Challenges and Strategies for SMEs in the Apparel Industry:

Navigating Technological and Sustainable Transformations

Junxi Li

Faculty of Science and Technology, Beijing Normal University - Hong Kong Baptist University United International

College, Zhuhai, 519000, China

Keywords: Small and Medium-sized Enterprises (SMEs), Apparel Industry, Digital Transformation, Sustainability.

Abstract: In the rapidly evolving global apparel industry, small and medium-sized enterprises (SMEs) are facing

unprecedented challenges. This study delves into the challenges and strategies faced by small and medium-

sized enterprises in the global apparel industry amidst technological advancements and shifting market

demands. Although SMEs play a crucial role in the global economy, especially in major apparel-producing

countries like Bangladesh, India, and China, their size and resource limitations often hinder their ability to

enhance production efficiency and market competitiveness. This study discusses the necessity for strategic

development and significant investment to overcome transformation’s high costs and technical complexities.

It highlights the importance of government support, industry collaboration, and partnerships with technology

providers to help SMEs navigate these challenges and thrive. Additionally, the study explores how SMEs can

leverage digital transformation and sustainable practices to improve business efficiency and respond quickly

to market pressures, thus maintaining competitiveness in a rapidly changing market environment.

1 INTRODUCTION

With a share of more than 90 percent of the total

turnover, SMEs are ostensibly vital actors in these

industries across the globe; they are also essential

players in major apparel-producing countries like

Bangladesh, India, and China. While locally serving

businesses worldwide, forming cornerstones of local

economies and links in global supply chains are vital;

they need help with smallness due to size constraints

(Katsaliaki et al., 2022). As a result, their ability to

improve manufacturing efficiency and target the

market could be improved by access to capital,

adoption of automation, and use of state-of-the-art

SCM tools. With consumers increasingly asking for

superior bespoke products that are produced

responsibly and sustainably, the challenge becomes

even greater with SMEs being forced into more

expensive or technically difficult transformations

(Ahmadov et al., 2023; Martínez et al., 2023;

Martínez et al., 2024). However, this requires

strategic development and significant investments - a

challenge still too great for many SMEs. Capital can

be found through places such as microfinance and

https://orcid.org/0009-0002-5819-2271

other sources of finance besides banks, venture

capital and government financing programs; however,

automation and advanced supply chain tools can

bring great efficiency. SMEs also need to use flexible

systems and digital tools to cater to product diversity

and sustainability. These challenges need to be

negotiated by the SMEs through strategic planning

and incremental implementation with the

collaboration of various stakeholders, including

technology providers and industry associations.

Government support in policy and infrastructure is

also significant. Successfully overcoming these

obstacles will allow SMEs to survive and prosper,

enhancing innovation & sustainability within the

apparel industry, thus securing their continuing

importance in the global market.

2 CURRENT SITUATION

The struggling apparel business is fighting today

because of a major black hole in global competition.

For example, large corporations that have effectively

Li, J.

Challenges and Strategies for SMEs in the Apparel Industry: Navigating Technological and Sustainable Transformations.

DOI: 10.5220/0013337900004558

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 1st International Conference on Modern Logistics and Supply Chain Management (MLSCM 2024), pages 457-460

ISBN: 978-989-758-738-2

457

cornered the market to drive economies of scale can

lower prices, offer better profit margins, and squeeze

the space from SMEs. Fast fashion, epitomized by

quick turn-around cycles and constant iteration,

compounds these complications. Limited Assets-

Slow to Adapt: This relatively low level of

sophistication and agility amongst SMEs makes

integrating POS devices with payment systems

tedious. Based on a report put out by McKinsey, it is

known that the volatility of the economy, the

instability in geopolitics, and inflation are the top

three worries of executives in the fashion industry. It

states that 62% of them believe that geopolitical

instability in 2024 is the single greatest threat to

growth shortly ahead of us (McKinsey & Company,

2024).

One of the great problems is the large

technological gap between SMEs and larger

companies. Focusing on the SMEs, as they are the

ones who still follow manual processes which lowers

productivity and increases the cost of operation.

SMEs need contemporary IT and management

systems, such as complete ERP solutions, to manage

inventory and resources. If digital technologies,

particularly AI, are incorporated into these

operations, productivity and efficiency can increase

dramatically, argues the latest State of Fashion 2024

report. Yet many SMEs do not have the resources

needed to implement them (McKinsey & Company,

2024). Using digital solutions to facilitate real-time

communication with supply chain partners and

cooperating effectively with them is vital to deal with

supply chain disruptions (Tec Packer, 2024).

