________________.

Which one is the most important when deciding on which market to enter for production? Cheap labor--------------- Raw material-------------- Emerging market--------- Potential customers------ How do you supply your garment?

• Own production in Sweden • Other production in Sweden • Production at full or divided subsidiary abroad • Purchase directly from manufacturer abroad • Purchase through Swedish agents • Purchase through agents abroad

How important are the following areas in your supplier relationship? Price: Less important , Important very important Quality: Less important , Important very important Right delivery in right time: Less important , Important very important Communication concerning garments performance: Less important , Important very important Communication concerning delivery and production and planning: Less important , Important very important The atmosphere in the circumstances: Less important , Important very important

Working circumstance in the production process: Less important , Important very important How long time does it take for your supplier from ordering to delivering: For your quickest supplier ____ weeks For your slowest supplier ____ weeks For your normal supplier ____ weeks About how many suppliers of garments does your company use at the same time? Less than 5 More than 5 More than 10 Which methods do you use to choose a supplier? We look at other customers for whom our suppliers are working. Other purchasing partner�s recommendations Visit their exhibition That they give a favorable price option Look at their previous sample work Others__________________________________ Is it common that the garment has to be worked at in different companies before they are ready? Yes No Don�t know Do you use the strategy that you use two suppliers for the same model- one who produces biggest part depending on selling and the other who can deliver according to their need quickly? Yes No To which extent do you outsource the production process? Making the fabric Cutting and designing Sewing to make it semi finished good Getting packed final product

Replies to survey

COMPANY�S NAME: Leopold & Bloom (Västerås)

Which kinds of clothing your company has?

• Casual

• Dressed

• Sports

• Uniform

• Netted clothes

• Leather accessories

• Others___________________________________.

Which one is the most important when deciding on which market to enter for

production?

Cheap labor---------------

Raw material--------------

Emerging market---------

Potential customers------

How do you supply your garment?

• Own production in Sweden

• Other production in Sweden

• Production at full or divided subsidiary abroad

• Purchase directly from manufacturer abroad

• Purchase through Swedish agents

• Purchase through agents abroad

How important are the following areas in your supplier relationship?

Price:

Less important , Important very important

Quality:


Right delivery in right time:


Communication concerning garments performance:


Communication concerning delivery and production and planning:


The atmosphere in the circumstances:


Working circumstance in the production process:


How long time does it take for your supplier from ordering to delivering:

For your quickest supplier 4 weeks

For your slowest supplier 30 weeks

For your normal supplier 20 weeks

About how many suppliers of garments does your company use at the same time?

Less than 5

More than 5

More than 10

Which methods do you use to choose a supplier?

We look at other customers for whom our suppliers are working.

Other purchasing partner�s recommendations

Visit their exhibition

That they give a favorable price option

Look at their previous sample work

Others: Fashion fares

Is it common that the garment has to be worked at in different companies before they

are ready?

Yes

No

Don�t know

Do you use the strategy that you use two suppliers for the same model- one who

produces biggest part depending on selling and the other who can deliver according to

their need quickly?

Yes

No

To which extent do you outsource the production process?

Making the fabric

Cutting and designing

Sewing to make it semi finished good

Getting packed final product

COMPANY�S NAME: Saks (Västerås)

Which kinds of clothing your company has?

• Casual

• Dressed

• Sports

• Uniform

• Netted clothes

• Leather accessories

• Others___________________________________.

Which one is the most important when deciding on which market to enter for

production?

Cheap labor---------------

Raw material--------------

Emerging market---------

Potential customers------

How do you supply your garment?

• Own production in Sweden

• Other production in Sweden

• Production at full or divided subsidiary abroad

• Purchase directly from manufacturer abroad

• Purchase through Swedish agents

• Purchase through agents abroad

How important are the following areas in your supplier relationship?

Price:


Quality:


Right delivery in right time:


Communication concerning garments performance:


Communication concerning delivery and production and planning:


The atmosphere in the circumstances:


Working circumstance in the production process:


How long time does it take for your supplier from ordering to delivering:

For your quickest supplier one week

For your slowest supplier weeks

For your normal supplier thirty weeks

About how many suppliers of garments does your company use at the same time?

