Abstract
The global value chain (GVC) literature usually approaches the question of value capture among supplier firms in global supply chains through the conceptual lens of economic upgrading, defined as moving from contract manufacturing to design and then to own brand. However, in the global apparel industry, research shows that few if any apparel manufacturers have developed their own global brand and that apparel suppliers have taken on ever more tasks within manufacturing and logistics without increasing their profit share per product. Given that GVC scholars have been concerned with the distribution of the profit share within the chain and how supplier firms can capture more of it, we argue that it is time to re-think how the GVC approach conceptualizes value capture in globalized industries. This paper offers one way of re-thinking value capture, through our product innovation cycle framework. This framework is tailored to the global apparel industry, building on the work of scholars in economic geography and business studies as well as iterative theory building with original empirical data on the top transnational apparel suppliers. However, we think that it can contribute to a broader rethinking of how to explain value capture by supplier firms in globalized industries.
Introduction
The concept of economic upgrading was introduced by Gereffi (1999) to explain the expansion of East Asian apparel suppliers beyond apparel assembly into activities such as input sourcing, transnational subcontracting and design in the apparel global value chain (GVC). Gereffi suggested that progression from contract manufacturing to design and then to own brands would lead to more value capture by supplier firms. Gereffi’s article became the seminal work for research on apparel GVCs, and subsequent studies focused on examining the reasons for successes and failures of apparel supplier firms to pursue this upgrading trajectory. Twenty-five years later, the large apparel GVC literature documents the many difficulties that supplier firms in the global South faced in achieving economic upgrading with greater value capture. It demonstrated that product and process upgrading within contract manufacturing became a survival strategy for retaining buyers and orders and did not lead to higher unit prices from buyers (Anner, 2020; Bair and Gereffi, 2003; Nathan et al., 2023; Pipkin and Fuentes, 2017; Tokatli, 2007). It illustrated how upgrading from contract manufacturing to design and branded apparel was difficult to obtain because they required different capabilities and significantly more finance than required for manufacturing and because buyers did not support suppliers’ move into functions that buyers performed.
Given this misalignment between what the economic upgrading theory posited and what empirical studies show, we argue that it is time to rethink economic upgrading. We need a new answer to an old question: how do supplier firms capture value in the global apparel industry? This paper offers one such reconceptualization. We do so by building on the work of Tokatli (2013), who argued that instead of focusing on the upgrading typology in the GVC literature and then looking at the value captured, we should identify supplier firms that have appropriated extraordinarily higher profits and examine what explains the different financial positions among supplier firms. We also incorporate the ‘upgrading paradox’ highlighted by Kaplinsky (2005), Schrank (2004) and Brewer (2011), where the widespread upgrading of supplier firms in a particular function depresses the profitability of all supplier firms in that function. The upgrading paradox occurs because wealth creation is an outcome of the oligopolistic position of firms in an industry that produces higher profit margins (as Schumpeter argued). The upgrading paradox led GVC scholars to call for a better conceptualization of the linkage between upgrading and economic development outcomes at the industry and country levels.
Our conceptualization is based on iterative theory building between extensive and intensive research on apparel supplier firms and recent ideas about value creation and capture in global supply chains discussed by GVC and GPN scholars. This iterative theory-building effort started with the identification of diverging trajectories among the top global apparel suppliers over time as consumer market dynamics shifted in the main end markets of the US and Europe. A set of Asian apparel suppliers grew in tandem with large apparel brands and retailers as the Multi-Fiber Agreement (MFA) quota system was phased out in the mid-2000s by providing a global portfolio of sourcing locations based on labor costs, duty free access to US and EU markets and speed to market. Appelbaum (2008), Azmeh and Nadvi (2014), Merk (2014) and Raj-Reichert (2019) documented this trend of mega-suppliers. Subsequently, the trajectories of these mega-suppliers diverged, with new firms having emerged and grown large while others stagnated or even declined, as we show.
The next section discusses the genealogy of the apparel GVC upgrading literature, which has housed important debates on upgrading and value capture among apparel suppliers. However, the literature has hit an impasse for two reasons. First, scholars either accept the upgrading typology uncritically, or they acknowledge that it cannot explain upgrading but have not suggested a different approach to explaining value capture. Second, scholars draw conclusions about value capture outcomes without linking them to firm-level financial data from apparel exports. We acknowledge that some of the weaknesses stem from the difficulty of accessing firm-level financial data. Nevertheless, if we are to understand what factors explain value capture outcomes, we need to consider how to collect empirical data.
In moving the debate forward, we build on and extend the work of Kumar (2020) on monopsony capitalism that emphasizes how capitalist competitive dynamics among buyers and between buyers and suppliers shape market power and thus price setting, which determines the distribution of profit along the chain. Our contribution is two-fold. We explain how the apparel GVC has evolved using original research to show that concentration at both ends of the GVC is not as high as often asserted, which makes competition among buyers high as well as competition among suppliers. This is because the global apparel industry thus far is characterized by limited technological change, which makes it difficult to erect and sustain barriers to entry to competitors and thus higher profit margins. Nonetheless, we see that some apparel brands and some apparel suppliers have been able to achieve significantly higher profit margins than their competitors. To explain why, we elaborate how Schumpeterian innovation shapes these competitive dynamics and value capture opportunities for supplier firms in our product innovation cycle conceptual framework, drawing on the work of Sako and Zylberberg (2019) and Yeung (2016). Our framework argues that buyers seek to escape high competition levels by commercializing new innovative products that can produce high consumer demand and support high retail prices, but to do so, they need suppliers that can provide the co-specialized complementary capabilities in manufacturing necessary to bring the innovative product to market because buyers focus mostly on marketing and distribution. This strategic partnership forces the branded apparel firm to make concessions on profit sharing, allowing supplier firms to capture a greater share of the profit margin per product. However, these strategic partnerships are temporary, depending on how long the product innovation cycle lasts and whether other supplier firms emulate the capabilities. As a result, upgrading is a transient situation that must be renewed through new strategic partnerships.