Increasing consumer pressure for personalized

and sustainable goods compels SMEs to reconsider

their production processes by incorporating

environmentally friendly materials. This change

usually comes with increased costs, often making it

difficult for SMEs with limited financial resources.

On top of all this, regulatory pressure to be more

transparent and sustainable does not make anything

easier. Consumers in Western Europe and North

America demand higher levels of transparency and

ethical behavior from brands, and McKinsey suggests

that sustainability might be an important driver

(McKinsey & Company, 2024). Greenwashing, in

addition, remains a significant issue for big brands.

Only 24% are found to make full disclosures for

supplier information (Fashion in World, 2024).

Over the years, there has been a surge in online

shopping, which has been brought on by digital

transformation in the retail sector. Most SMEs cannot

secure a significant portion of the online market

because they need digital marketing skills and

sufficient e-commerce infrastructure. Moving online

also requires the right e-commerce platform, digital

marketing strategies, customer engagement, and a

proper logistics management system. Everybody is

closely monitoring the fashion industry, pressuring

stakeholders to digitally transform and gain digital

capabilities as a market share determinant (Tec

Packer 2024).

3 SOLUTION STRATEGY

3.1 Digital Transformation

The advance of smart manufacturing technologies has

transformed the textile and apparel industry. Fully

automatic sewing machines and artificial intelligence

(AI) driven pattern design tools have improved

production efficiency, halved human error rates, and

dramatically accelerated manufacturing processes.

This saves time, as lower-end sewing machines are

always slower than their more expensive alternatives.

Advanced machine construction and computerized

control offer another benefit of investing in the best

industrial sewing machine with its exact stitching

line. This drives higher output and helps reduce

material waste, aligning with larger sustainability

efforts. AI-based pattern design tools work similarly

- quickly iterating through multiple designs and

testing new styles on different fabric types without a

heavy dependency on manual input from designers

(Deloitte, 2021). This technology also allows quicker,

more responsive production - necessary in an industry

with such rapid trends and diverse consumer

demands.

Integrating with Enterprise Resource Planning

(ERP) and Customer Relationship Management

(CRM) systems further increases operations and

customer interaction efficiency. This type of system,

named ERP, regroups several other business

processes into one single software like inventory

management, procurement, or even order fulfillment

available on a real-time basis that enables the

cutdown and full visibility of what is happening in

your organization (Oracle, 2022). Fewer hand-offs

mean more streamlined processes, quicker lead times,

and a good sense of resource management in making

the correct products when they need to be made.

Where is such a level of insight into customer

preferences and buying behaviors in a CRM system?

Businesses can use this information to segment their

marketing strategies, customize customer interactions

more effectively, and provide a better overall

MLSCM 2024 - International Conference on Modern Logistics and Supply Chain Management

458

experience (Salesforce 2023). For instance, CRM

analytics might discover seasonal buying trends to

allow companies to control inventory and tow in

marking campaigns.

Additionally, integrating smart manufacturing

and ERP/CRM systems provides a solid foundation

for continued growth in continuous improvement and

innovation. Organizations will be able to track

measures around performance, bottleneck

identification, and changing as necessary at a pace

faster than the competition. This within-organization

versus point-solution approach improves operational

efficiency and promotes a data-driven and customer-

centric cultural transformation.

3.2 E-Commerce Integration

More and more businesses see creating online

platforms as a necessary step to connect directly with

consumers. These platforms offer an easy shopping

option for customers who have access to everything

available online just by sitting at their homes and

ordering a placement of orders. Online shopping

provides customers with a convenient mode of

purchase and offers businesses the exposure

advantage to reach global markets that have

differently diversified needs (Statista, 2023). In

addition, e-commerce platforms provide businesses

with invaluable consumer behavior and preferences

data, which can then be exploited to inform marketing

strategies and product offerings. By using this data-

driven approach, companies can strive to optimize

their product assortments, pricing strategies and

promotional efforts quickly based on customer

demand. Nowadays, digital marketing and social

media are vital tools for brand development and

customer interaction. With targeted advertising,

influencer-primarily based partnerships and

interactive content material, a brand can entice new

leads that can also grow into unswerving customers.

Fashion brands especially have been able to make the

most of social media platforms, including Instagram,

Facebook and TikTok, by posting visually appealing

posts and stories showing off their products, engaging

directly with customers through comments and direct

messages as well as sending traffic out from these

platforms back to their e-commerce sites (Forbes

2022). A good example is a social media campaign

for a new product launch.