Less than 5

More than 5

More than 10

Which methods do you use to choose a supplier?

We look at other customers for whom our suppliers are working.

Other purchasing partner�s recommendations

Visit their exhibition

That they give a favorable price option

Look at their previous sample work

Others: They are coming to us.

Is it common that the garment has to be worked at in different companies before they

are ready?

Yes

No

Don�t know

Do you use the strategy that you use two suppliers for the same model- one who

produces biggest part depending on selling and the other who can deliver according to

their need quickly?

Yes

No

To which extent do you outsource the production process?

Making the fabric

Cutting and designing

Sewing to make it semi finished good

Getting packed final product

No Answer

Appendix 2

Questionnaire for Interview through E mail and face to face

Respective Sir/Madam,

We are students of International marketing program at Mälardalen University; we are doing

our master thesis about Swedish garments sectors under the supervision of our tutor �Claes

Jonsson�. The purpose of our thesis is to find out about the patterns of Imports that are being

carried out by the Swedish garments industry. The main usability of this thesis is to find out

their strategies and the reasons behind those strategies and further more if some companies

want to reengineer their business process can take help from this thesis.

We would appreciate if you would complete the attached brief survey. Completion of the

survey is expected to take about 10 minutes of your time. The questions are quite general (for

example, when the company realized that they should start producing abroad?). You may omit

any question you prefer not to answer. There are no known or anticipated risks to

participation in this study. Further, all information you provide will be considered confidential

if desired by the company.

The information that we need is purely for academic reason. Your help and contribution to

this thesis will be sincerely appreciated.

Thank you in advance for your interest in this project.

Yours sincerely,

Muhammad Takbeer, E-mail: [email protected], Mobile: 0704778477

Wajih Khattak, E-mail: [email protected], Mobile: 0704777241

If there is any doubt or question about this questionnaire you can contact us or our tutor

without any hesitation. Our tutor contact number is 0707812755 where as our contact is given

above with the names.

Company Name:

Answered by:

Employee designation:

Date of reply:

1. When the company realized that they should start producing abroad?

2. Did the company start first selling abroad or buying from abroad?

3. what was the reason of going abroad

a. high labor cost of the domestic market

b. unskilled labor at the domestic market

c. no availability of raw material in domestic market

d. high cost of production facility e.g. expensive land price, tax system

4. Which countries were first taken into consideration?

5. Was there any specific reason for taking those countries?

a. Cultural similarity

b. Low transportation cost

c. Political stability

d. Economy of the host country

6. After globalization, did the choice of countries got different?

7. Is the choice of country also affected by the customer demand for specific country?

8. If production was taken away, from the first countries to get in, into other countries

what was the reason?

9. Are there any specific problems in producing in Far East countries?

10. Are there any special adaptations required in producing in the Far East countries?

11. Which of the following problems occurs in producing from Far East countries:

a. quality related problems

b. Price related problems

c. Labor related problems

d. Transportation related problems

e. Communication related problems

12. Does the company face problems from the home country government?

13. Are the host country governments helpful? If not than in which aspect?

a. Extra tax on foreign company�s

b. Entry into the local market

c. Barriers for the labor market

d. Not giving desired location for production

14. What kind of supply strategies are used with the supplier?

a. Licensing and franchising

b. direct investment in the host country

c. Independent suppliers

d. Through agents and whole sale

15. Does the company help the suppliers financially to get the latest technology for

production?

Replies to Executive questionnaire

Company Name: JC AB (head office Gothenburg)

Answered by: Niklas Odequist

Employee designation: Production Director

Date of reply: 16/5 2006


30 years ago.


Buying was first






Answer is A and B


Hong Kong






Answer: None of above reasons


Answer: Yes, more of production directly in China.


Answer: No



Answer: Better prices.


Answer: Production control is more difficult and lead-times due to longer

transportation is longer.


Answer: More preparation in advance such as more initial input of our demands to

manufacturer.







Answer: D and E


Answer: NO






Answer: -






Answer: C


production?

Answer: Have been in the past. But nowadays, all suppliers are more developed.

Company Name: H&M (head office Stockholm)

Answered by: Per Lundin

Employee designation: H&M Production Dept

Date of reply: 19/5 2006 Dear Wajih Khattak,

Subject, your letter with questions concerning Swedish garment sectors.