The methodology section explains the methods we use to identify product innovation cycles in the global apparel industry, the branded apparel firms that pioneered them and the value capture opportunities they offered for suppliers. We identified three product innovation cycles: lingerie casual/denim in 1980s and 1990s, activewear from the 2000s and athleisure from the 2010s. We then explain the diverging profit trajectory within 10 of the top 20 apparel suppliers over the past 30 years based on whether they were able to build complementary assets for lead firms in these product innovation cycles. Notably, the complementary assets required for the second and third product innovation cycles included synthetic fabric capabilities, which underscores inter-industry spillovers in the ability of supplier firms to create the required capabilities for product innovation cycles and means that firm-level upgrading is linked to broader industrialization dynamics at the country-level. In concluding, we argue that our product innovation cycle framework is applicable beyond the global apparel industry and encourage other researchers to test it.
Economic upgrading and value capture in the apparel GVC literature
Two articles profoundly shaped the way in which GVC scholars have investigated the development and value capture pathways of apparel supplier firms. The Gereffi (1999) article led to the standard model for studying functional upgrading as moving from contract manufacturing to design and then to own brand, which were posited to lead to higher value capture. Humphrey and Schmitz (2002) added the concepts of process and product upgrading, which were supposed to lead to higher profits by producing more efficiently and producing more complex products, respectively. In the following two decades, numerous studies investigated functional, process and product upgrading in apparel supplier countries across Mexico and Central America, Central Eastern Europe, Africa, South Asia and China as a potential pathway for supplier firm development and value capture. 1 These country studies showed that apparel supplier firms increasingly were expected to take on new tasks such as input sourcing and forced to improve their efficiency to retain existing profit margins. They also provided insights regarding the role that domestic labor markets, institutions and broader political economy factors played in supporting or limiting firm-level upgrading. At an industry level, they showed how individual supplier countries and firms gained, lost or adapted in the context of China’s entry into the WTO in 2001 and the phase out of the Multi-Fiber Arrangement (MFA) quota system in 2005, which led to much higher competition. However, while many of these studies mentioned value capture, they did not provide data on firm-level profits.
Within the apparel GVC studies that provide firm-level data on value capture, there are methodological weaknesses that limit the conclusions that can be drawn. Some studies traced value capture at an aggregated country-level, drawing on national export volumes or export unit prices and combining this data with firm-level interviews asking about constraints and success in pursuing process, product and functional upgrading (Anner, 2020; Nachum and Uramoto, 2022; Nathan et al., 2023). This method tells us something about value capture at the supplier country level, but it glosses over differences among supplier firms, which are important because some firms may be capturing greater value while others are not.
Furthermore, apparel GVC studies primarily investigated upgrading and value capture in countries where garments are assembled and exported (Bair and Gereffi, 2003; Morris et al., 2011; Pickles and Smith, 2011; Whitfield and Staritz, 2021; Zhu et al., 2019). However, supplier firms in those countries can consist largely of transnational suppliers or a mix of locally owned firms and transnational suppliers. For the transnational suppliers, their subsidiary factories typically only undertake assembly and thus receive a cut-make-trim price from headquarters, where buyer orders are taken and processed. This means that the profit is captured at the headquarter level, and that profit data at the subsidiary factory will not tell us anything about the overall functions and profit margins of transnational supplier firms. Thus, measuring the value capture of transnational apparel suppliers must focus on profit margins of the entire firm, which can only be captured at the headquarters.
In addition to these methodological gaps, most conceptualizations of upgrading are not embedded in a theory of a theory of how firms can capture value in globalized industries, other than the upgrading typology. The contributions by Gereffi and of Humphrey and Schmitz suggested that production efficiency, new functions as well as moving into products with a higher retail price result in the supplier firm’s ability to capture the profit that it creates. This is a static conception, as it does not consider whether the activities and functions themselves become the minimum requirement. The major exceptions are Sako and Zylberberg (2019), who draw on management studies and especially Teece’s ‘profiting from innovation’ framework (Teece, 1986), as well as Kumar (2020) and Galanis and Kumar (2021). We will return to the work of Sako and Zylberberg when presenting our product innovation cycle conceptual approach to upgrading. Here, we discuss the contribution but also limitations of Kumar’s monopsony capitalism approach.
Kumar (2020) argues that there has been a fundamental shift in the market structure of the global apparel industry that strengthened the bargaining power of apparel suppliers and thus their value capture. He argues that the MFA phased out fostered fierce competition among suppliers that led to consolidation on the supplier side, as small and medium suppliers could not compete, and they either merged, or their market shares were taken over by larger suppliers. The result was not just oligopsony on the buyer side, as Milberg and Winkler (2013) showed and which resulted in the ability of lead firms to squeeze the prices paid to their suppliers, but also oligopoly on the supplier side, as there were fewer, larger apparel suppliers. Kumar (2020: 176–177) argued that the emerging mega-suppliers led to a buyer-supplier symbiosis in terms of their market power (see also Galanis and Kumar, 2021: 59). Facing consolidated suppliers results is a crisis of profitability for lead firms, which can be resolved by an increase in the number of supplier firms or by pursuing other ‘fixes’ in innovations in finance, technology, product or organization, of the kind discussed by Silver (2003).
The strength of Kumar’s analysis is the emphasis on an inherent antagonism between buyers and suppliers that is embedded in the competitive dynamics of capitalism, not just among buyers (horizontal market pressure) but also among buyers and their suppliers (vertical market pressure). Kumar (2020: 181) notes that the success of a lead firm under capitalism depends on its ability to compete and remain competitive, which generally requires constant innovation. This competitiveness leads to greater market power, which in turn leads to more market share the lead firm can acquire from its horizontal competitors as well as increasing the share of value that the lead firm can capture from its suppliers and from labor (in other countries), bringing down input prices. The limitation of Kumar’s work is that this theoretical argument about innovation, market power and how that shapes value capture is not further developed, and his analysis lacks systematic empirical evidence showing if and why the bargaining power of mega-suppliers increased leading to higher value capture. Kumar (2020) primarily relies on an analysis of the Indian company Arvind and uses Arvind’s increased annual consolidated profits as evidence of higher value capture. However, Arvind is a diversified business group that produces garments for the domestic market in India, which it sells in its own retail stores, and has other businesses such as real estate, so the consolidated accounts cannot tell us about value capture in the apparel export business.
