Zara Porter Analysis

ACADEMIC PAPER
The diamond approach to the competitiveness of Korea’s apparel industry
Michael Porter and beyond
Byoungho Jin
Oklahoma State University, Oklahoma, USA, and
Hwy-Chang Moon
Seoul National University, Seoul, South Korea
Abstract
Purpose – The Korean textiles and apparel-related industry has played a major role in the country’s development; however, this sector’s competitiveness is decreasing due mainly to labor costs. As with the country’s economic development, the new sources of competitive factors need to be strategically developed and cultivated. The purpose of this study is to explore what constitutes a country’s competitiveness in the global apparel market after losing its labor competitiveness and how a country effectively achieves it.
Design/methodology/approach – This study employs two competitiveness models, Porter’s diamond model and a generalized double diamond model, as a theoretical framework. Along with two theoretical models, this study employs extensive literature reviews, examples of successful firms, and four interviews with field practitioners in the Korean apparel industry.
Findings – Beginning with Porter four determinants (factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry), new sources of competitive advantage factors are suggested for the evolving industry. The generalized double diamond model incorporates international activities, which may occur either within a country or outside a country.
Utilizing generalized double diamond model, the future directions and solutions for the industry with the identified new competitive factors were suggested.
Originality/value – Based on the models and the identification of new competitive factors, the
Korean apparel industry is reviewed, and recommendations are made for its continued growth in the global marketplace. Implications pertaining to the creation of a dynamic self-reinforcing diamond system were also suggested.
Keywords Competitive advantage, Textile industry, South Korea, Modelling
Paper type Research paper
Introduction
The textiles and apparel-related industry has played a major role in the development and economic success of South Korea (Korea, hereinafter.). This important industry cluster in Korea has accounted for 41 percent of its total exports during 1970 and nearly 30 percent during the 1980 (Dickerson, 1999; Porter, 1998). Korea represents the fifth largest exporter of textile and apparel-related goods in the world, followed by
China, Italy, the US and Germany (Korea Federation of Textile Industries, 2002).
However, its contribution to both the Korean and international competitiveness is
The current issue and full text archive of this journal is available at www.emeraldinsight.com/1361-2026.htm The diamond approach 195
Journal of Fashion Marketing and
Management
Vol. 10 No. 2, 2006 pp. 195-208 q Emerald Group Publishing Limited
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DOI 10.1108/13612020610667504 decreasing due to an increase in labor costs. During 2002, while it still maintained major trade surplus and remained as the country’s largest employer, it only accounted for 10.1 percent of the exports, as compared to 41 percent during 1970 (Korea
Federation of Textile Industries, 2002). In 2000, the hourly wage of Korea was $5.73, as compared to $0.41 in China, nearly 14 times higher than that of China. Due to high labor costs, more clothing companies have sourced clothing for domestic consumption from lower wage countries (Korea Federation of Textile Industries, 2005).
Cheap labor serves as a developing country’s competitive tool in global markets.
However, as in the Korean case, cheap labor lasts for only a short time. As with the country’s economic development, the new sources of competitive factors need to be strategically developed and cultivated. Therefore, knowing what constitutes new sources of competitive advantage is critically important to set a future direction. The purpose of this study is to explore what constitutes a country’s competitiveness in the global apparel market after losing its labor competitiveness and how a country effectively achieves it. Diversity between nations typically reflects different environmental conditions, which in turn affects the strategies, directions, and challenges of a specific industry. Therefore, it is essential to understand competitive factors within a specific country. This study chose the Korean apparel industry as it has passed the first phase and is actively seeking global competitiveness. This study employs two competitiveness models, Porter’s diamond model (Porter, 1998) and a generalized double diamond model (Moon et al., 1995, 1998), as a theoretical framework. Along with two theoretical models, this study employs extensive literature reviews, examples of successful firms, and four interviews with field practitioners in the Korean apparel industry. The four interviewees were selected from leading Korean apparel and retail companies and all were at the rank of director or higher. The interviews were conducted from August 2000 to August 2001, in Seoul, Korea.
Interview questions included general firm information, the firm’s challenges/successes, and future goals. Each interview was one hour in length and taped, with the interviewee’s permission, for further analysis.