Answer to your questions,

1. from the start, year 1947

2. Buying abroad

3. a. High labor cost of the domestic market

c. no availability of raw material (material) in domestic market

4. Neighbour countries in north and mid parts of Europe

7. No

8. Better quality, production and lower prices

9. No, there are not any specific problems in producing in Far East countries as we

Have a long experience with producing garments in varies countries during many years.

Quotas was a problem/trade barrier until 31/12 2004, then the world became quota-free

From all WTO countries, except China where quotas still exist on some garment categories.

12. No

15. No

Regards

Per Lundin

H&M Production Dept

Stockholm, Sweden

Company Name: KappAhl AB (head office Gothenburg)

Answered by: Lena Bengtsson

Employee designation: manager Supply & Sourcing

Date of reply: 22/5-2006


We didn�t start producing by ourselves, but we bought from suppliers abroad.

First through agents and later direct.


We start first with buying abroad to our shops in Sweden.







Countries in Europe, like Portugal, Italy, Greece







Yes, we started to buy direct from Far East.


No, the reason is to get the right price.


what was the reason? To get better prices


Longer lead-time









No












production? NO

Company Name: Rock Zone (Västerås)

Answered by: Mazhar Shah

Employee designation: Manager

Date of reply: 26_ 05 _2006


Answer: No


Answer: London, Paris, Italy






Answer: A &C


Answer: London, Paris, Italy






Answer: D


Answer: No


Answer: Yes much



Answer: Price, Quality, Motive


Answer: No


Answer: No







Answer: No


Answer: High tax






Answer: A






Answer: B


production?

Answer: No

Company Name: Budo& Fitness (Västerås)

Answered by: Camilla

Employee designation:: Company s owner

Date of reply: 29_05_2006

1: When the company realized that they should start producing abroad?

Answer: No

2: Did the company start first selling abroad or buying from abroad?

Answer: We were started buying in Sweden.

3: what was the reason of going abroad





Answer: A

4: Which countries were first taken into consideration?

Answer: Sweden, America; Italy

5: Was there any specific reason for taking those countries?





Answer: A

6: After globalization, did the choice of countries got different?

Answer: Better quality, low price

7: Is the choice of country also affected by the customer demand for specific country?

Answer: No

8: If production was taken away, from the first countries to get in, into other countries


Answer: Nice clothes, Low price

9: Are there any specific problems in producing in Far East countries?

Answer: No

10:Are there any special adaptations required in producing in the Far East countries?

Answer: No

11: Which of the following problems occurs in producing from Far East countries:






Answer: No

12: Does the company face problems from the home country government?

Answer: No

13: Are the host country governments helpful? If not than in which aspect?





Answer: They are helpful

14: What kind of supply strategies is used with the supplier?





Answer: D

15: Does the company help the suppliers financially to get the latest technology for

production?

Answer: No

Company Name: Jeans 22: an (Västerås)

Answered by: Thomas Hndersson

Employee designation: Company s owner

Date of reply: 27_05_2006

1: When the company realized that they should start producing abroad?

Answer: No

2: Did the company start first selling abroad or buying from abroad?

Answer: From Sweden buying

3: what was the reason of going abroad





Answer: A&C

4: Which countries were first taken into consideration?

Answer: Thailand

5: Was there any specific reason for taking those countries?





Answer:D

6: After globalization, did the choice of countries got different?

Answer: No

7: Is the choice of country also affected by the customer demand for specific country?

Answer: Yes

8: If production was taken away, from the first countries to get in, into other countries


Answer: Depend on price and low quality

9: Are there any specific problems in producing in Far East countries?

Answer: Paper work, information

10: Are there any special adaptations required in producing in the Far East countries?

Answer: No

11: Which of the following problems occurs in producing from Far East countries:






Answer: No problem

12: Does the company face problems from the home country government?

Answer: No

13: Are the host country governments helpful? If not than in which aspect?





Answer: They are helpful

14: What kind of supply strategies are used with the supplier?





Answer: C&D

15: Does the company help the suppliers financially to get the latest technology for

production?

Answer: They solve together

the international manufacturing and sourcing pattern and

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