This paper extends what Kumar started by developing how market power is linked to innovation, and by linking the theoretical argument to empirical evidence that looks at the value capture trajectories and outcomes of the top global apparel suppliers based on financial data on profit margins at headquarter level and on interviews conducted with supplier firm executives. We explicitly define economic upgrading as supplier firms increasing their profit share per product unit and thus measure it using gross profit margins. The next section provides a detailed picture of the apparel GVC, which provides the context for understanding upgrading as well as evidence of variation in value capture among mega-suppliers, before turning to our theoretical argument. It is based on our understanding of buyer-supplier relationships developed through more than 100 interviews with lead firms, suppliers and industry experts that were conducted at supplier firms’ headquarters, subsidiaries and global industry summits between 2020 and 2024.
Apparel GVC and the puzzle of variation in apparel supplier value capture
There is no concentration of market shares among buyers or among suppliers in the apparel GVC. The monopsony power of lead firms does not come from buyer consolidation, but rather from apparel brands and retailers pursuing similar business strategies of retaining profit margins through markups on input costs, using the open costing and standard allowed minute (SAM)-based system for calculating unit prices that we discuss in this section. These strategies allow buyers to play their suppliers off each other and to capture the efficiency gains of their suppliers, combined with the constant search for new, lower cost supplier countries. The effect for apparel suppliers is to keep their profit margins on garment assembly very low. Yet, some top apparel suppliers capture substantially higher profit margins. This poses an empirical puzzle that is not explained in the literature: how do some apparel supplier firms escape the supplier squeeze by their buyers?
As Table 1 shows, the top 10 apparel lead firms accounted for only 10% of global apparel retail market shares in 2022. 2 The US, EU and Japan remained the largest apparel import markets. The EU share of total apparel imports is 49%, followed by US (23%) and Japan (6%; UN Comtrade, 2025). China has only 2% of total imports, but this figure does not cover the locally produced apparel goods in China.
Top 10 apparel lead firms by revenue, 2022.
Source: Annual Reports (number of stores), corporate websites (number of suppliers), Capital IQ database (revenues, profitability).
Note. The firm set excluded high revenue brands part of multi-segment luxury conglomerates (LVMH, Kering) and wholesale retailers (Walmart, Target).
The combined market share of the top 20 apparel suppliers on global export markets accounts for 5.8%. 3 We created the list of the top 20 largest apparel suppliers in Table 2 by focusing on suppliers listed under the industry code ‘apparel manufacturing’ in the Capital IQ database and achieving a revenue of more than USD 200 million by 2022. This database only contains firms that are publicly listed, so we added privately owned firms in the final list by asking industry experts and publicly listed suppliers during interviews about their privately owned competitors. We obtained revenue data on the private firms during interviews and from online sources. The list excludes diversified conglomerates with less than 75% of revenue from apparel exports, which was the case for large apparel suppliers from India and Bangladesh.
Top 20 apparel suppliers by revenue, 2022.
Source: Authors, based on Capital IQ database.
To ensure anonymity, we did not publish the revenue figure of ‘Anon’ firm.
Based on our analysis of existing literature on the apparel industry, apparel product offerings from around the 1950s to the 1970s were relatively homogenous mass market products targeting a large middle class and structured around predominately US-based department stores that sold products bought from branded manufacturers, complemented with a smaller high end price segment (Rosen, 2002). Slowing growth in the mid-1980s led to financial crises for department stores and the emergence of discount chains and apparel specialty retailers that created different price segments with changing product offerings (Abernathy et al., 1999; Taplin, 2014). We argue that the changing product market strategies of apparel brands and retailers translated into three major product segments with distinct growth dynamics, product features and price points, which we identified through the methodology explained below.
The first product segment is basics such as t-shirts or basic underwear, which are offered in relatively stable volumes throughout the season given their constant demand and have high price elasticity and thus low retail prices. The second product segment is fashion basics such as shirts and dresses, which are at the center of fast fashion strategies of low-cost apparel retailers that generate demand through offering rapidly changing iterations of existing styles. They also have low retail prices that are subject to fierce price markdowns soon after the collection is launched. The third product segment is functional fashion, where producing novel products allows apparel brands to charge high retail prices and few or no markdowns given that demand is relatively price inelastic for a given time.
There is no all-encompassing database with information on product segments and market shares for the global apparel industry, so we cannot say what percentage of total apparel exports are in the functional fashion segment. However, we can say that global apparel exports have been growing during the 2010s and 2020s, and that the growth in the functional fashion segment outpaced the growth of the industry by far. This argument is based on identifying the main products of the top 20 supplier firms as functional fashion or basic fashion (based on our unique database on these suppliers discussed in the methodology section) and then calculating the average year-on-year growth of suppliers in the two product segments. Table 3 shows that the top apparel suppliers in functional fashion grew faster than the average for the top 20 apparel suppliers, which in turn grew much faster than the industry average.
Growth of global suppliers versus growth of global apparel export industry, average annual growth (%), 2001–2022.
Source: UN Comtrade (2025); Capital IQ Database (2023).
The lack of concentrated market share by the top 20 apparel suppliers and the annual growth of apparel exports tells us that the bulk of growth in apparel exports is still accounted for by small and medium apparel suppliers. This allows buyers to use monopsony power to not only set the unit prices paid to suppliers but also keep prices stagnant or even declining. Our interviews with apparel supplier firms indicated that the use of ‘open costing’ by apparel brands and retailers was widespread. Open costing means that the apparel lead firm knows the costs and revenues of the supplier firm and sets the unit prices in a way to dictate a profit margin for its supplier on the garment assembly. Open costing is combined with the idea of the SAM, which is the time it takes for workers to complete sewing a specific type of garment. The SAM is determined by the most efficient firms globally in terms of their production costs combined with their labor efficiency. Thus, supplier firms across the globe are pressured to achieve the same high efficiency because their input prices are set on that basis. Labor efficiency increased significantly over the last decades, allowing apparel buyers to continuously reduce prices (capturing a large part of those efficiency gains). This can be seen in Figure 1 with the falling share of sourcing costs on average for the top apparel lead firms listed in Table 1. Marslev and Whitfield (2025) also show that consumer prices of apparel in the US and Europe have stagnated since the 1990s and that the unit values of apparel imports to the US (and a lesser extent Europe) have declined consistently. Our interview data with Hong Kong, South Korean and Sri Lankan apparel supplier firms suggests that the profit margin calculated in open costing ranges from 3% to 10%, depending on the supplier firm’s efficiency and local production costs. The study of Indian apparel supplier firms by Nathan et al. (2023) also notes the prevalence of open costing and the SAM-based system for calculating unit prices and find a similar range of profit margin among their sample of suppliers.
