Apparel industry integration key for ASEAN growth
By Mariani Dewi | 5 February 2013
Manufacturers in ASEAN member states are being advised to forge strategic partnerships across the bloc
The creation of a new harmonised customs system between the ten countries of the Association of Southeast Asian Nations (ASEAN) offers opportunities for the region's clothing and textile industry - but only through strategic partnerships and better vertical integration.
The implementation of the ASEAN Economic Community (AEC) in 2015, a projected 'single window' common market system, should speed flows of capital, labour and goods within the ASEAN bloc: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
But clothing and textile industry players speaking at the 'Prime Source Forum - Focus on ASEAN', in Jakarta, Indonesia last week, said ASEAN manufacturers should forge strategic partnerships and innovate more.
Ade Sudrajat, chairman of the Indonesian Textile Association said: "This integration will make ASEAN a big market for products and services, and hopefully will make ASEAN a major economic growth force in Asia, beside China and India."
He noted the ASEAN zone's 640m population was a major market. Add to this the free trade agreements ASEAN has forged with countries including Japan, China, Australia, New Zealand, India and South Korea - as well as the planned Trans-Pacific Partnership (TPP) - and buyers and investors should flood into the region.
"We have the skills and downstream industries to become the preferred stop for full service apparel. Integrating our regional supply chain is one step toward granting competitiveness for our future," Ade said.
Buyers seeking to diversify
While WTO figures say ASEAN contributed to 8.2% of global apparel exports, compared with China's 42.9% in 2010, buyers have been looking to diversify their sourcing, providing opportunities for ASEAN countries.
"A lot of buyers or facilities in China will probably remain in China but will shift out a portion of production, not only for risk management sake, but because many of our buyers are pushing for at least 25% from the sourcing dollar. So, that's why we started exploring Indo-China...five years ago," said Mark Lee, vice president of the Singapore Textile and Fashion Federation, and the CEO of Sing Lun Holdings Ltd.
However, as labour costs increase, competitive advantages will be created by internal efficiencies and long-term partnership, he stressed. And for that, ASEAN companies need to deepen their clothing and textile sector vertical integration.
"Now, instead of moving into different countries, our time...is [spent] focusing on internal efficiency. [This] is not only within the organisation, but with our partners, which are our mills as well as our customers," Lee said
"Buyers also recognise this. Instead of price, they look at people, talents, whether there is [a strong management pool] within the company, whether you are an engineering based company [and have] the ability to invest in technical competencies.
"I want to minimise my costs and find factories that understand my DNA," he said.
Frank Gout, former managing director of Nice Apparel Group, an apparel manufacturer based in Thailand, stressed that working closely with buyers to achieve internal reforms was a smart strategy.
"A lot of initiatives we have done in our company, like [developing] manufacturing excellence, have been done with help from a customer's consultancy."
This has enabled his company to establish systems and technologies they had not considered before and which have been "a great success".
Dedie Suherlan, president commissioner of Trisula International, an Indonesian apparel manufacturer, agreed. "Without our customers we wouldn't be where we are right now. It is all about strategic partnership and efficiency. Rising labour costs [are] something that we cannot escape, so we just have to prepare," he said.
Marissa Maren, from Indonesia's Busana Apparel Group, stressed integration with suppliers was also important for manufacturers. "We need to extend back down the supply chain to make sure we [have] strong partnerships. In particular in garment manufacture, the natural alliance will be with fabric mills.
"It is becoming less about company competing against company, and more about an entire supply chain competing with another supply chain. That connectivity, that collaboration, partnerships, and dialogues are critical that will set apart the winners and the losers," said Maren.
Raw materials investment
Regarding supplies, there is a real sense of urgency because while many ASEAN countries have good textile and garment companies, they do not have enough yarn to process.
"There are textile makers in Vietnam, but the yarn still comes from China. So the Chinese still control the price of the fabric vis-a-vis the yarn. What are ASEAN countries going to do about it?" asked Fred Butts of One Source Apparel.
Lalit Matai, also of Trisula, was hopeful but cautious. "Having a single window is one thing, but having good investments on raw materials is [something an] organisation should look at," he said.
Indeed, without customs formalities within ASEAN, local manufacturers could buy yarn and fabric "from one country and it can really move faster to another country...It will help [with] cost saving in the trade if the window really works well," he said.
Prabakaran Kesavan, project manager of the Source ASEAN Full Service Alliance (SAFSA), a non-profit organisation working on linking apparel factories and fabric mills across ASEAN, said each country must grow its yarn sector.
"If the TPP is agreed, there are many factories from [South] Korea, and even the US who want to set up their own spinning in ASEAN. That's what we are trying to do. We want ASEAN to have good spinners, not from Chinese back-door exports," he said.
Kesavan also called on ASEAN governments to ensure yarn-forward rules were written into the TPP so that ASEAN yarn and fabric producers thrived.
As for innovation, ASEAN manufacturers should be more daring and creative, said Gout.
"The time for cheap labour is over. We need to do more for our customers - like one-stop solutions. Manufacturers must be more innovative...to drive efficiency and productivity, product development, such as dry-dyed products, and even offering new multi-supply chain models. These steps will not only gain more customers but also cut costs."
Shammy Mathew, of advanced-technology fabric supplier Thai Acrylic Fibre, said there was work to be done in this area, especially regarding speciality product supplies.
Local suppliers often make excuses. "'Sorry we don't have requirement for such a product'," is a common one, he said. "So we tell them: 'Make samples'. They say: 'We don't have time to do all that stuff'." Eventually, they have to make orders for yarns, then fabrics and then garments, creating a supply chain: "And we show it to the buyers."
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