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How can free zones support modest fashion businesses?

| 28 September, 2016 | General
Haroon Latif, DinarStandard
How can free zones support modest fashion businesses?
Photo: BANGLADESH - JUN 2, 2011: Inside a garments factory in Bangladesh / JANKIE / CC BY-NC-ND 2.0 

Free zones are very important for many economies that seek to grow and diversify. The modest fashion sector is underpinned by $243 billion in expenditure by Muslims on all types of clothing and footwear, and it is seeing growing interest from mainstream clothing brands. As this sector matures, what are the ways that free zones can help modest fashion companies? 

YOUR PAIN POINTS ADDRESSED

ASK YOURSELF

Scenario:

You are a high-growth modest fashion brand looking to scale.

Does it make sense for a modest fashion company to operate within a textile free zone?

How important are free zones, and how are they supporting the clothing sector?

What initiatives are underway to support the development of the modest fashion sector?

How are free zones supporting pillars of the Islamic Economy, and how can they help modest fashion companies to scale and operate?

GLOBAL PICTURE

There are around 4,500 free zones around the world, up from a very modest 176 in 1986, according to an April 2015 report from The Economist citing data from the International Labour Organisation and T.W. Bell OF Chapman University. The rapid growth in free zones has been critical for boosting substantial economic growth in developing countries.

Free zones have historically supported a range of manufacturing sectors, and the textiles sector especially has extensively leveraged them. Textile free zones are predominantly located in clothing export markets. The largest export markets for clothing in 2015 were China ($162 billion in apparel articles exported), followed by Bangladesh ($30 billion), and Vietnam ($24 billion), with the United States, Germany, and the United Kingdom as the three largest importers.

China: According to a February 2015 report from the World Bank (pdf), 22 percent of China’s GDP in economic activity came from Special Economic Zones (SEZ), which for the country includes free zones, export-processing zones, industrial parks, free ports, and enterprise zones. Of China’s almost 800 SEZs, 12 industrial parks have a discernible focus on textiles, the largest, by employment, being the Ningbo Export Processing Zone in Zhejiang, with close to 150,000 employees and contributing over $2 billion to GDP.

Bangladesh has eight free zones as of 2016, and they play a key role in helping the country secure the economic status of a middle-income country, with the first and largest free zone, located in Chittagong, set up to boost the country’s textile export industry.

According to the Bangladesh Export Processing Zones Authority’s most recent report, produced in 2013, apparel and footwear represented the top five sectors by economic activity within the free zones, attracting close to 250 organizations, $2 billion in investment, and employing over 200,000 people.

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MODEST FASHION SECTOR GROWING

According to DinarStandard analysis, Muslims are estimated to have spent $243 billion on clothing and footwear in 2015, and this spend is expected to increase by 7 percent cumulative annual growth rate (CAGR) to reach $368 billion by 2021.

It must be noted that a significant portion of this expenditure is not on modest fashion in particular. However, the sector is growing and gaining more mainstream attention.

Among the mainstream brands, DKNY and Uniqlo were early entrants into the modest fashion sector, launching Ramadan collections in 2014 and 2015, respectively.

Other big names have followed, including H&M and Mango.

This year in January, Dolce & Gabbana launched its first-ever collection of hijabs and abayas for the Middle East market followed in April by leading British retailer Marks & Spencer’s announcing it had started to sell two styles of full-length swimwear.

The sector has garnered increasing interest from governments as well. In 2015, a dedicated roundtable on modest fashion was organized by the Dubai Islamic Economy Development Center (DIEDC) in Turin, Italy, to discuss how to create guidelines for modest fashion. Following the roundtable, the DIEDC has started to develop guidelines for the sector as well as establish an incubation mechanism for modest fashion companies in Dubai to help develop talent in the sector.

In addition, modest fashion is getting increasing coverage from mainstream Western news outlets, including the New York Times and the BBC. Though still niche, the sector appears set for maturity.

SCOPE FOR FREE ZONES IN SUPPORTING MODEST FASHION

In the Islamic Economy, free zones so far have focused on being hubs centered around food and other halal products.

Halal hubs are particularly prevalent in Malaysia, which has over 20 dedicated halal industrial parks, most notably in the states of Penang and Johor Bahru. These halal parks are dedicated areas where companies across the halal food value chain co-locate, access vital consulting and marketing services, and share best practices.

While a dedicated zone for modest fashion may not make sense, the clustering of modest fashion designers in a single location can be beneficial for two major reasons:

The co-location of textile producers and modest fashion designers can help brands scale faster.

Discussing the benefits of being located near suppliers, Altaf Alim of United Kingdom-based modest fashion retailer Aab commented in an interview with Salaam Gateway, “Why would we not consider a free zone that is friendly to modest fashion? Especially those where there is a textile-producing background. As you scale up, it’s all about economies of scale, [and it’s worth] looking at a cluster where we can get access to labor and raw materials.”

Co-location could be encouraged via government policy (with a targeted marketing push to attract modest fashion designers) and would particularly make sense in key textile export markets.

Penang International Halal Hub advisor Dr. Mohamed Amin Mohd. Kassim said, “There is definitely scope to come up with a finished product in the free zones; this has potential particularly in Asia, where you have a strong interest in modest fashion among consumers.”

Companies can access the full value chain of producers in one place, minimizing logistics costs.

Sourcing multiple inputs from a single supplier can be challenging, and this can also lead to concentration risk and disruption if the supplier runs into financial difficulties. From this angle, being in a free zone makes significant operational sense.

Altaf Alim of Aab added, “In a free zone, we would have access to different suppliers having all of the elements of garment production accessible. This is a critical factor for us when we [are] deciding where to open a new production site.”

SUGGESTED ROADMAP
Study the free zones landscape and identify key production markets: Determine where major clothing producers are operating in free zones
Understand where government policies support modest fashion: In Organisation of Islamic Cooperation (OIC) countries and in leading exporters such as Bangladesh in particular, there is substantial support for the modest fashion sector, and new initiatives are highly to unfold.
Be part of the conversation: Events such as the Turin roundtable in 2015 will lay the seeds for major initiatives.

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