Share of sourcing costs on generated revenue (%), 2000–2022, average of top 10 apparel lead firms (from Table 1).
The apparel GVC literature documenting the supplier squeeze tends to treat supplier firms as homogenous. Yet, the annual gross profit margins of the 12 publicly listed top apparel suppliers in Table 2 differ substantially among suppliers, as shown in Figure 2. The top three suppliers capture much greater profit margins than the rest, which have increased since the 2010s while other top suppliers’ profit margins have fallen. Thus, not all mega-suppliers have high value capture, and furthermore, value capture changes over time. The next section presents the product innovation cycles conceptual framework for explaining variation in value capture among suppliers in general, and which we use to explain this empirical pattern in the global apparel industry in the following sections.
Annual gross profit margin (%) of giant apparel suppliers, 2005–2022.
Product innovation cycles and economic upgrading with value capture
Our theoretical approach starts with the proposition that value creation and capture opportunities for supplier firms differs across product markets based on where the locus of innovation occurs. Lead firms operating in innovative product markets offer greater opportunities to suppliers for value capture if suppliers can provide the specialized complementary assets that lead firms require for their innovative products. We developed our product innovation cycle conceptual framework by building on Sako and Zylberberg (2019), who in turn draw on Teece’s profiting from innovation framework but applied it from the supplier perspective.
Sako and Zylberberg (2019) argue that whether or not a supplier firm profits from its efforts at upgrading depends on three factors: (1) the appropriability regime, which is concerned with the barriers against imitation, especially the intellectual property rights regime in place; (2) whether the innovative product or service is in the pre-paradigmatic or in the paradigmatic stage of technological development in which an industry coalesces around a dominant design and emulators begin to compete on price, eroding the advantage of the early innovator; and (3) access to complementary assets, which allow them to capture more value from their investments. Complementary assets become more important for profiting from innovation in the context of weaker appropriability regimes and in more established technological paradigms. The value of a given complementary asset depends on how critical it is to the lead firm’s ability to generate revenue from an innovative activity. Applying these propositions to the global apparel industry, we argue that apparel has a weak appropriability regime and operates with mature technology, and thus complementary assets determine supplier firm value capture.
Which complementary assets matter can only be identified in a particular industry context, and they change over time because innovation is a constant process. As innovations are emulated, they lose their wealth generating capability, and thus some firms pioneer new innovations to increase their profitability again. We call these product innovation cycles. Thus, we focus on the product markets in which opportunities for complementary assets occur as a result of product innovation, which is where opportunities for supplier upgrading occur.
Apparel GVC studies generally neglect that the business strategies of apparel buyers differ across product segments. As a result, the discussions of buyer-supplier relations often become dis-embedded from the global consumer market dynamics and competition among brands and retailers within them. Importantly, these consumer market dynamics and competition among buyers are key factors determining the size of the profit ‘cake’ that can be distributed between the buyer and its suppliers, and the product categories that are considered ‘higher’ value based on their retail price as well as their market growth are subject to constant change. Yeung’s concept of strategic partnership, as one form of strategic coupling in which supplier firms can capture value from global supply chains, recognizes this point. He argues that to become a strategic partner, a supplier firm must offer capabilities tailored to specific brands and their products, providing manufacturing solutions to lead firms that operate in innovating product markets (Yeung, 2016: 83–110).
We extend Yeung’s argument about strategic partnerships in several ways. We seek to understand the value distribution within strategic partnerships and to explain how and why strategic partnerships change over time. In terms of measuring value distribution, Yeung (2016) focuses on the revenue and market share growth of strategic suppliers, but we emphasize the importance of higher price per unit (profit margin), which means that the supplier is not only receiving large orders but also sharing in value capture with the branded firm. There is an inherent antagonism between buyers and suppliers over the appropriation of the profit margin, as Kumar (2020) noted. The value capture strategies of lead firms and their suppliers in globalized industries create a three-level competition environment. At the first level, lead firms compete among each other on capturing as much market share as possible in product markets. At the second level, suppliers compete among each other to obtain orders from lead firms so that they expand their shares in underlying input markets. At the third level, lead firms and suppliers compete over the appropriation of profit margins within jointly captured market shares.
In commoditized consumer product markets where there is high competition, the product market is characterized by stagnating growth and stagnating or even depreciating product prices. The maturity of the product typically results in the related technologies being widely available and thus emulation has occurred among suppliers as well, leading to high competition among suppliers. Given competition between lead firms and their suppliers over the shrinking profit margin and the availability of many suppliers, lead firms squeeze the margin of their suppliers by lowering unit prices. As a result, supplier firms must fight for market share and experience pressure on their revenue flows as well as profit margins, which causes them to invest in production processes to increase efficiency or more complex products to retain their limited value.
We argue that product innovation cycles alter the three-level competition by allowing lead firms to escape commoditized product markets and reduce the inherent antagonism between lead firms and suppliers through co-innovation. The first mover lead firm faces no or limited competition in the new product market, giving it a dominant position in the market, and the new product experiences high growth and high prices. Strategic partnerships emerge around the joint commercialization of the innovation. To exploit that opportunity and extract concessions on profit sharing from the innovating lead firm, suppliers must be first movers in providing these capabilities. The strategic partnership ends when growth and high prices in the product innovation cycle decline and lead firms return to ‘squeezing’ the profit margins of their suppliers because the lead firms face decreasing market shares and profit margins.
Product innovation cycles begin to decline when other suppliers build similar co-specialized complementary capabilities and increase competition among suppliers, driving down unit prices paid to suppliers; or when other lead firms emulate the product innovation and increase competition, driving down market prices of the product. The product innovation cycle also may end when consumer demand for the new product declines, making it no longer a high growth market, or if a radically different product makes the former product innovation and the related supplier capabilities obsolete.
Figure 3 presents the product innovation cycle framework. Boxes on the left side indicate external forces such as competitive pressures, and boxes in the center indicate lead firm and supplier firm responses, with the outcomes in terms of product market dynamics and supplier value capture opportunities in boxes on the right side. In the global apparel industry, product innovation cycles occur in the functional fashion segment, and basic and basic fashion segments are commoditized product markets.
Upgrading through strategic partnerships in product innovation cycles.
