Mexico slow to move from US supplier to global player
Mexico relinquished its position as the leading apparel exporter to the US in 2002 - and last year its share of the US market was a meagre 7.4% compared with China's 25.9%. But while Mexico is no longer a cheap production base, it can still benefit from its proximity to the US and a large domestic market keen for luxury labels. By Jozef De Coster.
The Mexican textile and garment industry facing tough times, with official statistics, as well as exhibitors and visitors at the recent Exintex, Mexico's biggest textile fair, telling the same sad story.
However, it's not all gloom and doom in the sector. The new Mexican president Felipe Calderón has vowed to tackle some of the sector's major problems.
And in spite of the general downward trend, aggressive companies with a clear strategy are expanding. The growing Mexican market (107m people) is not only consuming a lot of cheap Chinese textile items, but also luxury apparel from Europe.
Illegal apparel sales dominate
But first a few appalling statistics. According to CNIV, the National Chamber of the Mexican Clothing Industry, illegal sales of smuggled, stolen, counterfeited and second hand clothing represent 58% of the national clothing market, which is estimated at US$18bn annually.
Employment in the Mexican textile and apparel industry has tumbled from nearly 750,000 in 2001 to less than 500,000 today. And since 2000, the number of Mexican apparel companies has fallen from more than 14,000 to less than 11,000.
Mexico relinquished its position as the leading apparel exporter to the US to China in 2002 - and last year its share of the US market was a meagre 7.4% (US$5.3bn). This compares with China's 25.9% share. Including Hong Kong and Macao, China held 31.4% of the US apparel import market in 2006.
During Exintex, sector specialist Professor Dr Rodolfo Radillo pointed to the collapse of the Mexican manmade fibre industry, where the only survivors are the fibre producers Invista, Celanese, Akra, Finacril and Grupo Kim-X (plus the fibre recycling companies Grupo Crisol and Technología de reciclaje).
According to Radillo, Mexico lacks a shared vision between the government, professional associations and manufacturers on the future of its textile and clothing industry. He's afraid that many more businesses will disappear in the coming years.
As far as clothing companies are concerned, Trendex México estimates that within ten years, around 40% of companies will have disappeared, a pattern that is common in countries with increasing wages.
Eduardo Sojo, the Mexican Secretary of Federal Economy, declared during the Exintex inauguration ceremony that the government will tackle two of the industry's main problems: illegal imports and the regional cumulation provision in the rules of origin of certain free trade agreements.
President Calderón wants to reduce the nation's massive labour migration - what he calls his country's "open wound". More jobs are needed to prevent poor Mexicans from flooding the American border, and if illegal textile and clothing imports could be stopped, the Mexican industry could indeed employ many more workers.
However, with more than 1m people a day crossing the Mexican-American border, it will be extremely difficult to root out all kinds of 'contrabando'. Besides, Mexico has a huge corruption problem, which also affects customs.
The regional cumulation provision should allow Mexican fabrics to be used for the production of clothing in Central American, Caribbean and Andean countries that have Free Trade Agreements with US (allowing these countries to export clothing duty-free to the US).
It's estimated that in 2007, Mexican textiles exports to the CAFTA-DR countries alone (Central America and the Dominican Republic) could reach US$250m.
EU-Mexican trade stalling
In 2000, the EU signed a free trade agreement with Mexico, of which the results were immediately visible in Euratex export statistics.
EU exports of textile and clothing to Mexico jumped from EUR321m in 2000 to EUR403m in 2001 and EUR474m in 2002. However, it looked as if exports to the Mexican market has reached their limit.
Textile and clothing exports to Mexico from the EU-25 in 2005 (EUR480m) hardly exceeded those of the EU15 in 2002. In the meantime, illegal (reportedly Chinese) textile and clothing imports conquered more than half of the Mexican market.
Probably because the US is so big and so close, most Mexican manufacturers of textiles and clothing have never tried to export to the EU.
Since 2001, Mexican exports of textile products to the European Union have hardly exceed EUR100m per annum (of which nearly EUR50m garments).
If Mexicans actually spend more money on brands like Ralph Lauren and Yves Saint Laurent than on Dior or Louis Vuitton, this is because the former brands are cheaper while still enhancing the status of consumers.
Mexico accounts for 70% of all Latin American sales of the Italian company Salvatore Ferragamo. By the end of last year, Ferragamo had eight shops in Mexico.
Against the downward trend
Not all Mexican textile and clothing companies follow the general downward trend. Though Mexico is no longer a cheap production country, it still has a few comparative advantages like its proximity to the US and a large domestic market.
Well-managed companies with a good strategy are flourishing. So is the lingerie company Vicky Form (Zaga group), which not only has a strong position on the domestic market, but has also opened shops in several East European countries and is preparing its entrance in the Chinese lingerie market.
The towel producer Hilasal Mexicana is successfully fighting against Indian, Chinese and Pakistani competition in the US by fully exploiting its proximity to market, which means it can offer a 48-hour service.
The CAD/CAM provider Lectra Mexico reported record sales in 2006, while other machinery and software suppliers suffered declining sales.
Also sewing thread producer Coats, which employs 1,700 people in Mexico, has a growing market share. This share is presently estimated at 43%, compared with around 25% for American & Efird Inc, 18% for the local player Hilos Claudia, and 5% for Gütermann. Over the last six years Coats has invested US$50m in Mexico, including a new big dyeing facility with a daily production capacity of 25,000 kg in Orizaba.
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