Pest Analysis (apparel Manufacturing Industry)

PEST ANALYSIS

For this PEST analysis I will be analyzing the apparel manufacturing industry (NAICS code # 315) within the united states. In particular I will be going in-depth on the U.S industry comprised of establishments primarily engaged in manufacturing of men's, women’s, boys' and girl’s jeans, dungarees, other separate trousers, jean jackets, and shorts from purchased fabric.

POLITCAL ANALYSIS

Political factors can have a direct impact on the way business operates. Decisions made by the government affect our every day lives and can come in the form of policy or legislation. For the United States of America our government and nation is ran under a democracy. In this capitalistic, free market-oriented economy, corporations and other private firms make the vast majority of microeconomic decisions, and governments prefer to take a minimal role in the domestic economy. As a result, the U.S. has a small social safety net, and business firms in the U.S. face considerably less regulation than firms in many other nations (Wikipedia).

Employee rights in the United States have a substantial effect on business. With the apparel industry being labor-intensive, the effect employee laws have are significant. Employee laws to consider are minimum wage, over time, benefits and health and safety regulations.

“With the exception of Arizona, Louisiana, Mississippi, Alabama, Tennessee, and South Carolina all states have a minimum wage requirements. The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments (DOL). Covered nonexempt workers are entitled to a minimum wage of not less than $5.15 an hour. Overtime pay at a rate of not less than one and one-half times their regular rates of pay is required after 40 hours of work in a workweek” (DOL). As well as minimum wage and over-time pay, employees are given the right to benefit plans.

The ERISA, which is the Employee Retirement Income Security Act, sets uniform minimum standards to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. In addition, employers have an obligation to provide promised benefits and satisfy ERISA's requirements for managing and administering private pension and welfare plans (DOL).

In addition to pay regulations there are also health and safety regulations. OSHA, which stands for Occupational Safety and Health Administration helps regulate employee safety standards in all industries of the United States. Workers in the apparel manufacturers are exposed to many harmful chemicals and noises which include cotton dust, dyes, and machine noise. Also a major ill-health problem that is predominate in this industry is musculoskeletal discomfort from repetitive movement and sitting. OSHA requires annual safety training for employees, as well as ventilation and noise regulations (BLS). To operate in this industry it is vital to comply with these standards.

Trade regulations are probably the single most important factor influencing this industry in the United States. Since the apparel industry is labor-intensive, it is exposed to overseas competition from nations where their employees receive much lower wages. By 1999 the proportion of domestically made United States’ retail apparel dropped to just 12 percent (BLS). As of January 1, 2005 all quotas for apparel and textile products will be lifted among members of the World Trade Organization, which includes most of the United States trading partners (WTO). The removal of quota and other trade barriers will serve to increase the competitive edge of countries with a mature textile and clothing industry

The United States has other trade agreements with nations such as China. The U.S-China Textile Memorandum of Understanding is an established agreement between the Government of the United States and China on restraint levels for certain textile products, produced or manufactured in China and exported to the United States during three one-year periods beginning on January 1, 2006 and extending through December 31, 2008 (U.S CBP). Operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, the Dominican Republic Central American Free Trade Agreement, and the Egypt Qualified Industrial Zone program (Levi).

ECONOMIC ANALYSIS

All businesses are affected by economical factors nationally and globally. A strong economy indicates positive results for businesses and consumers, and a weak economy indicates quite the opposite. For the apparel industry in the united states, the future does not look promising. Wage and salary employment in the apparel industry is expected to decline 69 percent through 2012, compared with an increase of 16 percent for all industries combined. The expected decline translates into 245,000 lost jobs over the periodвЂ"greater than the decrease for almost any other industry (BLS). The Decline in employment can be attributed to increase in imports, new automation machinery, and cost-cutting pressure from increase global competition.

Real GDP increased 3.5 percent in 2005, compared to an increase of 4.1 in 2004. The increase was contributed to an increase in personal consumption expenditures, equipment and software, exports, and residential fixed investment (BEA). The value added by the apparel manufacturing industry contributing to the Gross Domestic Product is down to 18.9 billion in 2004 from 25.1 billion in 2000.

Nonfarm payroll employment increased by 193,000 in January of 2006, and the unemployment rate fell to 4.7 percent. The unemployment rate had ranged from 4.9 to 5.1 percent during most of 2005. The average hourly earnings is up from 16.16 in August of 2005 to 16.41 in January of 2006 (BLS). However, the consumer price index is also up 0.7 percent, but this can be contributed to unstable and high energy prices. Pressure from inflation is also causing interest to rise, the Federal Reserve has raised its target funds rate 14 straight times by a quarter-percentage point each time to 4.5 percent, in order to gain control on inflation (Isidore).

The major components of spendingвЂ"food, housing, apparel and services, transportation, healthcare, entertainment, and personal insurance and pensionsвЂ"account for about 90 percent of total expenditures, and of these, only the change in apparel and services was statistically significant in