Methodology for identifying product innovation cycles in the apparel GVC
Given that there is no all-encompassing database on product segments and market shares for the global apparel industry, we took the supplier firm value capture strategies as the starting point to trace product market dynamics, innovation and value capture opportunities. We collected qualitative data from half of the top 20 apparel supplier firms listed in Table 2. Selection was based on the firms with which we were able to secure interviews with senior executive members. The 10 supplier firms include MAS, Brandix, Hirdaramani and Hela from Sri Lanka; Crystal, TAL, Epic and Luen Thai from Hong Kong; and Youngone and Hansae from South Korea.
We conducted 30 interviews across these 10 firms between 2022 and 2024, which are listed in the Supplemental Material. We began collecting data on these supplier firms at global industry summits (June 2022) and at the suppliers’ subsidiary factories in Ethiopia and Kenya (September–October 2022; February–March 2023). We then conducted interviews at their headquarters in Sri Lanka (June 2023), South Korea (August 2024) and Hong Kong (August–September 2024), as well as online interviews with headquarter staff before and after the fieldwork trips. We interviewed current or former senior executives and high-level management staff in business development, research and development, fabric engineering and production management. Many of the respondents worked for the company over years or even decades, giving us the unique opportunity to understand how and why buyer relationships and the underlying strategies and market environments changed over time.
The semi-structured interview questionnaire for each firm was informed by a detailed dossier containing all available background information based on academic literature, firm websites, industry magazines and local newspaper articles. The questions covered the firm’s history; product markets they supplied; relations with branded firms (and differences among buyers); how they assessed and positioned themselves vis-à-vis competing suppliers; the rationale to invest in different countries; functions along the apparel value chain they had internalized; strategic initiatives and investments and the firm’s value capture strategy. Finally, we asked for revenues, profits and order unit prices. Some suppliers would not share time series data but provided ranges on specific revenues or profit trajectories. Based on the data collected during the interviews, we constructed a unique database on these 10 apparel suppliers.
This interview data allowed us to identify the apparel lead firms with which these suppliers had entered partnerships and why. We noticed that the nature of the lead firm-supplier relationship and the size of orders placed by lead firms changed over time. Particular lead firms became less attractive, changed their strategy, and/or the supplier was searching for new buyers they deemed more capable to commercialize new products.
These patterns informed our analysis of the growth of revenue streams among the largest apparel brands. We used the S&P Capital IQ database to identify the top apparel brands and retailers and their revenue trajectories, following revenue streams dating back to the early 1990s. We then identified the key product segments that accounted for growth of the fastest growing branded firms and whether they were based on a new product launch, using the annual reports, websites, trade journals and apparel retail market publications. We used this data to identify the product innovation cycles presented in the next section. The final step was to explain the value capture trajectories of our 10 supplier firms using the qualitative database that we created by comparing their buyer portfolio, product segments and manufacturing capabilities in relation to the financial results that they achieved.
Product innovation cycles in the apparel GVC
The three product innovation cycles that we identified are summarized in Table 4. Product innovation in the global apparel industry is driven less by technological change and more by marketing tools, because there have been no significant technological developments in the industry since the introduction of synthetic fibers based on petro-chemicals. Apparel brands introduced minor technical changes in the fabric and used novel marketing techniques to embed the products in a new lifestyle trend. The technical changes tended to emerge first in a niche market and then diffuse to mass markets through specialized marketing and distribution capabilities that were novel in form and scale, as explained below.
Product innovation cycles in the global apparel industry.
Source: Authors, based on own analysis.
In the casual/denim and lingerie cycle from the mid-1980s through the 1990s, the major lead firms generating high revenues were L Brands, Marks and Spencer (M&S), Levi’s and GAP. L Brands, which acquired Victoria’s Secret in 1982, sought to capture the lingerie market through aggressive marketing campaigns using fashion shows and TV commercials centered around its ‘Wonderbra’ collections. The material innovations included push-ups made from foam or silicon gel and lingerie products based on synthetic fabrics (Farrell-Beck and Gau, 2002). The casualwear segment grew rapidly based on a casualization of office wear and a trend of larger specialized youth segments in the 1990s, which Levi’s and GAP dominated. GAP capitalized on the emerging ‘casualization’ through offering its private labels on casual basics and marketed them via TV commercials. 4 GAP’s revenue soared from USD 1.5 billion to USD 13.6 billion in the 1990s. By the early 2000s, product innovation cycles in lingerie began to ebb away given the end of the ‘hyper-sexualization’ of intimates, and major brands in the casual segment faced intense competition by rising fast fashion retailers. L Brands, Levi’s and GAP lost their status as the largest apparel brands because the product segments they dominated lost their growth pace. 5
The activewear product innovation cycle started to take shape in the 1990s but only translated into large sales volumes for a number of lead firms in the 2000s. The central sportswear brands Adidas, Puma and Nike had been around since the 1950s and 1960s, but their major customer base in apparel had been professionals and amateur athletes, which limited their market reach. From the 1990s onwards, these firms developed functional sportswear for non-athletes in mass markets, including for the soaring hobby sports and gym segment. 6 Mass market activewear shifted from cotton-based products to lightweight, sweat absorbing and temperature controlling performance products based on synthetic fabrics. Examples of mass market functional sportswear items include Nike Dri-Fit sweat control launched for mass market in early 2000s, and Nike Tech Fleece temperature control launched in 2013. The sales campaigns for these products were centered on signing ‘brand ambassador’ contracts with superstars across a range of sports product lines such as tennis, basketball and soccer.
The product innovation cycle for activewear has not faded yet and overlaps with the emergence of the athleisure cycle, which began in the early 2010s by offering clothing that was adaptable to sportswear, leisure and work contexts. Its growth was fueled by lifestyle trends around the further ‘casualization’ of office wear as well as the yoga boom (Smith et al., 2018). The material innovation in athleisure products combines sportswear’s functional performance features with comfort properties such as stretchability and softness of synthetic fabrics via novel fabric blends. The marketing campaigns of athleisure brands target affluent customers with the purchasing power to pay three-digit retail prices. 7 Athleisure was pioneered by the established athletics brands Nike, Adidas and Puma but also by specialty athleisure brands. For example, Lululemon’s sales surged from USD 712 million in 2010 to 9.5 billion in 2023, fueled by its ‘align’ yoga pants launched in 2015 that sold at price points above USD 100 without significant markdowns. Other smaller, yet fast-growing athleisure brands include Athleta, which GAP bought in 2008, as well as Fabletics and Vuori. Athleta became the major growth engine of GAP, outperforming its other brands that are outside the athleisure innovation cycle. 8 In 2021, Levi’s spent USD 400 million to buy ‘Beyond Yoga’ in order to enter the athleisure high margin, high growth product segment. The marketing campaigns are channeled via social media either through celebrities outside sportswear or through a global network of niche influencers such as yoga teachers for Lululemon and Athleta.
