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s momentum as the index is on an upward trend (Li & Fung 2009).

As disposable incomes are growing within China the expenditure on clothing per capital grows as well, which have been on a steady increase since 2001. Most of the clothing expenditure growth is attributed to urban households rather then rural. Moreover, it has been concluded that in urban cities an increase in disposable income is directly proportional to the average spending on clothing (Li & Fung 2009). Figure C depicts the clothing expenditure growth.

Figure C: Per Capita Annual Expenditure on Clothing of Urban and Rural Households

There is an abundant amount of low cost and skilled labor in China. In 2009, the clothing industry employed approximately 5 million Chinese people most from rural areas, making it nearly 40% of China’s overall jobs (Lau, To, Zhang, & Chen, 2009). The immense amount of employed in the industry makes the clothing industry important for the foundation of China.

4.3 Competitive Environment

Relative to clothing prices continually decreasing, clothing exports are decreasing as well. As a result, export-oriented manufactures are focusing on selling more domestically, therefore increasing competition between players in an already extremely competitive atmosphere. Barriers to entry in the domestic market is harder than it may seem because firms need to become accustomed to different regulatory issues, transform their registrations, as well as deal with the knowledge gap of branding and marketing, and lack of sales channels (Li & Fung 2009).

4.4 Dynamism of Trade Structure: Local Industrial Clusters

There are several stages of the global value chain that China is actively present in, and theses stages can generally be described: raw material, component, production, export, and marketing. Beginning with raw materials, China is regarded as one of the largest textile and raw material producer worldwide making an impression on cotton and high-tech man-made fibers. In regards to components of trade, approximately 50% of China’s apparel can be considered processing trade mainly from imported components and raw materials. In terms of production in the global value chain, China is one of the leading countries to be utilized by foreign firms for sourcing production, and have plenty of capacity to satisfy the demand of the global market. Three phases of sourcing can be identified: assembly of imported inputs by local industrial cluster firms, full-package supply or original equipment manufacture (OEM) production (a form of international commercial subcontracting) by using domestic integration that is higher value-added, and original brand manufacturer (OBM) where Chinese firms will provide a design sample and once approved then production begins. As far as exports go, China’s mainly stem from the OEM and OBM production. Lastly, as competition increases so does the organization of the global supply, however competition still shifts to different product categories in patterns, thus suggesting a constantly changing market environment. (PingQing, & Qiang, 2007)

There is no doubt that outsourcing and offshoring has changed the face of the industry, but specifically China has gained a competitive advantage in trade due to its local industrial clusters that specialized in one product and are capable of responding to the worldwide ma