This study consists of three parts. Beginning with Porter (1998) diamond model, new sources of competitive advantage factors are suggested for the evolving industry.
The second part of this paper introduces the generalized double diamond model (Moon et al., 1995, 1998) to provide future directions and solutions for the industry with the identified new competitive factors. The last section concludes how a dynamic self-reinforcing diamond can be created, and suggests future studies. The unit of analysis for this study lies in the Korean apparel industry as a whole, not individual
Korean apparel firms, following Porter (1998) example. That is, the purpose of this study does not lie in generalizing strategies for every Korean apparel firm.
Porter’s four determinants and new competitive advantages
To investigate why nations gain the competitive advantage in particular industries,
Porter (1998) conducted a four-year study of ten important trading nations and suggested “the diamond model.” Porter concluded that a nation succeeds in a particular industry if it possesses a competitive advantage relative to the best worldwide competitors. His model consists of four determinants: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.
As this study looks into an apparel industry it is essential to interpret competitive factors within this industry and to examine what constitutes new competitive factors
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as the industry evolves. Porter (1998) competitive advantage factors are summarized, and new sources of competitive advantages are suggested.
Factor conditions
According to Porter (1998), factor conditions refer to the factors of production that are necessary to compete in a given industry. He grouped the factor endowment into a number of broad categories, such as human resources, physical resources, knowledge resources, capital resources and infrastructure. He further discriminated among these factors: basic factors versus advanced factors, and generalized factors versus specialized factors. A basic factor is passively inherited, such as climate, unskilled and semiskilled labor, while advanced factors include conditions a nation creates, such as highly educated personnel. He suggested that competitive advantage based on basic or generalized factors is unsophisticated and often fleeting, contending that advanced or specialized factors are necessary for more sophisticated forms of competitive advantages. The advanced or specialized factors can be created through factor-creating mechanisms such as public and private educational institutions.
Nations succeed in industries where they are particularly good at creating and upgrading the needed factors. Porter (1998) also argued that the standard for what constitutes an advanced or specialized factor tends to rise continuously as the states of knowledge, science, and practice improve.
Thus, we suggest that new competitive factor conditions in apparel industry lie in advanced or specialized factors. Basic factors such as cheap labor for production are no longer viable in achieving competitive advantages since those factors can be successfully secured through global sourcing. Global sourcing has been considered a critical component in achieving competitive advantages (Frear et al., 1992). Numerous apparel firms in countries where the apparel industry is advanced, such as The Gap, Liz Claiborne, Nike, and The Limited, source labor as well as raw materials globally without owning any production facilities. Then, the most necessary new factor conditions to compete should be sought in advanced or specialized factors, such as skilled human resources (e.g. creative designers), and production and process technology that are specific to global sourcing and management (e.g. EDI, information technology). These new sources of competitive factors can be easily observed in the most advanced fashion countries. France and
Italy boast about their creative designers, and the US is active in developing production and process technologies such as quick response technologies and, currently, the Demand-Activated Manufacturing Architecture (DAMA) project
(Techexchange, 2005).
Demand conditions
This determinant refers to the nature of home-market demand for an industry’s product or service. Porter (1998) views demand conditions in terms of the size of the home market and sophisticated and demanding buyers. That is, if the size of home demand is large, firms will invest to reap economies of scale. In countries where the domestic buyers (either industrial buyers or consumers) are the world’s most sophisticated and demanding, companies are forced to meet high standards, to upgrade, and to respond to tough challenges. Porter (1998) sees a wide variety of reasons for unusually demanding needs: social norms, distribution channels, and national passions. For example, the distribution channels of Italy contribute to the higher levels of consumer sophistication (Porter, 1998). That is, in Italy, shoes, clothing,
The diamond approach 197 furniture and lighting are sold in greater proportion through specialty stores than in other nations. These sophisticated retailer’s pressure Italian manufacturers to constantly introduce new models and reduce prices. Italians are also known for their sophistication about clothes, food, and fast cars, the areas in which Italy had international success. The French have a national passion for the fashion industry, and it is no surprise that this country keeps its globally competitive position.
