Living Economics

Niche Specialization
Niche comparative advantage in location proximity and fast response time could overcome the disadvantage of high wages in the garment industry.

It is well-known that the American garment industry has fallen on hard times amid the flooding of much cheaper garments from low-wage countries. According to the Bureau of Labor Statistics, the workforce in garment manufacturing has dropped from more than 400,000 to less than 200,000 in the past decade. But the survivors provide an interesting story of niche specialization. Ironically, these niches have been opened up by the very success of imported garments from distant shores.

The long distance between the overseas suppliers and the American retailers means that garments must be ordered in bulk months ahead of time to allow for their lengthy but more affordable ocean delivery.

If an American garment factory can deliver custom-made garments in one week to the retailers, it can save the retailers a lot of money. For example, the retailers could be losing a lot of money because they ordered too much or too little of certain lines months ago from the overseas suppliers. This cost savings are particularly important for time-sensitive high-end garments. In fact, this rapid-response capability explains the success of Joseph Abboud, a lone survivor in the decimated garment industry of New Bedford, MA. Its specialty is in high-end custom-made suits using lean manufacturing that could deliver suits in one week instead of the usual 5 weeks. The high prices for high-end suits and the much improved labor productivity of lean manufacturing have made it possible for Abboud to compete even though it pays its workers up to 12 times an hour as much as overseas workers.

Sometimes, the bulk overseas shipment might have minor imperfections that need some last-minute repairs or customizations. It would save retailers a lot of money if these repairs can be done in America instead of trashing the whole shipment or more impractically shipped back across the 9,000-miles ocean. In response to these needs, fix-it shops have sprung up in Los Angeles and New York. These fix-it shops tell us that even cheap overseas labor cannot always overcome its location disadvantage.

While none of these shops offers close to the number of jobs that have been lost to overseas competitors, the existence of these niche shops shows how viable business niches could emerge seemingly out of total devastation. In other words, the concept of comparative advantage is not just applicable to the whole products but to different stages of production and different niches of a product category. And the more specialization is applied to ever smaller niches, the greater would be the gain from specialization and trade.

References:
  • WSJ 11/13/2007. "Clothes made abroad create factory jobs in L.A. for Mr. Fix-it."
  • Boston Globe 1/7/2007. "Made in New Bedford: a suit designer retools."
  • NPR 1/25/2007. "Suit maker goes 'lean' to keep jobs in U.S."
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