Many apparel buyers are taking steps to mitigate rising labour costs and raw material costs by diversifying their supply base into new geographies. But while diversification is a good strategy, it's just not practical to up and move overnight. And no other country can quite match China's combination of volume, product variety, expertise and quality.

"For years, 'Global Sourcing' really meant 'China Sourcing.' China's wage rates were unbeatable, and so everyone turned to China for their sourcing needs," says Josh Green, founder and CEO of Panjiva, a New York based firm that provides information for retailers and importers seeking new sources of production.

"However, wages are rising in China, China's changing currency policy will exacerbate the impact of wage increases, and the risk of trade conflict with China is growing. Put these things together, and it's easy to understand why sourcing teams are scrambling to move beyond China.

"Does this mean that companies will stop sourcing from China? No. But China will no longer be the default destination, and sourcing teams will need to grow their capabilities outside of China."

For clothing buyers, China's appeal as the core sourcing location has been based on its reliability, low cost, ease of finding services or trims, and a skilled workforce capable of carrying out complicated orders.

After all, why else would the country sit as the top apparel and textile supplier to the US, where its textile and apparel imports have risen 21.2% in the eleven months to November 2010 - giving it a 41.2% share of the market? In volume terms the growth is even more marked, with growth of 27.1% taking it to a market share of 46.9%.

"As far as garment buyers are concerned, things work in China," explains Mike Flanagan, chief executive of industry consultancy Clothesource.

"Buyers have traditionally been relaxed about paying a slight premium for a Chinese garment over the same garment from elsewhere in Asia because they've learned they can place an order in China in reasonable certainty that order will leave a port, at the price agreed, pretty much conforming to the specification, on more or less the day agreed."

But as China's share of the world clothing market has grown, buyers have become increasingly aware of the need for an alternative source if anything goes wrong. Some are also worried price inflation in China might be faster than its rivals.

Perhaps most importantly, they're concerned that widespread delivery and quality problems reported in China during late 2010 might indicate the reliability of its manufacturers' can no longer be taken for granted.

"In short, the main reason to be dismal about China is the real possibility its garment makers have been hit by factors making China likely to be less reliable in the future," Flanagan says.

"Those fears are spreading - and what happens in the month after workers return (or, for some factories don't) from the Lunar New Year holiday will probably prove crucial in how buyers assess China for the next few years."

Alternatives to China?
Of course, finding real alternatives to China is easier said than done and is a discussion that's been raging in the apparel industry for years.

Not only is there the challenge of finding a facility anywhere else with the right mix of capabilities, but bringing new suppliers on-board carries significant added expense in training and development of the new relationship.

And other countries have their problems too. In Asia, for example, Indonesia, Pakistan and much of Bangladesh and India are plagued by unreliable power. India isn't building new factories fast enough. Port infrastructure in Vietnam, Cambodia and Bangladesh is weak. Cambodian and Bangladeshi industrial relations are weak. And Malaysia and Thailand have serious labour shortages.

Even historic manufacturing centres such as Egypt and Tunisia have this year been hit by widespread but totally unexpected political violence, giving rise to concerns that the trouble might spread further to other big garment supply countries like Jordan and Morocco.

"Trying to second-guess political dissatisfaction is probably a fool's game; having contingency plans for disorder is almost certainly an essential part of all sourcing strategies," Flanagan notes.

Likewise, seemingly unrelated issues like the rising price of food can impact on an otherwise reliable supplier. In developing countries food inflation hits the urban poor, who make up garment factory workforces, hard and can rapidly provoke aggressive wage demands - or more industrial disruption if workers are dissatisfied with their employers' response.

The changing face of protectionism

Differing rates of economic growth and uncertainty about what the future holds could also inflame protectionism in the year ahead, although instead of controls by rich countries it seems that poorer nations are the ones fanning the flames.

The European Union (EU) is not only withdrawing anti-dumping duty on imports of shoes from China and Vietnam, but from the beginning of 2011 has also relaxed its rules of origin for products such as clothing which are imported under the generalised system of preferences (GSP). This should make it easier for Least Developed Countries (LDCs) countries like Cambodia and Bangladesh to be eligible for duty-free access wherever their raw materials originate, including woven fabric from China.

But at the same time Turkey announced plans to slap "safeguard duties" of up to 60% on garments and knitted fabric from almost everywhere outside Europe or the Mediterranean; Mexico launched an anti-dumping investigation into Chinese denim; and India retained its export controls on cotton.

In late November India, Bangladesh, Vietnam and Peru also forced the WTO to reject EU concessions for Pakistani apparel and textile products intended to boost recovery from the August floods.

The US the move away from enforcing existing trade laws has been replaced by a focus on boosting domestic exports, such as the recently concluded negotiations on a free trade agreement with South Korea.

But the knock-on effect of this seems to be the collapse of US interest in further trade concessions to poor countries - most notably the African Growth and Opportunity Act (AGOA).

On 30 September 2012 the rule giving garments from most African countries duty-free access to the US, wherever their raw materials come from, expires. "Unless it is extended, duty-free garments will need to be made from African or US fabric - and there have been next to no African fabric mills established in the past decade, and there's now no time to build any," Flanagan points out.

"Unless they're prepared to gamble on a political near-miracle, US buyers should work on the assumption that, from October 2012, most garments imported from Africa will be subject to full duty."

Currency manipulation
Diplomatic wrangling over China's currency policy was another recurring feature of 2010, with Europe and America shouting loudest about China's alleged "currency manipulation." 

Critics claim the yuan is undervalued by as much as 40%, which puts US-made goods at a disadvantage against cheaper Chinese imports.

But so far they've been reluctant to do anything about it. A proposed bill - the Currency Reform and Fair Trade Act - that would enable US companies to defend themselves using countervailing duties and anti-dumping law against countries that manipulate their currency, was voted down at the end of the 2010 US Congress.
 
"Merely staying aware of the rules is an ever-greater challenge: the growing need to change supply chains at very short notice threatens to be beyond anyone's skills," Flanagan notes.

"You need to always have some other eggs in your basket depending on what the economy and even geo-political area brings," agrees John Long, retail strategist at consumer goods consultancy Kurt Salmon.

And he believes the quest for new - and cheaper - production sources will perhaps even accelerate "as prices break out of certain tolerance thresholds. There's certainly enough retailers out there who are continually looking at new avenues.

"For many product development organisations there will also be ongoing experimentation with locally or close to home venues simply as a way of spreading the risk that exists."