Book Review

Innovation Policies and International Trade Rules: The Textile and

K. Lal and P.A. Mohnen (eds.)

European Journal of Development Research (2011) 23, 176–178. doi:10.1057/ejdr.2010.64

The authors examined the role of international trade rules and capacity-building initiatives
in the growth of the textiles and clothing (T&C) industry in developing countries. The
central question addressed in the book is whether the easing of quota restrictions has been
the real cause of the difficulties that T&C industries in many developing countries have
had to grapple with over the past 10 years. On the basis of international market shares of
51 developing countries, the authors categorized the (T&C) producing countries into first
tier countries, second tier countries and third tier countries. First tier countries that began
the export of (T&C) in the 1960s and 1970s, have either expanded or continue to maintain
their international market share. The second tier countries that emerged as T&C exporters
in the late 1970s, began to experience decline in the late 1980 while the third tier countries
had a short life span in the export market.
The book argues that the abolition of the Multi-fibre Agreement (1974–1994) and the
subsequent removal of Agreement on Textiles and Clothing (1995–2004) have had dif-
fering effects on (T&C) industries in developing countries. On one hand, the removal of
these quota restrictions has presented opportunities (that is, market expansion) to the
leading exporting countries that have developed and continue to develop strong produc-
tion capacity base. On the other hand, it has intensified the competitive pressures on
those countries that possess weak production base – causing some of them to exit from the
global T&C trade after a short presence in the global market. Other factors such as
the quality and the extent of firm-level capacity building initiatives and government-level
trade and technology support policies also account for the differential performance of
developing countries T&C industries in the global market.
The authors argue that the exit of some Third Tier countries from the global T&C
market was as a result of a lack of technological capabilities rather than wage pressures.
That these countries came under competitive pressures sooner and may not have had
the opportunity to build capacity, upgrade or become increasingly innovative. Char-
acteristically, these countries have low labour wages compared with some of the first tier
and second tier countries, yet they have failed to compete successfully in the international
markets; buttressing the point that cheap labour is not a sufficient factor in enabling T&C
firms to compete effectively in the international market.
The book shifts the debate on international competitiveness of T&C industries
from the traditional wage costs advantages to emphasis on state policies that promote
skill development, innovation and technology improvements and continuous investments
in capacity-building initiatives at the firm-level. In effect, it proposes that the survival
of T&C firms in the liberalized global market is linked to ‘high road’ competitive
strategy based on product innovation, technology improvements and skill development

r 2011 European Association of Development Research and Training Institutes 0957-8811

instead of the ‘low road’ path derived from cheap labour. This idea though is not
new (Michael Porter has long been an avid proponent), the contributions from the
authors, most of whom are from developing countries, provide rich empirical data to
support the claim that success in the T&C global market is linked to high road competitive
strategy.
The book has been structured in a manner that makes it possible for the reader to
benchmark the experiences of second tier case country, Uruguay (chapter 7) and the third
tier cases (Mauritius, chapter 5 and Ghana, chapter 6) with the experiences of the
successful first tier countries (China, chapter 3 and India, chapter 4).
The T&C industry in China benefitted from active state support and market reforms in
the 1980s and 1990s. Under the rubric of the Chinese ‘Socialist market economy’ a number
of reforms were undertaken that allowed the ‘market to gradually became the foundation
for the allocation of T&C resources’ (p. 58). Private enterprises, some with foreign
ownership increased substantially whereas state-owned enterprises were modernized and
encouraged to participate in the open market instead of relying on government for
resources. The power to assess and approve investments projects were devolved to local
authorities. China dismantled the monopoly over the purchase and market of T&C pro-
ducts and liberalized the local sourcing of raw materials. The Chinese government through
technology development, training and innovation policies, export-oriented programmes
and subsidies aided the country’s T&C industry to become internationally competitive.
The Chinese firms also benefit from the advantages of large size. They continuously
and individually invest in new technology, product innovation, worker training, branding
and marketing to position themselves at the high end of the global T&C market. The
Indian T&C industries that according to the authors are dominated by small enterprises,
lack the resources to upgrade their capacities and innovate in a comparable manner as
the Chinese firms.
Regarding second tier and third tier countries, the book reveals that individual T&C
enterprises that showed the ability to automate production processes, used information
technology intensively, trained their workers and established innovative networks with
other institutions (for example, Paylana in Uruguay and Mauritian producers) were able
to secure the middle-high segment or niche international markets. Governments in these
countries sought to develop the T&C industry through export promotion schemes and
technology promotion yet less robust compared with the Chinese experience. In some
instances the decline in T&C export such as Uruguay is attributed to the lack of tech-
nological and export promotion policies at the government level or the government
policies were deemed as discriminatory; favouring firms located within export processing
zones to the detriment of domestic firms located outside the zones (for example,
Ghana).
The use of ‘Tier’ in the classification of the producing countries evokes images of
network-based textiles and clothing production; however, the empirical discussions
neglected an equally important source of innovation, skill upgrading and technology
transfers that is achieved through participation in global production networks. The
bourgeoning literature on global production networks pioneered by Gary Gereffi and
other authors at the Institute of Development Studies, University of Sussex demonstrates
how skills, technical know-how and market information are transmitted via transnational
networks to suppliers in the South. The only reference to global production network
was in page 176 in which Mauritius firms minimally benefitted from larger Far-Eastern
companies resident in Mauritius, indicating very little south-south collaboration to

r 2011 European Association of Development Research and Training Institutes 0957-8811 177
European Journal of Development Research Vol. 23, 1, 176–178
 Book Review

innovation and technology transfers. The book also reveals intense south-south
competition with the leading T&C producers (for example, China) out-competing the
latecomer Third World countries on prices in the latter’s own backyards (for example,
Ghana, pp. 222–223).

Owusu Boampong
University of Birmingham, England

178 r 2011 European Association of Development Research and Training Institutes 0957-8811
European Journal of Development Research Vol. 23, 1, 176–178