The US is the biggest market for active and athleisure products, but the lifestyle trends are widespread. Data by Canadian market intelligence firm Precedence suggest that the athleisure market in US accounts for 32% global market share in 2024, followed by EU (28%) and Asia (26%). 9 A 2020 estimation by McKinsey finds that the sportswear market in the US accounts for USD 90 billion, the market in China for 40 billion and UK, Germany and Japan combined account for another 30 billion. 10 In the most significant end markets, activewear and athleisure is a large product segment, and we do not see significant regional differences in terms of product innovation.
We argue that product innovation cycles unfold in similar ways in regions that have the same purchasing power potential. Global apparel branded firms start from analyzing consumer market potential for selling into a non-commoditized mass market and use the same market access, marketing tools and life-style co-creation trends (Korzeniewicz, 1994; Larson, 2011). There can be regional variation in terms of how quickly the brand is taken up in different regions. Sportswear was big in US and Europe in 2000s, but the growth phase in China only accelerated in the 2010s, as Chinese consumer purchasing power became suitable for the growth strategies of Adidas and Nike. Athleisure emerged in the US in the 2000s and then was marketed in Europe and only emerged in China in the late 2010s. Additionally, there can be variation in the way brands promote their innovative products as they localize their marketing. 11
However, the mechanisms of the product innovation cycle will be the same across regions: co-creating a life-style trend and novel marketing tools through which (small) technical innovation is commercialized. This is because of the dominance of global brand culture. For example, Nike is an American brand dominating the Chinese sportswear market, and Gucci is a European firm dominating the Chinese luxury market. Gucci’s biggest growth market between 2015 and the early 2020s was China, because China’s purchasing power became suitable. 12 It is the brand and its specific products that drive a (temporary) ‘convergence’ of global consumer culture. Once the brand declines and new ones succeed, the question of which regional consumer tastes and culture converge with one another changes again.
Furthermore, the mechanisms for product innovation cycles to ebb away are similar across regional end markets: market exhaustion, new product innovations or competition from other firms. China was at the heart of Western brands’ growth strategies during the 2010s but then in the 2020s their market shares declined due to competition from Chinese brands such as Li Ning and Anta. 13 Anta and Li Ning produced similar products as Nike and built their own brand reputation with proprietary designs.
Supplier firm value capture in product innovation cycles
Turning to the value capture of suppliers, we argue that some top apparel suppliers were able to capture more value by entering strategic partnerships with the apparel branded firms pioneering product innovation cycles. These strategic partnerships were based on the supplier firms’ complementary assets, which they already had or developed together with the branded firm. We make this argument in two steps. The first step is an analysis of the profit margins of the 12 publicly listed top apparel suppliers in Table 2 in terms of their buyer and product portfolio. This analysis shows that suppliers producing activewear and athleisure products for the key buyers in these product innovation cycles had higher profit margins than those of suppliers predominantly selling products to buyers in the basic fashion segment. The financial data establishes the correlation between higher value capture and product innovation cycles. Then we use the interview data from our sub-set of 10 top apparel suppliers from Table 2, combined with secondary sources collected on Shenzhou from China and Eclat from Taiwan, to construct analytical narratives about the causal mechanisms behind the higher value capture. We could not interview Shenzhou and Eclat, but since they are the top performing supplier firms globally (see Figure 2), it is important to understand why.
Our analysis shows that the specialized complementary assets suppliers needed for strategic partnerships with the pioneering lead firms in the activewear and athleisure product innovation cycles were capabilities in complex synthetic textile production that allowed firms to innovate in fabrics as well as organizational capabilities and economies of scale to assemble the products using their fabric at large scale and high efficiency. This combination of assets was rare among the top apparel suppliers, giving the few suppliers that had them a high degree of bargaining power with the pioneering lead firms and thus the ability to capture more of the wealth that those lead firms gained through high retail prices in growing product markets.
We categorized each of the 12 publicly listed apparel suppliers either as functional fashion suppliers (activewear and athleisure) or basic fashion suppliers, based on the product segments from which more than 75% of their revenue was derived. Data on these firms’ revenue by product segment came from the interviews or from annual reports for the firms which we did not interview. The basic fashion suppliers include Crystal, Hansae, SAE-A, Hansoll, Luen Thai, Fountain Set and Nien Hsing. The functional fashion suppliers include Shenzhou, Youngone, Eclat, Makalot and Regina Miracle. As Figure 4 shows, the functional fashion supplier firms (red line) posted an average annual gross profit margin of 25%, which is significantly higher than the 14% reported by the basic fashion suppliers (blue line).
Supplier profitability by product segment, 2010–2019.
Table 5 provides key characteristics of the 10 top apparel suppliers with which we conducted interviews as well as Shenzhou and Eclat (the benchmarking suppliers). We constructed analytical narratives based on the interview data and grouping the supplier firms by headquarter location, which allowed us to hold the country context constant and examine whether the value capture trajectories of supplier firms in the same country diverged or not, and if so, why. We then compared the most successful firms across countries based on profit margins, including the two benchmarking suppliers, to identify which complementary assets mattered for strategic partnerships in the three product innovation cycles.
Key characteristics of the top apparel suppliers.
Source: Created by the authors.
Average gross profit margin was not available given that the firm is not publicy-listed.
The top South Korean supplier firms Sae-A, Hansae, Youngone and Hansoll had similar revenue growth but their profit margins in the late 2010s were quite different. Sae-A’s gross profit margin was limited to 15%, similar to Hansae and slightly lower than Hansoll. In contrast, Youngone posted a 25% gross profit margin in 2019. Youngone was able to capture more value because it produced outdoor and activewear for apparel branded firms in niche, high-end markets, whereas the other three Korean apparel suppliers produced only basic fashion, although Hansae is trying to move into activewear now.
In Hong Kong, none of the firms had moved into the activewear and athleisure product innovation cycles. TAL previously had high growth and profit margins based on specializing in men’s formal and casual shirts, but with the decline in market demand for formalwear, it struggled to revise its business strategy. Its products were in a niche market that did not have the same volume growth as activewear and athleisure.