Porter (1998) acknowledges that the size of domestic demand in a particular industry may be important to national advantage where there are significant economics of scale or learning, but he considered the presence of sophisticated and demanding buyers more important. As an industry evolves, domestic consumers demand diverse and higher levels of needs, such as creative designs, services, or brands along with competitive prices. In countries where the apparel industry is less developed, functionality and availability of apparel items may be enough to satisfy consumer needs. As the industry advances, domestic buyers demand a higher level of design to suit their taste as well as various items that are needed in their diverse lifestyles (e.g. time, place, occasions).
These higher levels of needs can be epitomized in a brand since it encompasses creative design, service, as well as the diverse needs of different target markets.
Branding in the apparel industry is even more critical since differentiation and evaluation among items often depend on the brand of the items. Brand here does not mean just trademark. Rather, it broadly covers what branded apparel conveys: a symbolic meaning or a unique design. In the countries where the industry is globally competitive, many brands are globally recognized. For example, France possesses the
LVMH group, a giant fashion group that has 60 prestigious brands including Louis
Vuitton, Fendi, and Celine; Italy owns famous global brands such as Prada, Versace,
Giorgio Armani, Missoni, and Benetton; England, Burberry and Hermes; Germany, Jill
Sander, Hugo Boss, Escada, and Adidas; and the US, the Gap, Calvin Klein, Donna
Karen and Polo Ralph Lauren.
Related and supporting industries
Porter (1998) asserted that the presence of supplier and related industries within a nation that are internationally competitive provides benefits such as innovation, upgrading, information flow, and shared technology development which create advantages in downstream industries. Therefore, national success in an industry is particularly likely if the nation has a competitive advantage in a number of related industries. One of Porter’s examples for this factor is the Italian ski boot industry and its close relationship with the leather industry. Because of the high quality of its leather, Italy can succeed in producing world quality ski boots.
However, in today’s global apparel environments, raw materials are largely sourced globally, so having competitive supplier industries within a nation may not be as important as Porter (1998) suggests. Instead, related and supporting industries at the front-end, such as buying office, advertising, and information technology that support coordination of global sourcing or efficient management of the global supply chain, may be more important. For example, Liz Claiborne, Inc., sources from as many as 31 different countries using 240 factories. Therefore, coordinating the production and efficient communications with suppliers becomes critical. For this reason, most US apparel companies own buying offices overseas, which assist and coordinate global production and management. Hong Kong keeps its competitive position not because of factor or demand conditions but because of efficient coordination of apparel
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manufacturing. Hong Kong serves as a business-networking center for apparel manufacturing (Lui and Chiu, 2001) with the production headquarters of large retailers like The Gap. Hong Kong’s first and largest buying office, Li & Fung, was founded in
1906 and provides integrated service in what they call “a virtual factory” or “a private label manufacturing program.” This service includes assistance in product design through materials sourcing for its manufacture to the handling of logistics for delivery to the customer (George, 1998; Magretta, 2000).
Firm strategy, structure, and rivalry
The last determinant is firm strategy, structure, and rivalry, referring to “the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry” (Porter, 1998, p. 107). Porter contended that nations tend to succeed in industries where the management practices and modes of organization favored by the nation are well suited to the industries’ sources of competitive advantage. For example, many Italian firms are relatively smallor medium-sized firms that are privately owned and operated like extended families.
Italian firms usually employ focus strategies, avoiding standardized products and operating in small niches. Consequently, Italy is an international leader in footwear and wool fabrics in which economies of scale are either modest or can be overcome through cooperation among loosely affiliated companies. Domestic rivalry is, arguably, the most important because of its powerful effect on all the other determinants. Porter took note of geographic concentration, which magnifies the power of domestic rivalry: the more localized the rivalry, the more intense the competition.
One important source of competitive advantages in the apparel industry has been high quality design. Italy, France, and the USA have succeeded because of their innovative designs. However, a new and different source of competitive advantage in the apparel industry, agility, should be added along with high quality design. The apparel industry has been characterized by extensive and diverse sources of uncertainty due to fluctuating demands from fashion, and seasonal change and varying in style preferences. In response to market instability, apparel firms should react rapidly, thus “agility” becomes a means of achieving competitive advantage.
