Ranjan Mahtani, CEO, Epic Group

Ranjan Mahtani, CEO, Epic Group

Faced with what he describes as a "never-ending battle" against rising costs, Ranjan Mahtani, the CEO of Hong Kong based apparel supplier Epic Group, is in fighting mood.

But what is also clear is his concern that the apparel industry's current preoccupation with price leaves it in danger of failing to see an even bigger and more worrying issue: the lack of new supply countries coming through.

"While we are fighting a battle on cost, there's also a big capacity war going on," Mahtani explains. "Something I have had a view on for the last five or six years is where's the next supply going to come from? For example, we don't do any production in Hong Kong any more, and we've seen countries disappear [off the sourcing radar].

"Where is the supply chain growing, and how many countries are going to be left? That's the big war that no-body wants to recognise."

With Epic's production facilities mainly located in Bangladesh and Vietnam - two countries repeatedly cited as having the potential to pick up orders migrating out of increasingly expensive China - Mahtani is well placed to comment on sourcing challenges and opportunities.
 
The woven apparel manufacturer has 20,000 employees and produces 36m garments a year for customers in North America and the EU, including Wal-Mart, JC Penney, Kohl's, Gap, Abercrombie & Fitch, Marks & Spencer, Sainsbury's, H&M, and Arcadia group (which owns the Topshop and Dorothy Perkins chains).

"No matter where we are in Asia we see very high levels of inflation, rising labour costs, rising utility costs, rising fuel costs," he says, adding other issues like manpower shortages, political disturbances, and even issues like container scarcity to the mix of challenges.

"All these factors are putting more and more pressure onto an industry which is already under very tight margins. One day it's cotton yarn, the next it could be a labour issue, it could be a container problem...you're going to face problems four or five times in a year.

"Over the last 10-15 years everyone has squeezed everything that is left out of this industry. The big question is how long can the apparel industry survive on these very fragile fundamentals?"

Leaner and more efficient
Epic has tackled the problem of an annual 10-20% hike in costs by getting "leaner and more efficient" every year, including efforts to automate and work to faster cycle times to bring down financial costs.

But Mahtani admits it's a constant fight.

"Even in a country like Vietnam, where we have been since 1997, we've seen a 50% hike in our labour cost in the last two years. So while Vietnam is a big supplier I wonder if I will be able to do business there five years from today. And would I be there today if I was not already?" he asks.

Epic's presence in Bangladesh goes back nearly 30 years, but while Mahtani says it is "definitely a low cost country," he also cautions: "We don't think Bangladesh is a cheap country any more."

The company opened its state-of-the-art Cosmopolitan Industries Pvt Ltd (CIPL) garment manufacturing facility in Dhaka in 2006 - at the time the largest stand-alone apparel plant in the country - with the investment including an advanced wet processing area, wrinkle free technology and computerised embroidery machines.

"We need to have a sophisticated operation here as we can't just survive on price alone," Mahtani notes. "Our focus in Bangladesh has always been to set up units that could match the best units in China, and not just rely on the abundance of labour."

Current demand for apparel products made in Bangladesh is "exceeding capacity" he says, thanks to soaring orders from Europe, the US and even India.

This is partly due to changes to trade rules last year which gave Bangladeshi imports duty-free access to the EU under the generalised system of preferences (GSP) scheme, and the lifting of import barriers by the Indian government. US buyers are also shifting some purchases away from China and Vietnam to try to cut costs.

But there are also hurdles to be faced in this country too - including a lack of locally made textiles and infrastructure issues. Most of the woven fabrics used by Epic come from China and Pakistan, while Arvind Limited has shelved its plans to set up a denim plant in Bangladesh because of gas supply problems.

"Bangladesh would be able to quadruple its business in ten years if it had its own textiles," Mahtani believes. "Otherwise the roads and port need to be improved, but we see a lot of work going on and there will be progress in the next year or two. But it's not able to match the speed of demand right now."

He also believes Bangladesh is currently "on fire" not because it's the best country, but because of "a series of eliminations of other countries." 

He adds: "The reality is that we are totally dependent on China. You could have five Bangladesh's but they would not be able to replace China."

New supply countries
Epic Group's search for new supply countries in which to set up manufacturing facilities has taken in Haiti and Myanmar (Burma), but "everybody's going to the same places and we haven't found an ideal replacement."

Myanmar is "very viable" from a tailoring, cost and efficiency viewpoint - but less clear cut is "the viability of being able to do business there." That said, it "could be the next place" if the country continues to open up to investors.

Haiti, though, despite being close and duty-free to the US, as well as having cheap labour, doesn't have "the efficiency and quality levels," according to Mahtani.

The solution, perhaps, is that "people may have to start making goods again closer to where they are." Adding together the cost of the garment, duty and freight may leave little difference between sourcing from far-off places compared with those that are close by, he notes.

Perhaps the most important weapons Epic Group has in its arsenal are its dedicated design studios in Hong Kong, New York and London.

"Our European customers are looking for us to put new silhouettes, new fabrics on the table every day. Five years ago we saw the same thing with America, and if you were a vendor who bought design to the table it really gave you an edge."

While the focus with US customers reverted to core, basic clothing as cotton prices climbed, the need now is for "development ability; it's being able to translate what they want, super-fast and meeting their expectations.

"Which is why we have our design studios and do our research, so that when the customer comes to us, it's something we've already done and it gives us an edge."