Sociology

Introduction
The Italian fashion industry is characterized by a system that is designed to promote and control innovation (Mora 2006, 334).  As a high wage labor market, Italys fashion industry has been relatively successful (Doeringer and Crean 2006, 353).  Even so, in order to be successful, the Italian fashion system has had to develop procedures for countering and responding to the risk of counterfeiting, 2nd lines of fashion brands that are produced outside of Italy, the imitative but lower quality fabric produced in China and the relatively lower wages paid in the Chinese fashion industry.  These issues have been exacerbated by the growing competition globally and the intensity of the supply chain on an international level (Hines and Bruce 2007,  54).  This paper examines each of these factors and explains how they compromise the Italian fashion industry and how the Italian fashion system effectively responds to each of these potential problems.

The Threat of  Counterfeiting
The Organization for Economic Co-operation and Development (OECD) describes counterfeiting as an illicit business driven by criminal networks (OECD 2008, 13).  Counterfeited articles are typically below standard and compromise innovation which is key to economic growth (OECD 2008, 13).  Other problems associated with counterfeiting is the consequences for brand value.  Counterfeiting has the capacity to damage the image of the brand indefinitely making it necessary for fashion companies to defend their brands (Tungate 2008, 239).

Italian fashion initially came from Florence and Rome and is now associated with Milan, its fashion center (Jackson and Shaw 2006, 62).  Perceived heritage and quality of fashion produces is a significant element of appeal.  This is particularly so for luxury fashion products although all fashion products must preserve its heritage and quality, factors which are compromised by the incidents of counterfeiting (Jackson and Shaw 2006, 63).
 
Counterfeiting or copying is a serious problem today with the advances in technology.  For instance, at a fashion show, photographs can be faxed or emailed instantly to the Orient or elsewhere so that imitations can be produced and marketed in stores before the original design is marketed (Paradise 1999, 77).  Italian designer Gianni Versace experienced this problem in 1994 when he showcased his design for a US1,232 silk dress.  Imitation silk dresses appeared in US stores at a largely reduced price before Versaces original design did (Paradise 1999, 77).

 In response to the incidents of counterfeiting leaders in the Italian fashion industry met in Piazza degli Affari, Milan in May 2005 for a two-day conference under the head Milano di Moda First Strategic Conference on Fashion.  At this conference, Italys top designers devised a system for forestalling the incidents of counterfeiting and for defending the quality and heritage associated with Italian fashion.  This new fashion system shortened the time for fashion shows and determined that instead of lasting for one week, these shows would be reduced to no more than four days.  More importantly, rather than showcasing fashion slated for production within 6 months, Italian fashion shows would only reveal those fashions that were currently in season (Breward and Gilbert 2006, 130).  In other words, Italian fashion system abandoned the practice of providing previews of upcoming fashion and shortened the time for showcasing fashion.

These changes were predicated on the concept that if copycats had relatively shorter time to produce counterfeit it was unlikely that they would be successful.  Obviously, by showcasing only those items that were seasonal, counterfeiters would be deprived of a sneak preview and therefore denied the opportunity to produce cheap knock-offs (Breward and Gilbert 2006, 130).  These changes in the Italian fashion system did not undermine its success as a major fashion market. In fact, following the implementation of these changes, Milan continues to be one of the worlds more ideal venues for consumers.  This is primarily because of the quality and large variety of fashion apparel available in the Italian fashion market (Breward and Gilbert 2006, 132).

Second Lines of Italian Fashion Brands
The phrase made in Italy has particular consequences for the quality of the goods to which it is attached.  Musson (2008) explains

Origin of product is often interpreted as referring to warranties of quality that manufacturers give with respect to their products, regardless of the place of production (30).

Even so, in the Italian fashion system, the term made in Italy has always had significant meaning for quality and heritage.  Although Italy has used Eastern Europe and North African markets for producing some of its luxury T-shirts and jeans, the fancier products were always manufactured in Italy and as such commanded premium prices (Galloni 2007).

However, the increases in the costs of labor, fluctuations in currencies and the competition which generated lower-priced brands, Italian fashion markets are making and have been altering their approach to made in Italy (Galloni 2007).   Valentino, one of Italys most storied fashion houses has looked to production of its fancier products in developing country factories.  Similarly, Celina, a product made under LVMH Moet Hennessy Louis Vuitton SA, produces denim-and-leather accessory Madadam bags priced at US500 in South Africa. Georgio Amani SpA produces 18 of its wool pants priced at US1,500 from Eastern Europe.  Prada, Gucci and Tods are easing into foreign manufacturing as well.   For instance in 2006, Gucci began producing tennis shoes at a Serbian factory while Tods now relegates a part of its Hogan tennis shoe lines from Hungary and is even eying China (Galloni 2007).