Agility in the fashion business means more than just speed. Agility also means a firm can respond quickly, canceling lines that do not sell, avoiding clearance sales, and operating with small stockrooms and lower inventory holding costs (Mcguire, 2001;
Vitzthum, 2001).
Agility is the competitive weapon that Zara uses to achieve its success: it takes less than two weeks for a skirt to get from Zara’s design team to a store in Paris or Tokyo.
Design-to-delivery is as much as 12 times faster for Zara than for its competitors. With shorter lead times, Zara can ship a greater variety of goods more frequently (twice a week compared with once every 12 weeks) than many of its competitors. Thus, those countries where their strategy, management style and domestic rivalry accommodate
“high quality design with agility” will gain new international competitiveness and sustain their current positions. Table I summaries traditional and new sources of competitive advantage factors.
In addition to these four determinants, Porter (1998) suggested two external determinants: chance and government. Chance events just happen; however, the nation with the most favorable “diamond” will most likely convert chance events into competitive advantage (Porter, 1998). Government can influence each of the four
The diamond approach 199 determinants either positively or negatively. The complete diamond system is presented in Figure 1.
Extending Porter’s determinants through internationalization
As internationalization often explains national competitiveness in small countries like
Korea, most of the new competitive factors can be maximized through
“internationalization.” Therefore, the Korean apparel industry is further analyzed
Porter (1998) determinants
Traditional competitive advantage factors New competitive advantage factors
Factor conditions Basic factors: such as unskilled labor and raw materials
Advanced factors: skilled human resources such as creative designers. Specialized factors such as production and process technologies that are specific to handling global sourcing and management (e.g. EDI)
Demand conditions Demanding functionality and availability of apparel items
Demanding higher levels of needs such as brand name and service
Related and supporting industries Presence of internationally competitive back-end supplier industries (e.g. raw materials producers) Presence of internationally competitive front-end industries that efficiently coordinate global supply chain management (e.g. buying office, advertising, information technology)
Firm strategy, structure, and rivalry
Organization and strategy of most apparel firms are suited to industries’ source of competitive advantage: high quality design
Organization and strategy of most apparel firms are suited to industries’ source of competitive advantage: high quality design plus agility Table I.
Traditional versus new competitive advantage factors using Porter’s diamond model (1998)
Figure 1.
Porter’s diamond model
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using Moon et al.’s (1995, 1998) generalized double diamond model. Moon et al. (1998) argue that sustainable value added in a specific country may result from both domestically owned and foreign owned firms. In addition, they contend that as today’s sustainability often comes from geographic configuration spanning many countries, firm specific and location advantages present in several nations can contribute to a nation’s competitiveness. Therefore, these international activities, which may occur either within a country or outside, a country need to be incorporated in the explanation of national competitiveness. Figure 2 presents the generalized double diamond model, where the inside diamond represents the domestic situation and the dotted line denotes the international dimension. The difference between the international diamond and the domestic diamond represents international or multinational activities (Moon et al., 1998). Unlike Porter, if we double the diamond using domestic plus international activities, the above identified new sources of competitive factors can be maximized through “internationalization”. Below we further analyze the Korean apparel industry with the aid of the generalized double diamond model.
Korean factor conditions
The competitive advantage factor of the Korean apparel industry has mainly been cheap labor. However, as wage costs rose, the country began to outsource labor and raw materials globally. Acknowledging that unskilled labor is no longer a viable factor, Korean companies all alike are eager to create change. Education is the top priority of all Korean parents and a proven proactive factor for the development of the
Figure 2.
The generalized double diamond The diamond approach 201
Korean economy (Chung et al., 1997; Porter, 1998). At the prestigious Fashion Institute of Technology in New York, Koreans represent a significant portion of foreign students. The training of creative designers would be a new competitive advantage. This new factor can be achieved through internal development or internationalization. For example, the Korean apparel industry can:
. Work toward higher international recognition of its designers.
. Hire foreign creative designers to work for them.
. Co-develop designs with foreign creative designers.
Korean designers are starting to gain some recognition. Hanii Yoon and Gene Kang of
Y & Kei, received a rising star award in the women’s apparel category during 2002.
