Far too many apparel suppliers have concluded the recession is to blame for their falling sales. Instead, believes Mike Flanagan, the real reason for their problems is that the US and EU last year finally lifted all restrictions against garment imports from China and Vietnam, thus exposing the rest of the world from the full force of their competition.

Struggling garment industries around the world are blaming the recession for their difficulties, assuring everyone there’s a recovery just around the corner, and they’ll be a lot better off when it comes.

But in most cases they’re completely deluding themselves, their shareholders and their workers.

In the first nine months of 2009, garment exporters outside China and Vietnam exported 12.5% fewer clothes to Western countries than in the same period of 2008.

But most of that sales loss had nothing at all to do with the recession. China’s share of those exports grew from 41.3% in 2008 to 46% in 2009 – and it was China’s and Vietnam’s growing market share, rather than falling demand, that’s really damaged factories elsewhere.

In fact, 60% of the average garment exporter’s sales loss was due to growing Chinese and Vietnamese competition, rather than falling demand.

Many non-Chinese clothes factories have simply not been able to compete since quotas against China, and US restrictions on Vietnam, were withdrawn at the beginning of 2009.

Double whammy
It’s not just a fall in the number of clothes being sold. Prices have also fallen throughout 2009: in October 2009, US apparel importers bought 8.8% fewer clothes than in 2008, but paid 15% less.

As the year came to an end, many manufacturers found their costs going up too, as a result of a wholly unexpected surge in cotton prices.

Businesses in countries whose currencies have fallen against the US dollar (like most of Central America) were especially hit by rising raw material prices.

But even businesses in countries whose currencies have been appreciating against the dollar lately (like India), saw export income in their own money fall further.

Garment makers throughout the world have been hit by the double whammy of tougher competition from China and Vietnam at the same time as fluctuating prices and exchange rates.

This is nothing new and is completely unrelated to the recession. In fact, it’s been that way in the garment industry all this decade.

But in 2009 the US and EU also finally removed the last shackles on China and Vietnam that had sheltered the rest of the world from the full force of competition.

Post post-quota world
There was a great deal of fuss about the post-quota world in 2005, when quotas were removed from all significant garment producers except for China and Vietnam. But only in 2009 did we finally move into the real post post-quota world

That’s coincided with a – well, if we’re honest, really rather small – decline in the number of clothes retailers are selling in rich countries (in total, Western countries imported just 4.2% fewer clothes in Jan-Sep 2009 than in 2008).

But far too many businesses have been concluding it’s that recession that underlies garment makers’ current problems.

Hardest hit
In fact, the dramatic change in the post post-quota world competitive environment has hit factories in some countries a great deal worse than others.

In the first nine months of 2009, the value of Botswana’s garment sales to the US fell 27%, while the value of Haiti’s grew 25%.

At Clothesource, we’ve looked at the combined effect of China’s and Vietnam’s competitiveness, and produced the ‘Twelve New Laws of Sourcing,’ which we believe will underpin apparel sourcing in the post post-quota world.

Looking at the how exporting countries have adjusted to the Twelve New Laws, five distinct groups emerge:

• China and Vietnam.
• A handful of countries who’ve also gained sales in 2009, like Albania, Croatia, Moldova and Haiti (before the earthquake struck). These countries’ garment industries seem to share one characteristic: they’re located near their main customers, and offer low-cost production while their neighbours (like Bulgaria and Honduras) have been exceptionally hard hit by China’s growing competitiveness.
• Countries that have held or slightly gained share, like Bangladesh, India, Pakistan and Nicaragua.
• Countries with significant share loss, like Cambodia, Honduras and El Salvador. These countries’ sales losses are far greater than what can be attributed to the recession. They’ve got real competitive problems – and their industries need to deal with these problems, rather than just wait for their customers’ sales to pick up.
• Countries whose loss is so substantial it has to be seriously doubted whether there’s a future for garment making. In the old “tiger” economies, like Taiwan and Hong King, this in well understood, and businesses have strategies for dealing with it. It’s less clear there’s any such strategy among businesses or politicians in the Dominican Republic, Costa Rica, Botswana or Madagascar.

Business response
How businesses will respond to the new challenges that factories will face in the real post-quota world will vary from firm to firm and can’t be easily predicted.

But the Clothesource Twelve New Laws offer a guide to what those challenges are.

We’re giving a copy of them free to any just-style reader buying a subscription to The Source, the monthly Clothesource review of apparel sourcing, between now and the end of February 2010.

We also analyse the impact of the Twelve Laws in greater detail in The World of Apparel Sourcing 2010-2012.

This detailed report translates these twelve laws into detailed country-by-country forecasts for over 60 major apparel exporting countries.

And until 28 February, we’re offering a free subscription to The Source to any just-style reader buying a copy of The World of Apparel Sourcing 2010-2012.

One of our Twelve Laws is that it’s extremely unlikely the US or EU will introduce any significant new measures in the next few years to shackle Chinese or Vietnamese garment exports again.

Successful garment exporters will be those that adjust to the reality of the post post-quota world. Those hanging around waiting for a government to help them won’t be hanging round anywhere for long.

Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries. The new suite of Clothesource Guides help buyers find the best value - and give emerging-market lobbyists hard data on what their competitors offer.