Prada has found a way to ensure that quality and heritage remains associated with its second line brand names produced from a remote location.  In those locations where the national laws allow, Prada tags its 2nd line products with the label Made by Prada (Galloni 2007).  This can be a very useful strategy where a fashion item is manufactured at one location and some its parts are manufactured elsewhere. For instance, Pradas handbags are manufactured in Italy and some of its parts are made in Turkey (Galloni 2007).

The process of producing some goods or some part of the goods abroad is known as the internationalization of fashion retailing (Hines and Bruce 2007, 91).  The Italian fashion system has tapped into this process most prevalently by outsourcing some of its products in international markets, as noted above.  The Italian fashion system has limited this practice primarily because it accepts that the term made in Italy is entirely significant for the ultimate consumer who identifies fashion products originating from Italy with superior quality and style (Hines and Bruce 2007, 91).

Italian Fabric Quality vs Chinese Fabric Quality

European mills, particularly those located in Italy are well known for their high-end quality fabrics (Gehlhar 2008, 277).  Although some products are produced outside of Italy on a limited basis it is still possible to distinguish the uniqueness of Italian fashion from other fashions.  For instance, Versace and Armani are recognized worldwide for its sophisticated quality particularly its innovative cutting edge fabrics which remain the backbone of Italian fashion style (White and Griffiths 2000, 203).

The  Northern Alpine region in Italy is known for its fabric mills.  Como produces silk, Lucca leather, Biella produces wool and the list goes on (Rhoads 2003, 1).  These towns in Northern Italy are noted for its centuries long contribution to the Italian economy.  However, China has provided an increasing competition risk for these towns in Northern Italy.  The first economic shock came in the latter part of the 1980s when China increased it production of silk which is traditionally Chinese in nature.  At least 80 percent of Chinas silk and raw silk products are exported to foreign markets (Davis 2004, 763).

Fortunately, the Italian silk producers were able to rebound from this competition coming from Chinese silk manufactures because of the intrinsically declining quality of Chinese silk fabrics.  World buyers began to increasingly refuse to buy Chinese silk products and raw material in the late 1980s (Rhoads 2003, 1).  The poor quality of Chinese silk emanated from the shortage in raw material.  These raw material included diseased silkworm cocoons and stagnant mulberry (Bell 2000, 986-988).

A second wave of Chinese silk production however, emanated in 2000 and intensified over the next few years.  This return to silk production was accompanied by the production of higher quality silk and raw material.  Unable to compete, some longtime silk makers in Como abandoned the production of silk in response (Rhoads 2003, 1).   Instead they have now turned their efforts to producing polyester blends (Rhoads 2003, 1).  This new method is perceived as innovative and an appropriate method by which to remain one step ahead of the Chinese fabric industry.  As Giulio Balossi Restelli, an executive of E. Boselli and C. SpA notes we have to keep looking for new ways.  Thats the only way to survive (Rhaods 2003, 1).

Making matters worse, China has now set its sights on wool manufacturing.  The Botto Poala Mill reports that since the Chinese have turned attention to the manufacturing of wool, its sales have dropped by 10 over a two year period and there is no evidence that the current state of affairs will be reversed any time soon.  The solution is to bring more business in-house (Rhoads 2003, 1).  However there are ways to counter the increased production of Chinese wool.  Brown, Waldron and Longworth (2005) explain that most of the wool originating from China is of poor quality (39).  The wool coming for China is shorter, less sound, has lower clean yields, and is a more heterogeneous fleece than other competitive markets worldwide (Brown, Waldron and Longworth 2005, 39).

The factors contributing to poor quality Chinese wool are the harsh physical conditions of Chinas pastoral region where the sheep are housed Brown, Waldron and Longworth 2005, 39).  Moreover, Chinas rangeland is severely degraded and this limits Chinas ability to produce fine wool sheep and corresponding fine wool Brown, Waldron and Longworth 2005, 39).

This juxtaposition offers Italian textile producers an easy way out of competing with the Chinese wool production.  The Italian wool producers can focus on quality.  As the owner of the Botto Poala mill claims, the correct response is to focus attention on quality wool.  It is also important to ensure that production is confined internally and to avoid outsourcing.  To this end, Botto Poala now conducts dyeing internally, a measure which was carried out by contracting out to others in the past (Rhoads 2003, 1).

Even so, there is some doubt as to whether or not focusing on high quality will be enough to compete with the Chinese.  A Botto Poala executive who manages a number of the companys business lines is of the opinion that Chinese design and price patterns are pushing the Italian wool industry out.  This is evidenced by a reduction in sales which resulting in job cuts in which 50 of Botto Poalas 290 employees were terminated in one year alone (Rhoad 2003, 1).