The award is annually, given to eight brilliant, creative, and promising designers, by the Fashion Group International of the US (Winters, 2003). To gain international recognition, more Korean fashion designers present their design lines in Paris and
Tokyo collections. Younghee Lee has presented her line in the Paris Preˆt a Porte collection more than 20 times for 11 years. Icinoo was invited to the Tokyo collection during 1990, and she also has presented her lines in Paris since 1993. Judging from the national zeal for education and fashion, Korea is likely to be in a favorable position to produce creative fashion designers.
Another new competitive factor for this dimension is production and process technology. Generally the Korean technology infrastructure matches that of most advanced nations (Porter, 1998). Especially in the internet industry, Korea ranks the third in the world in internet, just after the US and Canada (Ipsos reid, 2002). In terms of broadband access such as cable modem, DSL, and other broadband technologies,
Korea ranks first as of September of 2002; whereas, the USA ranks sixth, Japan ninth,
Germany twelfth, France sixteenth, and Italy twentieth. More than 20 out of 100
Koreans have broadband internet access at home (OECD, 2002). However, for specialized production and process technologies that are specific to global sourcing and management such as EDI, the Korean apparel industry has invested less at the industrial and national levels for two reasons. First, the size of the Korean apparel industry is relatively small: only $11 billion compared to $200 billion, or approximately one twentieth of the US market. The benefits obtained through such investments may not be significant in the smaller market. Second, the land size of
South Korea is half that of the Florida peninsula. Therefore, the benefits of having process technology are significantly less than a country with a large land size. Once the Korean apparel industry has bigger markets by expanding internationally, companies may recognize the importance of production and process technologies to handle large volume orders more efficiently.
Korean demand conditions
Korean consumers are notorious for being demanding. As one manager of a multinational company operating in Korea once confessed, “once we can satisfy
Korean consumers, then we are sure of our success in other countries, too” (Kim, personal communication, August 13, 2000). Korean fashion consumers are also extremely demanding. Due to their Confucian heritage, they are sensitive about their appearance. They believe they lose face if they are not properly dressed in a public setting. This belief can explain their higher tendency toward fashion consciousness
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and brand loyalty (Jin and Koh, 1999). In addition, the high import rates of prestigious global fashion brands (The US Commercial Service, 2001) and increasing rates of overseas travel force domestic apparel firms to rise to the challenge of continually changing customer needs.
As of 2000, 1,638 domestic brands and 565 foreign brands were competing with each other for the $11 billion Korean fashion market. During 2000, approximately 150 domestic brands were launched (Fashion View, 2001). Increasing rates of imports from lower labor cost countries make the competition even more intense. This severe domestic competition in Korea’s apparel market can enhance its competitiveness through internationalization. Acknowledging home market saturation and strong domestic rivalry, Korean apparel firms have started to internationalize their own brands to some Asian markets, such as Vietnam, China, and Taiwan, and the US. One of the successful Korean brands in China is Deco, which initially set up manufacturing firms in Tianjin and Beijing and started to sell its own designs in 13 stores in Beijing and Shanghai. The brand is perceived in China as prestigious, and a Chinese woman is willing to spend a two to three months salary for one suit. Deco also has stores in Japan and Hong Kong (Financial News, 2001; Chang, personal communication, June 30, 2001).
Korean apparel brands are also starting to gain visibility in the US market. E-land Kids has been marketed in the US since 1999 through 500 retail stores including high-end department stores (Sak’s fifth Avenue) as well as fashion conscious trading areas
(Beverly Hills, California, and New York City). The brand marked a $7 million sales record during 2002 in the US market (Han, 2003).
While the above examples are an encouraging start, there are still challenges for the
Korean apparel industry:
. It needs to diversify beyond selected Asian countries and the US. Often high design quality includes the tastes of the consumers. Once the industry expands to more diverse markets, it will strive to reflect the tastes of diverse international consumers when developing new products.
. To establish strong brands and effectively expand, along with the internationalization of domestic brands, the industry can also utilize inbound and outbound foreign direct investment.
For example, firms can purchase foreign brands and hire foreign experts in marketing and promoting the brand image.
