Regulation usually has unintended consequences. This is a difficult lesson for those who turn to the government for protection from the pressures of the market. Markets are extraordinarily robust formations. They usually find a way around regulation and often produce outcomes far less attractive from the viewpoint of those seeking regulation in the first place.
The Wall Street Journal ran a great story on November 9 driving this lesson home one more time. Under the lead of “Chinese Textile Companies Aim to Build a Better Bra” , Mei Fong chronicles the response of Chinese bra makers to the trade agreements between China and both the U.S. and Europe to curb the growth of textile imports. These trade agreements give preferential treatment to higher priced items – this makes sense if the goal is to protect Western manufacturers from lower priced apparel items.
So what has been the response of Chinese bra manufacturers? The article focuses in particular on Top Form, Inc., a company that produces 61 million bras a year for such leading brands as Victoria’s Secret, Playtex and Maidenform. Top Form has set up a laboratory near Shenzhen to aggressively pursue research into bra technology.
Top Form has already made a lot of progress in rapidly improving its design and production processes. Mei reports that
Top Form has evolved from primarily making cut-and-sew brassieres – simple designs easily put together by China’s nimble and low-cost seamstresses. Now, its bra production is a process more akin to car assembly: fusing together the many components needed to make a bra, eliminating much of the need for hand-sewing, or using high temperatures to mold sheets or synthetic fibers into wafer-thin sheets. . . Productivity has improved since it takes about five minutes to make a seamless bra, compared with about 15 minutes for an average cut-and-sew bra . . .
These productivity improvements help companies like Top Form to generate significant growth in profits. These profits in turn are being reinvested into research labs like the one established by Top Form to develop entirely new bra designs. Top Form is morphing from a contract manufacturer into a source of innovative new designs.
Not only are individual companies investing in bra-research centers, but the article reports that “bra towns” have emerged where the businesses all focus on various aspects of bra manufacture. Hong Kong’s Polytechnic University has even established a degree course in bra studies.
What is the result of all this activity? The article quotes one expert as follows:
David Morris, a university professor who teaches brassiere studies at United Kingdom’s De Montfort University, says it is clear that China’s bra makers aren’t just relying on cost advantages anymore. Some of these Chinese bra makers are “the top end of seamless constructions – we couldn’t duplicate it.”
Now, this rapid incremental improvement probably would have been pursued in any event. It is a pattern that JSB and I discuss at length in a variety of industries in China and India in The Only Sustainable Edge. Nevertheless, the article makes clear that the trade regulations have played a major role in accelerating these investments in capability building. US apparel manufacturers who were worried about competition at the low end of the apparel business from Chinese manufacturers now find that competition is intensifying at the higher end of the apparel business. This is just one more form of innovation blowback that Western companies are experiencing as they seek to cope with the challenges and opportunities created by emerging economies like China and India.
Of course, this kind of regulatory dynamic plays out in many industries. But the temptation to turn to regulation is especially pronounced on the edge – whether it is the edge of industries, regional economies, cultures or technologies. It is on the edge that established practices confront new threats (as well as new opportunities). Rather than confronting the threats head-on and embracing the new opportunities, there is a strong temptation to hide behind the walls of regulation. These walls create complacency for those inside and increase urgency for those outside. The results are rarely what those inside the walls intended.