Lanificio di Lessona SpA provided evidence of the Chinese wool competition and its negative consequences for the Italian wool industry.  Lanificio di Lessona SpA notes that some of its major US fashion houses such as Calvin Klein and Mens Wearhouse are not taking wool orders from the Chinese.  Elena Crotti, an executive of Lanificio di Lessona SpA reports that the company received an order from Mens Wearhouse who attempted to haggle for a price reduction on the basis that a Chinese manufacturer had offered the same bailment of wool at half the price.  Crotti claimed that it was impossible for the company to match the Chinese offer and therefore they lost that particular order (Rhoads 2003, 2).

Much of the problem however is most likely related to the fact that wool is going out of style and is not as appealing to the ultimate consumer as in recent years.  Moreover, the propensity for purchasing wool suits and any luxury article of clothing has been slowed by a fledging economy (Rhoads 2003,2).  In this regard, the best thing for Italian textile industries to do is to focus on other material and to cut corners where possible since the fashion industry worldwide is not expected to see a turn around until the current state of the economy turns around.

 Italian Labor v Chinese Labor
Migration from China, North Africa and South America has offered the Italian fashion industry a solution to the competition problem generated by the low cost of labor in China.  The migration of workers from these parts of the world provides Italy with its own source of low wage labor (Paulicilli  2004, 154).   The problem for the Italian fashion industry is whether or not these sources of cheap labor locally will have negative consequences for the image, style, quality and heritage associated with Italian fashion.

Arguably, low wages will not affect quality and design if the staff is trained and the quality of the fabric is sustained at high levels.

Chinas competitive edge in the fashion industry is perceived as emanating from the fact that low wages enables Chinese fashion houses to produce more articles at a faster pace and at a relatively higher volume.  This means that quality is compromised in favor of quantity (Kynge 2007, 84).  Obviously, if Italy continues to focus on quality rather than quantity, the cost of labor will be of no real consequence.  After all, Italys fashion success is primarily attributed to its quality, design and heritage.  As long as these factors continue to be the main focus together with innovation, cheap labor will only mean greater profits which in turn will rebound to the ability to invest in quality fabric.

The problem for the Italian fashion industry however, is that the Chinese migrants are bringing the competing fashion houses to Italy.  This is particularly problematic in Prato where warehouses showcase Chinese seamstresses stitching together sweat pants and other articles of clothing.  These products are produced cheaply and quite often end up in retail stores and some have even managed to get into designer stores.  Making matters worse, Italian fashion houses are subcontracting with Chinese businesses.  The problem is, that while Chinese businesses are being conducted in Italy they are not a part of Italys business infrastructure and are primarily illegal.  In 2007 however, a local television documentary under the head Slaves of Luxury connected some of Italys more coveted fashion brands with unlawful Chinese labor.  Pada and Ferragamo were noted as among those engaging illegal Chinese labor (Spolar 2009).

Italys favorable market position within the fashion industry dictates that cheap labor from competitors will not hurt Italy. Even so, Italy can capitalize on the use of cheap labor for the production of some of its non-luxurious articles of clothing such as sportswear, jeans and T-shirts.  Success in the fashion industry is more and more dependent on indicative of a reliance on cheap labor.  For example a Chinese fashion producer maintains twelve fashion factories in Asia with a network of high-fashion retail customers throughout the world (Oblitas and Peter 1999, 147).   This particular fashion manufacturer moved a majority of its manufacturing to China, Malaysia, Philippines and Sri Lanka (Oblitas and Peter 1999, 147).

It can be argued however, that Italys fashion system has responded properly to these new trends in the fashion industry.  As previously noted, Italys high-end designers are already outsourcing to cheaper markets internationally. For now, these efforts are sufficient.  As for the current problems associated with the migration of Chinese into Italy and the propensity to set up their own warehouses in Italy, the Italian fashion industry should not enable these illegal workshops by subcontracting to them.  Instead they need to put pressure on the authorities to conduct frequent raids and to close down the illegal business.  The Italian fashion system should also ensure that the authorities strictly enforce the minimum wage so as not to present the Italian fashion industry with unfair competition in the labor market.  It is enough that Italy cannot compete with the low wages offered in China that they are forced to compete with the lower Chinese wages in their own home.

Conclusion
Although Italian fashion is unique and sits atop of the fashion industry it is doubtful that history, quality, heritage and style can carry it through current economic crisis.  Some modifications are required, particularly since China is poised to infiltrate the fashion industry with cheap labor and low quality fabrics.  However, the Italian fashion industry is not required to lower the quality of its fabrics and fashion items in order to remain competitive.  The trends in outsourcing is the answer.  However, more and more Italian fashion houses should intensify these trends without compromising quality.  This is the best way forward,  The problem with counterfeiting has been adequately rectified by the Italian fashion system in its current method of not revealing fashions that are not yet in production and by cutting the fashion show timeframe down from one week to a few days.  Even so, counterfeiting will no doubt always be a problem for any industry.  The Italian fashion system however, has at the very least significantly reduced the risk of counterfeiting.