Furthermore, AR and VR connected with e-

commerce online stores change the shopping

experience from head to toe. Customers can use these

technologies to try the product virtually, see how it

looks in a different setting, and make more informed

buying decisions. It increases user satisfaction and

reduces return rates as customers have a more

realistic expectation of what they are buying. Also,

integrating chatbots and AI-powered customer

support tools into e-commerce platforms gives

shoppers an immediate service, thus boosting their

online shopping experience. These tools are capable

of handling various queries like product information,

order status updates etc... thereby ensuring that

customers get very prompt and accurate post-sales

support. E-commerce platforms are working on

integrating these technologies into their business

models, driving home the increasing need for

providing a good online shopping experience in

today's digital epoch.

3.3 Sustainable Practices

The selection of sustainable and green materials along

with processes has become more than just a trend; it

is now a necessity for businesses to comply with

consumer and regulatory standards. Organic cotton,

recycled polyester, and biodegradable packaging

materials help mitigate the environmental damage

caused by production while aligning with increasing

consumer expectations of sustainable products.

Organic cotton farming, for example, uses 91% less

water and doesn't use any harmful pesticides, which

has a much lower environmental footprint (McKinsey

& Company, 2023). Recycled polyester also reduces

waste and the need for virgin materials. On top of that,

energy-efficient manufacturing operations and lower

water consumption help advance sustainability goals.

For example, waterless dyeing and solar power

factories require more upfront investment but lower

operational costs in the long run as they are less

impactful to the environment. Accountable and

transparent sourcing advocates for vital transparency

in the supply chain, consumer confidence, and

regulatory adherence. Businesses demonstrating

transparency by shedding light on where materials

come from and how products are made can alleviate

consumer concern for ethical practices. Also,

blockchain solutions are starting to illuminate the way

a product, from raw materials to finished products,

and each stage provides complete transparency at

every single level of the supply chain (Xu et al., 2021;

Gligor et al., 2022). A level of transparency that

enables answers to issues like child labor, unfair

wages, and unsafe working conditions - problems The

fashion industry has been well-known for years.

Moreover, sustainability initiatives typically

range beyond production to include packaging and

transportation. Biodegradable or reusable packaging

Challenges and Strategies for SMEs in the Apparel Industry: Navigating Technological and Sustainable Transformations

459

helps reduce waste and makes shoppers likelier to

adopt green practices. In addition, by setting optimal

routes for transportation and using ecological

vehicles, the carbon footprint of product delivery can

be dramatically reduced. Adhering to these practices,

companies adhere to regulatory requirements and

appeal to an expanding population of ESG-informed

consumers. These strategies improve operational

efficiency and customer satisfaction while

responsibly positioning businesses to think ahead in a

fiercely competitive market. Digital transformation,

e-commerce integration, and sustainable practices

will all contribute to a company's evolving success in

an ever-changing market. Businesses that implement

these strategies ahead of time will be more prepared

for changes and opportunities as they emerge within

this fluid battleground.

4 CONCLUSION

The degrees of modernization available to SMEs

within the traditional apparel business are not just a

choice but a need for existence in this fiercely

competitive environment where everything is

continually fast-changing. A well-planned digital

transformation, strong e-commerce integration, and

sustainability deliver numerous advantages that can

make these companies more efficient, agile, and

ultimately higher performing. Advanced technologies

like AI-based pattern design tools and fully

automated sewing machines can revolutionize

production processes. In an industry with fast fashion

and quickly changing styles, speed-to-market is

essential.

Adopting sustainable practices satisfies the

growing consumer appetite for ethically and

environmentally friendly goods. Suppliers should

ensure eco-friendly materials, transparent sourcing,

and energy-efficient manufacturing processes. This

minimizes the adverse effects on the environment and

meets regulatory requirements and customer demand.

Blockchain technology can provide the transparency

needed to create consumer trust and drive ethical

practices across the supply chain. Industry leaders,

policymakers, and technology providers need to help

SMEs upgrade through financial assistance urgently,

access to innovative technologies, and digital literacy

programs or technical skill development. Public-

private partnerships can create an environment for

innovation, sustainability, and competitiveness in

apparel.

In the future, clothing technology is expected to

remain in flux as rapidly advancing technologies and

shifting customer tastes interact with stricter regulatory

demands. Thanks to their proactive pivot towards

digitization, SMEs will have more tools to adapt to these

changes and contribute vitality to the global apparel market.

The road to industrial modernization is long and hard, but

the future applications of high-efficiency practices are

immeasurable for small- and medium-sized enterprises in

the traditional garment industry.

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