In Sri Lanka, MAS grew much larger than the other top firms Brandix and Hirdaramani by moving into activewear and athleisure products for top buyers. All three firms entered the lingerie and casual/denim product innovation cycle in the 1980s through strategic partnerships with branded firms including LBrands and Marks and Spencer and LT Apparel. However, only MAS entered functional lingerie products, developing capabilities that it was able to leverage into the activewear and then athleisure product innovation cycles when they were just beginning. In contrast, the capabilities developed by Brandix and Hirdaramani did not have spillover effects in functional activewear and athleisure as they were based more on capabilities linked to cotton. Brandix tried to emulate the actions of MAS when its casual/denim portfolio peaked and stagnated, but it did not have the same vertical integration in synthetic fabric production or specialized apparel assembly capabilities for sewing innovative fabrics and thus remained in activewear products that were more basic fashion. Hirdaramani remained in knit and denim casualwear. Because the Sri Lankan firms are not publicly listed, we cannot provide detailed financial results for these firms. Our qualitative data suggests that MAS generated higher profit margins by entering the activewear and athleisure product innovation cycles at an early stage through strategic partnerships with Nike and Lululemon.
Among our case study firms, MAS was the only supplier firm that had strategic partnerships in all three product innovation cycles. This is arguably the case because it was able to leverage its specialized complementary assets from one cycle to the next. MAS was a top supplier of complex lingerie products for Victoria’s Secret at an early stage, which the other Sri Lankan supplier firms were not. In the 1990s and early 2000s, MAS co-invested with foreign firms in factories to produce the required fabric and components for bras and lingerie in Sri Lanka. Importantly, MAS invested in specialized circular knit machines that produced seamless fabric directly from yarn, becoming one of few firms globally that had this capability at that time. This investment paved the way for MAS to enter the activewear cycle when, in the mid-2000s, Nike was looking for a fabric supplier with capabilities to help it commercialize its flyknit shoes. MAS dedicated its factories to activewear, playing a key role in producing Nike’s flyknit fabric. MAS grew consistently, doubling its revenue between 2005 and 2011, and again from 2011 to 2018. Its seamless knit capabilities were also central to entering the athleisure cycle, as Lululemon approached MAS, looking for a strategic supplier that could help it produce circular knit fabric for its yoga pants. Even with strategic partnerships, the experience of MAS has been that it is only able to realize higher profit margins at the beginning of the strategic partnership with a buyer; once the product or the brand goes ‘mainstream’, the brand puts pressure on MAS to decrease their margin.
TAL and Taiwanese firm Nien Hsing are examples of how suppliers struggled to move from one product innovation cycle to the next, depending on which products and buyers the supplier firm had in the casualwear/lingerie product innovation cycle. Appelbaum (2008) studied TAL and Nien Hsing as cases of transnational apparel suppliers that had upgraded through investing in advanced equipment, lean manufacturing and providing inventory management to their buyers. TAL was highlighted as producing one out of every eight dress shirts sold in the US, and Nien Hsing was presented as a key supplier of GAP and Levi’s. However, in the following two decades TAL stagnated and Nien Hsing declined. Available financial indicators for Nien Hsing show that its gross profit margins eroded from 29% in 2000 to 5% in 2020, and its revenue began to decline by the mid-2000s (Capital IQ Database, 2023). It is likely that Nien Hsing’s cotton-based fabric production capabilities that were central to the denim/casual cycle became obsolete in the active and athleisure product innovation cycles that required synthetic fabric.
The two largest apparel supplier firms, Shenzhou and Eclat, entered the activewear and athleisure product innovation cycles early with pioneering branded firms. Shenzhou has a wide range of strategic partnerships with activewear and athleisure branded firms such as Nike, Adidas, Puma, Lululemon and Uniqlo and was crucial for important product launches of these lead firms such as Uniqlo’s lightweight and sweat control technology ‘Airism’. The complementary assets that underpin these strategic partnerships are Shenzhou’s vertically integrated synthetic textile capabilities. Since the mid-2000s, Shenzhou continuously expanded its fabric production capacity in its core factories in the Ningbo textile cluster, matching the growing garment assembly capacity demand from key customers. 14 Shenzhou’s key advantage vis-à-vis other suppliers is its customer specific clusters that integrate co-design of fabric, product specific weaving and knitting machines and garment assembly facilities. Shenzhou can operate these clusters because of the tacit knowledge and experience of textile technicians, to ensure the quality and consistency in the production ramp-up of novel fabric materials. Shenzhou’s profit margins are not based on domestic sales, as the Chinese market accounted for the largest percentage of sales in 2024 but was only 29% followed by the EU (19%), Japan (16%) and the US (14%). 15 Furthermore, Shenzhou produces for global activewear and athleisure brands for which the Chinese market is an important one.
Eclat is also a vertically integrated firm, entering a strategic partnership with Lululemon in the early 2000s. Once the athleisure cycle took off, the strategic partnership resulted in Eclat’s revenue growing from USD 270 million in 2010 to USD 1263 million in 2022. Central to the strategic partnership were Eclat’s nylon and spandex fabric production capabilities, which it had developed since the early 1980s, and which grew in tandem with its apparel assembly capabilities. Eclat became Lululemon’s sole supplier of the Luon fabric used in Lululemon’s high priced products. Although Lululemon owned the intellectual property on the fabric, Eclat was the sole supplier that could manufacture that fabric for a long time and thus became the central pillar in Lululemon’s growth strategy. 16 Eclat’s bargaining power is reflected in the consistently high gross profit margins, reaching more than 25% for each year during the 2010s.
Our second analytical angle is to look at the value capture trajectories across countries as well as across product innovation cycles. The lingerie and casual/denim product innovation cycle emerged in the mid-1980s while the MFA quota system was still in place. Therefore, even though the capabilities needed to participate in this cycle were not that unique, especially for casual/denim, the quota system created a kind of uniqueness of capabilities. They required circular knit cotton and woven denim fabric production for the casual side, and a basic synthetic fabric production and a local supply chain in trims and accessories for the lingerie side. Our interview data shows that the largest apparel suppliers in Sri Lanka grew to become top global suppliers by entering this product innovation cycle, especially lingerie for Victoria’s Secret and M&S based on the creation of a local supply chain for lingerie that was unique globally. Hong Kong, Taiwanese and South Korean firms produced a wide range of casualwear based on a local supply chain of cotton and synthetic fabric production, as women’s wear was increasingly turning to polyester-based fashion products. Taiwan and South Korea had synthetic fabric production on the back of their petro-chemical industries.
