The Flanarant: Debunking the garment industry myths of 2011
By Mike Flanagan | 22 December 2011
There's been a huge amount of confusion recently about the competitiveness of Chinese textiles and apparel. While China's not offering the prices Western apparel buyers would like, it is cheaper in relative terms than it was a year ago, according to Mike Flanagan. Here he debunks a few other garment industry myths that rose to the fore in 2011.
China's share of US apparel imports grew to just about their highest ever in September. Oh, and the average price per square metre of Chinese clothing imported into the US rose more slowly, for the third straight month, than the price of clothing from the rest of the world.
As these numbers were being published, four garment factories were being closed in Honduras - because "it's getting too expensive to work here, so everyone's moving to Nicaragua", the local trade association claimed. And the world's largest garment maker decided to pull out of Guatemala, with locals there also claiming garment making was getting too expensive.
Yes, that was in 2011. And no, you've not accidentally stumbled across a web page from 2008.
But surely China's getting too expensive? Isn't "everyone" getting out of China as fast as they can? Aren't garment factories in Central America "rammed" as US buyers are flocking there? Just as European buyers are pouring into Turkey, and Japanese buyers are sourcing from anywhere in Asia with a sewing machine, as long as it's not China?
According to a new Clothesource survey available from just-style - 'Is there an alternative to China as the dominant location for apparel sourcing?' - there's been a huge amount of confusion recently about the competitiveness of Chinese textiles and apparel.
But more importantly, much of the world apparel trade has a much bigger problem to deal with.
China's share (by weight) of US apparel imports in September rose to 48.95%; just a shade below the all-time record for China's share set in September 2009 of 49.3%. And this is way, way up on the 23.5% China got in March of this year.
Few buyers are likely to worry too much, though. They're all a great deal more concerned that sluggish retail apparel sales (when measured in volume, rather than inflated current prices) mean they're selling fewer clothes.
And worse still, with imported clothes arriving in US ports on average 17% more expensive than in September 2010, they're unable to persuade shoppers to pay proportionately more.
The numbers vary a bit for EU or Japanese retailers and brands - but the general trend's the same. China's not the problem anymore. Throughout the West, retail garment sales are falling, however much the media obscures this by quoting annual changes in cash, rather than the number of garments sold.
And as costs are growing, retailers' margins are tumbling to levels that customers just won't allow to be reflected in higher prices.
Myths mount up
The real world has already moved on, way past the "uncompetitive China" hysteria of the past few months. The "China flight" myth must surely now join all the earlier myths: from "quota restrictions will never come off garment imports from Asia" (everyone in China: 2004-2006) to "China will put every other garment producer out of business" (every American textile lobbyist, morning, noon and night, since about the day the Pilgrim Fathers landed).
It might be a good Christmas party game to speculate what's going to replace it, either among the debunked myths, or as the media's 'Textile Industry Fad of the Month'.
- "Everyone's going to Central America" is showing dangerous signs of being debunked even before it ever gets to be a media fad. At the beginning of 2011, US apparel imports from CAFTA, Mexico and Haiti combined were up 21% (measured by volume) on 2010. That growth stopped in June - and by September, apparel imports from the region were 10% down on 2010. Within the CAFTA-DR countries as a whole (Costa Rica, Dominican Republic, Honduras, Nicaragua, Guatemala and El Salvador), things have got even worse, with US apparel imports down 12% in September. Though imports from Mexico and Haiti aren't growing, they're scarcely down.
- "The Chinese market's growing so fast they don't want foreign customers any more" sounded pretty unbelievable earlier in 2012, when first heard from major buyers. But with output from Chinese garment factories just 6.7% up on 2010 in the July-September quarter, such stories are getting rarer. What was actually going on at the time was something rather more subtle: Chinese factories weren't refusing foreign buyers - they were refusing foreign buyers' attempts to sell unprofitably.
- "There's more competition among buyers to find suppliers than among suppliers to find buyers." If that really were true, factories wouldn't be closing in Honduras and Guatemala. While at the height of the "China's got uncompetitive" myth, it WAS often tough to find factories, these things almost always right themselves. Korean multinational Sae-E is closing in Guatemala mainly because it's developing a 20,000 worker complex in Haiti. 52 new factories have been registered this year in Cambodia. India's announced 21 new Textile Parks - and with the rupee hitting its lowest-ever level against the US dollar in late November, Indian garment makers may have the incentive to fill them with new factories. The "uncompetitive China" fad sparked off a flood of new investment in capacity, and it's possible we'll see a world garment factory glut by 2012 or 2013.
- "Garments will just keep on getting pricier" might never make it to myth status: for most spinners, weavers, garment makers and buyers, the crucial driver has been the cotton price, which peaked back in March. With global cotton production likely to be greater than demand for the next year or so, Indian devaluation and a (possibly short-lived) boom in new factories, it's impossible to predict how long the current level of producer prices will stick.
Does that mean - for example - that the obvious arguments for Americans to source garments from Central America are going to get weaker and weaker till Americans stop sourcing from their neighbours? Not at all. These myths illustrate a more serious truth.
Low wage countries lead production
Much of the garment industry - and much of the media commentating about it - really hasn't got over the shock of seeing most rich country garment production sail off to Asia, and keep prices tumbling for almost two decades as a result.
Some believe, deep down there's an infinite number of potential new countries the industry hasn't discovered, and when they're discovered, prices will collapse all over again. Others believe that the whole period was an aberration, caused by the Chinese playing with their currency, or Bangladeshis working for nothing, and that sooner or later it'll all get back to normal.
Both groups are equally deluded. As long as there's a huge disparity between wages around the world, as long as factories in low-wage countries keep on improving their efficiency, and as long as barriers to global trade remain low, labour-intensive products are going to be made in low-wage countries.
It'll take decades for wage disparities to disappear, there's no real pressure for rich countries to re-erect trade barriers, and most successful garment factories are committed to continuous improvement.
On the other hand, it's tough to see another dramatic game-changing innovation that will transform garment making economics as dramatically as moving production to poorer countries. If Uzbekistan, say, or Laos, ever develop a large-scale garment industry, at most it'll add just a bit of extra competition.
The success of offshore factories in competing with each other on efficiency and quality of service will go through ups and downs, driven by management competence and commitment and by host government actions. Governments will intermittently help or undermine them with the quality of transport infrastructure, the honesty and competence of officials, the inflation, interest levels and exchange rates their economic policies produce, as well as the reliability of energy supply, and the safety of personnel and property.
Relative strengths and weaknesses - of countries and of corporations - will be in constant flux. And, by and large, by the time most media (with the permanent exception of just-style, of course) have found out who's strong and who's weak, the wheel will have moved on.
In all this, there'll be just two constants. As we show in 'Is there an alternative to China as the dominant location for apparel sourcing?', for most readers' lifetimes China will remain the dominant force in global garment and textile manufacture. And the media will trot out a new 'Fad of the Month' more or less every four weeks.
This report examines these claims and compares them with the past few years' sales and pricing evidence about China and its 70 major competitors worldwide. With dozens of tables, charts and country profiles, the report concludes that the simple answer to this question is "no". Barring some catastrophic event, China will continue to dominate global apparel sourcing overall until at least 2025 - and if it ever does begin to show significant share loss, there is no one alternative country to which production will shift.
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