Korean related and supporting industries
Rather than back-end raw material industries, front-end industries, such as buying offices, advertising and information technology centres, that assist the coordination of global sourcing or global supply chain management, would be a new source of competitive advantage. While Korea may have a lower capacity to create internationally competitive advertising, it can always outsource. There is already a precedent set for using multinational advertising companies by such well-known
Korean brands as Samsung, LG, and Hyundai.
Korea has already experienced triangle manufacturing (buying office function), another new source of competitive factors. Triangle manufacturing allows Korea to move beyond OEM (Original Equipment Manufacturing) production and into a facilitator role in organizing global production. Under this arrangement, US buyers place their orders with Korean manufacturers that they have sourced from in the past.
These manufacturers, in turn, subcontract some or all of the requested production to
The diamond approach 203 factories, in lower wage locations, such as: China, Sri Lanka, Thailand, and Indonesia to reduce production costs (Bonacich and Appelbaum, 2000; Christerson and
Appelbaum, 1995; Gereffi, 1999). Korea, then serves as a logistical center by supplying fabric and other intermediate materials made in other Asian countries and by coordinating a variety of needed services, such as quality control inspections, shipping, and the transfer of funds for letters of credit (Gereffi, 1999). These functions are the essence of what Gereffi (1994) claimed. He maintained that the main job of apparel firms doing business globally is to manage production and trade networks and to make sure all the pieces of the business come together as an integrated whole. Korea’s capabilities and expertise in triangle manufacturing will further assist them to perform better when competing in global marketplace.
Korean firm strategy, structure, and rivalry
International competitiveness can only improve when most of the leading firms’ strategies, structures and rivalries are well suited to “high quality design and agility.”
For example, the Dong Dae Mun market, Seoul, Korea is one example of how the
Korean apparel industry is clustered in a specific area and of how that geographic concentration caters to agility. Dong Dae Mun has had a long history as a traditional wholesale market complex since 1905. The Dong Dae Mun General Shopping Center consists of 26 markets and 26,000 shop stands. One of these markets is the newly built modern apparel shopping mall called Miliore, which was opened in 1998. This apparel market complex is gaining fame in neighbouring countries and has even become a tourist attraction. Individual stores within Miliore produce small-customized batch orders from Japanese retailers and export them. This success can be explained in two ways. One is the geographic concentration of related suppliers and vendors: fabric, trims, sewing facilities, retail, and related industries, which are clustered in that area.
The other is agility: the manufacturers can produce a small batch of an apparel item within 48 hours from design to rack (Suh et al., 2002).
Note here how this extreme agility is possible. Unlike more fashion-advanced countries, Korea achieves agility using personal networks, rather than employing technology. One director at a leading Korean apparel company confessed that he received repeat orders for long sleeve knit shirts from several major Korean retailers.
Knowing that long sleeve shirts should be sold within one month otherwise the stocks would be useless, he had to push one manager. The manager then contacted a former boss and begged for special yarn production for the knit, and then desperately searched for knit production facility, again using his personal network. He managed to produce the orders within two weeks, from yarn to retail stores, which normally takes at least two months. He believes agility in Korea cannot be completed without personal networks (Kim, personal communication, April 3, 2001).
This speedy production in Dong Dae Mun was possible because the production volume was small. The degree of agility to market is a trade off between cost efficiency and the benefits of agility on a global scale. If the Korean apparel industry expands internationally, personal and business networking alone cannot secure agility. To meet large volumes cost efficiently, it needs to have a solid system that supports the whole supply chain. Therefore, a firm needs to carefully consider global sourcing and upgrading production and process technologies.
While the above analyses of the Korean apparel industry show a generally favorable environment in which the industry can move forward to gain a competitive advantage in global apparel markets, there are some challenges that should be
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addressed. These challenges can be mostly solved through internationalization.
Table II summarizes current status of the Korean apparel industry and solutions through internationalization.
