Guatemala’s apparel and textile industry is looking to technology to boost output and efficiency and offset a rise in production costs.
The textile and clothing industry in Guatemala represents 8.9% of the country’s gross domestic product (GDP), but higher costs are jeopardising the industry’s overseas sales competitiveness.
According to Alejandro Ceballos, president of the country’s apparel and textile industry association Vestex (Asociación de la industria del Vestuario y Textiles), the sector’s biggest challenge is affordability, given its pays comparatively high salaries compared to other sectors in much of Central America.
“The minimum wage in Guatemala is too high when compared to others in the region, mainly because we have to pay a specific amount of hours per week, even if those hours are not met,” Ceballos explains.
Guatemala’s minimum wage is US$391 per month (US$361 for companies focused on exports) – whereas El Salvador pays US$203/month for apparel workers, and Nicaragua US$166/month).
Despite discussions with the government, Ceballos says there are doubts this minimum wage system will be reformed by the new President Alejandro Giammattei, who took office on 14 January.
“The Constitutional Court has been adamant on the minimum wage, and they have rejected past propositions opting for a differentiated salary, for instance.” That is why, even though Giammattei’s conservative government has a close relationship with the industry, Ceballos does not foresee a change on minimum wages, with apparel brands sourcing from Honduras or Nicaragua rather than Guatemala.
Hence the focus on technology – with Guatemalan producers buying and installing new software and systems to improve existing operations and even create new business divisions.
Both the government and clothing and textile industry leaders hope the investments will enable them to maintain their competitiveness against other suppliers in the region – and deliver transformation of a sector responsible for 20% of Guatemalan exports, mostly destined to the United States.
During a trip to South Korea last October – after the June election, but before his assumption of office – vice president Guillermo Castillo met with textile industry leaders such as KM Kim, president and CEO at Global Sae-A Co, a major international clothing manufacturer, hoping to persuade him and other Korean companies to invest in Guatemala.
Sae-A Trading last year told just-style it was considering building a US$200m high-tech industrial complex in Guatemala to make polyester yarns to take advantage of rising US demand for apparel made in Central America.
According to Castillo, the latest talks were fruitful and opened doors for new relationships, which might promote the inclusion of cutting-edge techniques in Guatemalan factories while expanding production and hence the workforce.
“Companies in Guatemala understand that automation is a must if they want to be competitive,” says Ceballos. “South Korea’s investments in Guatemala will help with this process, but we won’t survive unless we innovate.”
He says South Koren companies are helping Guatemalan manufacturers “develop 3D designs so that anyone can send us a personalised request, and we can make it happen.” These new techniques and innovations will be part of what the country’s industry will demonstrate at the upcoming Apparel Sourcing Show, to be staged in Guatemala City on 12-14 May.
US-China trade war
In the meantime, the Guatemalan clothing manufacturing industry has been benefiting from the continuing imposition of duties by the US on Chinese clothing exports as part of the ongoing trade war between the two countries.
“Thanks to those duties, we can still compete with Asian textiles. We believe president Trump will continue to enforce those tariffs because it is one way to prevent Guatemalan immigration to the [United] States. If the textile industry is strong, it will employ people that won’t want to leave the country,” Ceballos adds.
However, the US-China trade war didn’t lift sales by as much as local industry experts had hoped.
According to the latest figures from the Office of Textiles and Apparel (OTEXA), US imports from Guatemala slipped 3.08% year-on-year in 2019 to US$1.41bn, down from US$1.46m the year before. In volume terms the decline was more marked, slipping 6.8% to 360m square metre equivalents (SME).
The country’s apparel exports enjoy duty-free access to the US through the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), which includes Costa Rica, El Salvador, Nicaragua, Honduras and the Dominican Republic.
However, Startex, a fast-growing Guatemalan full-package apparel maker, has expectations of huge growth this year thanks to new clients, new machines and product improvements, its president told just-style last month. The company has added new circular knitting machines and higher-speed sewing machines to its manufacturing complex on the fringes of Guatemala City, helping boost production by 25% to up to 9m garments in 2019.