Small businesses are critical to the U.S. economy, representing 99.7% of all firms, creating 60-80% of new jobs, and generating 40.9% of private sales, according to the U.S. Small Business Administration. However, a recent University of Delaware survey shows that small and medium-sized businesses face significant challenges concerning international trade.

About the Authors

The authors are on the faculty of the University of Delaware's Department of Fashion and Apparel Studies. Hye-Shin Kim's research focuses on consumer involvement, brand perceptions, online communities, shopping motivation, and word-of- mouth consumer behavior. She has received the Fairchild Publications Award from the International Textile and Apparel Association and the John Wingate Award for Best Research Paper from the American Collegiate Retail Association.

Marsha Dickson, chairperson of the department, specializes in research on socially responsible textile and apparel production and sourcing, and global apparel production and marketing. She is a member of the board of directors of the Fair Labor Association, is the founder and director of the Educators for Socially Responsible Business, and served as a Scholar-in-Residence at the Rockefeller Foundation's Bellagio Study Center in Italy.

M. Jo Kallal's research interests are in creative apparel designs that bridge avant-garde market-oriented apparel with wearable art and/or sustainable design, global textile and apparel industry partnerships, enhancing spatial visualization skills of apparel design students, and modeling the design/product development process for sustainable design and the 55+ consumer. She is the recipient of numerous honors, from a Fulbright-Hays Scholarship on the "Fabric of Indian Life," to design awards from the International Textile and Apparel Association.

by Hye-Shin Kim, Marsha Dickson, and M. Jo Kallal

The U.S. share of the global apparel market has grown substantially over the past decade. In 2005, the United States exported $4.4 billion and imported $68 billion in apparel (U.S. Apparel Industry Overview, 2005), and apparel sales accounted for over $540 billion in U.S. retail sales. 

Over the past few decades, however, significant changes in the world environment have altered the dynamics of the industry. Outsourcing apparel production is occurring in virtually every corner of the world. Increasingly, U.S. companies are working with foreign companies in all stages of product development and manufacturing.

Similar to apparel manufacturers, retailers made similar significant changes in their business strategy in the 1980s and 1990s. Retailers began to develop privately labeled brands and assume the design and product development activities previously carried out by manufacturers. Retailers arranged production to their specifications with some of the very same contract suppliers in the very same regions of the world used by the apparel manufacturers. As such, large apparel manufacturers and retailers today must work flexibly and collaboratively with partners around the world in order to survive in this highly competitive environment. They are relying on apparel resources from around the world as part of their strategy for success.

In the United States, there are approximately 63,000 apparel and accessories stores. Yet many international business courses and training materials are developed from the perspective of large multinational companies. Thus, information applicable to small businesses is limited and has been focused on exporting rather than importing needs.

As the U.S. apparel industry is largely dependent on manufacturers in other countries, foreign sourcing is not a choice but a necessity in competitively offering apparel and related products to customers. The purpose of our study was to assess the perceived benefits and barriers to sourcing by small business retailers that sell apparel and related products. In addition, the retailer’s interest in sourcing was examined in relation to perceived benefits and barriers. 

From fall 2006 through spring 2007, we surveyed small-business retailers (having 1 to 500 employees) sellling apparel or apparel accessories in the Mid-Atlantic region, including New York, New Jersey, Pennsylvania, Delaware, Maryland, and the District of Columbia. Out of the 1,000 surveys mailed, a total of 66 small business retailers returned the survey, yielding a response rate of eight percent.

The Survey Results

Who are the survey respondents?

• They are located in the Mid-Atlantic region, including New York, New Jersey, Pennsylvania, Delaware, Maryland, and the District of Columbia. Most own one store (75%). The oldest store was established in 1911; the newest store opened in 2005. 
• Eighty percent have three or fewer full-time employees. The apparel they sell includes footwear, ladies apparel, menswear, leather apparel, bridal wear, western wear, uniforms, and accessories. 
• Eighty-three percent reported sales of less than $1 million in the past year.

How do these small businesses locate manufacturers for their apparel?
A higher percentage source their products from foreign manufacturers through independent intermediary agents (a trading company, import broker, buying office, etc.) in the United States rather than directly from foreign suppliers. Over 40% use intermediary sources in the United States to find foreign manufacturers for 51–100% of their merchandise. A notable majority (68%) do not source directly from overseas manufacturers without the assistance of intermediary agents for any of their products.

Who makes most of the products these small businesses sell?
Brazil, Canada, China, Vietnam, Germany, India, Italy, Japan, Korea, Mexico, and Thailand are among the top manufacturers. Trade shows are a key source of information on foreign sourcing for small businesses in addition to buying offices, chambers of commerce, trade publications, sales representatives, professional contacts, the Internet and e-mail, and word of mouth. 

What are the benefits of foreign sourcing?
The top benefits indicated by respondents are increased profit margins and an effective way to develop private labels in addition to the greater variety of products provided by foreign manufacturers. Quality, delivery time, customer service, and custom-designed products were not cited.

What are the barriers to foreign sourcing? 
The top barriers are long shipping time and/or slow replenishment and limited information about foreign manufacturers. Additionally, a wide variety of other barriers were cited: communication, settling disputes, transportation/insurance costs, identifying foreign manufacturers, language and socio-cultural barriers, managerial time and personnel needs, and issues related to importing procedures and foreign business practices. Interestingly, lower on the list of concerns were manufacturers’ ability to adapt to a specified design/style, meeting U.S. packaging/labeling requirements, and meeting product quality standards/specs.

Conclusions & Implications
Overall, respondents indicated slightly positive to moderately positive perceptions of how sourcing from foreign manufacturers may benefit their businesses. Although respondents indicated that sourcing from foreign manufacturers would increase their margins, this did not necessarily correspond with their interest in sourcing directly from foreign manufacturers. This may explain why some respondents have less interest in sourcing directly from foreign manufacturers but instead may be more comfortable in relying on intermediaries in the United States to assist in their foreign sourcing activities.

Reliance on intermediaries to provide assistance in successfully selling foreign-made products may also be reflected in the survey respondents' low level of concern for U.S. packaging/labeling requirements and meeting product quality standards/specs. Basically, retailers are willing to give up some of the profit margins they might have achieved from directly sourcing, to have someone else take care of potential problems that might arise in direct sourcing.

Higher perceptions of problems in obtaining credit from non-U.S. manufacturers were significantly related to a higher level of interest in sourcing directly from foreign manufacturers most likely due to the fact that credit issues were currently hindering their current sourcing activities. Obtaining credit is a true barrier to retailers that wish to source from abroad. Better understanding of the importance of credit in facilitating business between the retailer and foreign manufacturers is needed.

Our study found that retailers who believed poor standards for labor practices to be potential problems and therefore barriers were less interested in sourcing from foreign manufacturers. This finding suggests some level of awareness among small business retailers concerning social responsibility issues and that these issues do, in fact, influence their tendencies to do business. It appears that small retailers are attempting to use intermediaries as buffers.

In conclusion, this study provides new insight into the foreign sourcing practices of small business retailers that sell apparel and related products. The study feels the pulse of small business retailers’ attitudes toward sourcing and various factors that may encourage or discourage their interest in working directly with foreign manufacturers. Interestingly, small retailers recognize the opportunities that sourcing directly from foreign suppliers would provide in obtaining unique, high-quality merchandise. However, the logistics of actually buying directly from foreign suppliers may be preventing them from making the most of this opportunity. Given the global nature of the apparel industry where the majority of products are manufactured abroad, it is important to understand how small business retailers may find a competitive position within the marketplace through direct foreign sourcing.

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