Conclusion
This study is designed to suggest how the Korean apparel industry can achieve competitive advantage in a global market. We believe this study is the first attempt in explaining the competitive advantage of an apparel industry within a specific country using Porter (1998) diamond model. As he indicated, in most countries, a nation succeeds because it combines some broadly applicable advantage with advantages that are specific to a particular industry or small groups of industries (Porter, 1998,
p. 147). In this sense, we hope this study provides a benchmark for how an apparel industry in one nation can be analyzed. This study further contributes to analysis of the industry by extending Porter’s diamond model and using the generalized double diamond model (Moon et al., 1995, 1998) that appropriately explains the international perspectives of competitiveness.
This study indicates new competitive advantages and solutions for the industry in each of the four competitive determinants. However, it is not always necessary to have every determinant at an optimum level because one sufficient determinant could assist and strengthen an insufficient one. Therefore, instead of having four perfect individual determinants it can be equally as important to establish a self-reinforcing system using a range of robust competitive advantages. A well-functioning system blends each determinant so competitors cannot easily copy the entire system.
For the establishment of a self-reinforcing diamond system, we suggest that internationalization should come first. Once an industry secures a larger market (that is, a global market), the factors of the diamond will create dynamics, where many of the challenges can be solved. For example, once the industry has bigger markets by expanding internationally, it will capture the needs to invest in upgrading its production and process technologies to handle large volume orders quickly and efficiently (factor, related and supporting industries, and firm strategy, structure, and rivalry). In addition, the industry will strive to reflect tastes of diverse international consumers when developing its products (demand conditions). Internationalization of the Korean apparel industry will make each competitive determinant more active and will contribute to creating a self-reinforcing cohesive system. The diamond is dynamic and self-reinforcing. If the industry continuously challenges itself then the dynamics of the determinants of competitive advantage will create a unique system in which national advantage arises.
While this study does not examine effects of two external determinants, chance and government, on the four determinants, the following recent changes in the global apparel industry will likely influence the Korean apparel industry:
. Final phase-out of quota by the year of 2005.
. China’s admission to membership in the WTO in 2001.
. Passage of the Trade and Development Act of 2000 (TDA), which, extended
NAFTA-like privileges to the Caribbean Basin Initiative (CBI) countries, making the CBI region a more threatening competitor.
. Passage of the African Growth and Opportunity Act of 2000 (AGOA), which, expanded production opportunities in Africa.
The diamond approach 205
Porter (1998) determinants New competitive advantage factors Current status Solutions through internationalization
Factor conditions Advanced factors: skilled human resources such as creative designers.
Specialized factors such as production and process technologies that are specific in handling global sourcing and management (e.g. EDI).
Factors creating zeal (e.g. eagerness to learn contributes in creating abundant educated human resources). Fashion designers start to gain international recognition Factors can be created by hiring foreign expert designers and co-development of designs. While level of general technology infrastructure is the match of most advanced nations, specialized production and process technology remains a challenge
Demand conditions Demanding higher levels of needs such as brand name and service
Fashion consumers are extremely demanding and sophisticated. Some
Korean brands have a presence in some
Asian countries as well as in the US
The firm needs to diversify its international markets. The firm should utilize inbound and outbound FDI effectively to create global brands.
Understanding demand of global consumers is challenging
Related and supporting industries Presence of internationally competitive front-end industries that efficiently coordinate global supply chain management (e.g. buying office, advertising, information technology)
Ample experience of triangle manufacturing in which Korea learns how to organize global production and trade networks
However, Korea has not owned an internationally competitive advertising industry and IT industries. These can be achieved using an international workforce Firm strategy, structure, and rivalry
Organization and strategy of most apparel firms are suited to industries’ source of competitive advantage: high quality design plus agility
Geographic concentration, domestic rivalry and personal networks facilitate agile reaction to the market
For agility to global markets, a solid system is needed greater than personal networking. However, high quality design with agility remains a challenge
Source: Moon et al. (1995, 1998)
Table II.
Current status of the
Korean apparel industry and solutions through internationalization using the generalized double damond model
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. The decline of finished apparel exports from developed countries in Eastern Asia due to financial concerns (paying in advance by letter of credit) and the need for a quick response (Gereffi, 1999; Speer, 2001).
For these future studies, the framework suggested in this study will be useful to investigate how the Korean diamond system can take advantage of these chances, overcome unfavorable environments, and convert them to competitive advantages for its continued growth.
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