just-style management briefing: New outsourcing players challenge export giants
The BRIC countries are far from being the only emerging market suppliers for the global apparel sector - and a knot of competitors such as Bangladesh and Vietnam have long been vying for business. But there are also smaller players who are looking to grow.
In South-East Asia, one smaller supplier - Cambodia - stands out. According to the United States Association of Importers of Textiles and Apparel (USA-ITA), the top 10 apparel suppliers to the US (including major players China and India) recorded significant drops in exports last year - except Cambodia - the sixth largest exporter in the list. And USA-ITA president Julia Hughes now calls Cambodia a "positive magnet" for apparel outsourcing.
During the year ending 30 June, Cambodia recorded a 0.37% rise in apparel exports to the US, or an increase to 1,027.55m square metre equivalents (SME). By contrast, the largest apparel supplier China (accounting for 41% of the US apparel market) suffered a 4% drop and the third largest - Bangladesh - recorded a 12.7% slump.
Indonesia followed with a drop of 7.61% and India, eighth on the list, recorded a drop of 15.13% in apparel exports, Hughes told just-style. She attributes Cambodia's strength to "cost competitiveness."
Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia (GMAC) agrees. "There is still an abundant supply of labour available for low cost" he told just-style. The country "enjoys duty-free access to most major markets like Canada, Japan [and] even China and the EU under the Generalised System of Preference (GSP)," system.
Cambodia, however, "does not occupy the full supply chain from cotton to finished product" and imports most raw materials needed for production - making the country less competitive, he adds.
Securing deeper linkages
One of the challenges has been "securing fabric in the region as opposed to importing from China and Bangladesh," agrees Michael Blakeley of Thailand-based SAFSA (Source ASEAN Full Service Alliance), a member organisation that links fabric mills to garment factories to make the Association of South East Asian Nations (ASEAN) region more competitive.
Blakeley says several sourcing executives speaking at the 2012 Prime Source Forum in Hong Kong earlier this year noted that "China remains very good but strategies to shift percentages of production to other regions are clearly needed".
Retailers such as Marks & Spencer and El Corte Ingles in Europe, plus Target in the US have joined the SAFSA programme, demonstrating their commitment to sourcing in the region. Among other SAFSA customers are Polo Ralph Lauren, Urban Outfitters, Macy's and Perry Ellis from the US, Debenhams and Intersport from Europe, Muji from Japan and Liverpool from Mexico.
If SAFSA can promote "deeper linkages from upstream to downstream producers" within ASEAN countries, says Blakeley, that will "benefit countries such as Laos" who lack key elements of the clothing manufacture supply chain.
Laos being a Least Developed Country (LDC) under the UN development rankings is granted duty-free and quota-free access to rich markets under the GSP system. But most factories are "unable to take full advantage of this preferential market access because of strict rules of origin related to local content requirement," according to the Laos Textile and Garment Industry Profile published by SAFSA in 2010.
Factories in Laos depend on imported fibre, yarn, and fabrics for assembling finished garments. But the EU's GSP rules requires a factory to have local content worth more than 50% of the total production costs for tariff breaks to apply.
However the report calls Laos's garment sector growth "impressive" from a base of only two companies in 1990 to 116 in 2006 employing 30,000 workers. And "Chinese labour costs rising up to [increases of] 30% has shifted more production to countries with cheaper wages like Laos."
Laos's garment exports reached a peak of US$189m in 2008, with the bulk going to the European Union (US$149.7m) and the United States (US$27.6m). The EU accounted for 79% of total exports, the US 14%, Japan 2%, Canada 2% and other countries 3%.
Meanwhile ASEAN's most populous member nation, Indonesia, is a "strong player" as an outsourcer says the USA-ITA president and is the fourth largest apparel supplier to the US, accounting for 5% of total US apparel. It exported 1,245.53m SME in 2012, she said.
Globally Indonesia "accounts for 13% of viscose staple fibre production, 4% of polyester staple fibres, 4% of polyester filament yarn, 2% of polyamide, and 0.03% of cotton," according to an Indonesia Textile and Apparel Industry Profile published by SAFSA in 2010.
Ethical and sustainable focus
Another key smaller player is Sri Lanka. One niche area its apparel suppliers have been seeking to tap is demand for ethical and sustainable sourcing, with a focus on poverty alleviation and avoiding the use of child labour.
There has also been growth in total solution provision, including design, claims the country's Joint Apparel Association Forum (JAAF). There are currently 450 textile and clothing plants in the island country, employing more than a million people, and this is set to grow. The government projects exports will rise from US$3.4bn in 2010, US$4bn last year, reaching US$5bn by 2015.
But, according to the Sri Lanka Apparel Exporters Association, manufacturers will have to implement novel strategies to increase garment exports to existing mature markets and explore emerging non-traditional markets to sustain the present growth rate, given the stiff competition from several other countries in the region.
Meanwhile, local manufacturers are currently looking at addressing a lack of capacity, which industry sources say is a key impediment hampering the growth of the industry.
With additional reporting by Munza Mustaq.
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