We find that a bifurcation occurred among the top apparel suppliers from the mid-2000s. Most large suppliers achieved revenue growth based on large volumes of basic fashion, providing lead firms with scale, assembly efficiency, speed to market and tariff options by establishing factories in a variety of countries and handling fabric sourcing and inventory management for buyers. Few of these suppliers possessed large-scale in-house fabric design and production capabilities, and if they did it was limited to cotton fabric. While the high revenue-low margin strategy was a suitable growth strategy for these firms from the mid-2000s, our interviews indicated that this approach was reaching its limit in the early 2020s, as lead firms put in fewer orders or reduced prices even further.
In contrast, suppliers with strategic partnerships in activewear and athleisure had large-scale production of synthetic functional fabric, the complementary capacity to mass manufacture garments, and tacit knowledge to ensure quality and consistency within the integration of fabric design, fabric production and garment assembly, often in product or buyer-specific factories. Shenzhou and Eclat were able to leverage synthetic fabric capabilities with an industrial eco-system and supply chain around petro-chemicals and synthetic yarn and fabrics. Notably, despite having a similar petro-chemical industrial eco-system, the South Korean apparel suppliers were not vertically integrated with textile production, as the industry had developed in such a way that textile and apparel assembly were carried out by different firms. MAS is an outlier because its higher value capture was predicated on specific machinery in seamless fabric, but our qualitative data shows that the ability of MAS to leverage this complementary asset was limited to a narrow set of products and thus not as versatile as the synthetic fabric production capabilities of Shenzhou and Eclat.
In sum, only a few apparel suppliers had the necessary complementary assets to enter strategic partnerships with the pioneering lead firms in the activewear and athleisure product innovation cycles. This is likely because there were few or no spillovers between the predominantly cotton-based capabilities required for casual/denim products and the subsequent activewear and athleisure cycles. Sri Lanka was unique in the establishment of a local supply chain in synthetic fabric and other inputs for synthetic-based lingerie products, and MAS was even more unique in its investments in seamless synthetic fabric production using specialized circular knit machines. These supplier firms’ oligopolistic position in the latest product innovation cycle is protected by high barriers to entry. Emulation requires capabilities in complex synthetic textile production and specialized machinery, tacit knowledge and labor skills for sewing products made from this kind of synthetic fabric.
Conclusion
Numerous GVC scholars have argued that upgrading in the global apparel industry became a survival strategy and that apparel suppliers increasingly were squeezed by their buyers, with the result of limited or even declining value capture in apparel GVCs. However, the GVC literature does not have a convincing explanation of why this is the case but also why some apparel suppliers are able to escape the supplier squeeze and capture more value. This article offers a way out of this conceptual cul-de-sac by rethinking upgrading as a distributional outcome (capturing higher profit share per product) and then tracing the capabilities that suppliers developed to achieve this better distributional outcome. Our starting point is that opportunities for higher profit capture only arise if supplier firms cater to lead firms that operate in product innovation cycles. It is only in these innovative product segments that apparel suppliers can extract concessions on profit sharing from lead firms through providing the complementary assets necessary to bring an innovative product to market.
In tracing apparel product innovation cycles and the required complementary assets from suppliers, this article shows why upgrading with increased value capture has been the exception rather than the norm in recent decades. Entering the activewear cycle that emerged in the early 2000s as well as the subsequent athleisure cycle required a specific capability set. This included combining synthetic functional fabric production, mass manufacture of garments, and tacit knowledge to ensure quality and consistency within the integration of fabric design, fabric production and garment assembly. Despite a large global pool of apparel suppliers, only a few had the necessary capabilities. This is arguably because countries with petro-chemical industries and producing synthetic fibers had a clear advantage, highlighting the important inter-industry spillovers that underpinned apparel supplier firms’ complementary assets. Thus, firm-level complementary assets are shaped by larger industrialization dynamics in the supplier country, which explains why Taiwanese, South Korean and Chinese apparel supplier firms have been the most successful in capturing more value.
This article presents a first step in constructing a generalized theory of value capture in GVCs. Our conceptual framework on strategic partnerships in product innovation cycles is derived from iterative-theory building based on the apparel industry, but we argue that the core competitive dynamics in other globalized industries will be the same. Branded firms and suppliers seek to capture value through escaping competition in commoditized product markets. Therefore, we suggest that product innovation cycles have relevance for supplier firm upgrading with value capture in other industries.
Supplemental Material
sj-docx-1-epn-10.1177_0308518X261421107 – Supplemental material for Rethinking economic upgrading in apparel GVCs: Value capture through strategic partnerships in product innovation cycles
Supplemental material, sj-docx-1-epn-10.1177_0308518X261421107 for Rethinking economic upgrading in apparel GVCs: Value capture through strategic partnerships in product innovation cycles by Felix Maile and Lindsay Whitfield in Environment and Planning A: Economy and Space
Footnotes
Acknowledgements
The authors want to acknowledge and thank Shyamain Wickramasinghe for establishing contacts and for arranging several interviews with firms in Sri Lanka. They also wish to thank Keun Lee for establishing the contacts with several firms in South Korea, and Suhyon Oh for research assistance on the firm dossiers. They further wish to thank Keun Lee, Joonkoo Lee, Stefano Ponte, Tobias Wuttke as well as the members of the Creating and Capturing Value in the Global Apparel Industry research project for useful feedback on previous versions of this paper. Finally, the authors thank the editor and three anonymous reviewers for their thoughtful comments.
Ethical considerations
The study involved interviewing human participants. The study was carried out after a self-assessment on research ethics based on the Research Ethics Questionnaire by the Faculty of Social Sciences of the University of Vienna.
Consent to participate
Each interview participant was informed of the project in detail and the participants gave oral consent prior to the interview.
Funding
The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: We would like to acknowledge financial support by the Danish Fellowship Centre (Grant Number DFC 19-01-RUC).
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Data availability statement
The authors are willing to make the data supporting the results and analyses presented in this paper available upon request.
Supplemental material
Supplemental material for this article is available online.
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References
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