With Chinese clothing and textile manufacturers facing rising costs - through inflation, wage increases and currency adjustments - international brands have been shopping around for new sourcing countries.

There are plenty of options, especially in China's east Asia neighbourhood, where Vietnam and Cambodia have developed lower cost centres. And then there is south Asia's Bangladesh, which is known for even lower costs, albeit occasionally marred by poor environmental and labour standards.

China's soaring costs are the reason why the country's clothing and textile export industry is starting to suffer. But it is not as if the sector is going broke. In 2012, China earned US$95.8bn and US$159.1bn selling textiles and clothing overseas, up 1.2% and 3.9% year-on-year respectively. However this growth was the smallest in the past decade, according to China Customs.

But this is not the only change. In the past, the majority of orders were from Japan, Europe and the US. But Chinese manufacturers have been attracting more Asian buyers since 2010, when China established a free trading area with the 10-country Association of Southeast Asian Nations (ASEAN). In 2012, said China Customs, ASEAN countries paid US$26.6bn to buy textiles and clothing from China, up 34.2% from 2011.

By contrast, China's share of the EU clothing market dropped to 39.9% in 2012, from 41% in 2011. While in Japan, its market share was 73.2% in 2012, down from 74.9% in 2011, according to the Beijing-based China Chamber of Commerce for Import and Export of Textile and Apparel.

"I think this year there will be little change [in clothing and textile trades with] Japan and the EU," said an analyst at Shanghai-based research company Dahua Futures. 

"The EU is still suffering from the euro crisis, while China-Japan tension is not likely to be eased soon," he added, referring to the conflicting territorial claims over the Diaoyu Islands, or Senkaku in Japanese.

However, some Chinese manufacturers see hope in the sale of high-end products, such as clothing made of organic cotton. "Organic cotton clothing accounts for about 80% of total exports in our company," noted Jin Minya, sales manager at Shaoxing-based Wansheng Textile, one exporter that has been moving upmarket.

She added the price of organic cotton clothing is about 40% higher than the conventional version, but "our clients in the West are willing to pay more."

Cambodia and Vietnam benefiting
On the other hand, the softening of Chinese dominance in global sourcing markets continues to benefit Cambodia and Vietnam, both of which experienced strong growth in the production and export of garment and textiles in 2012.

According to Michael Laskau, FOB division managing director at the Nha Be Corporation (NBC), a major exporter of knitwear based in Ho Chi Minh City, China's one-child policy has "come back to bite them."

He explained: "There aren't enough workers that want to work in garment and textiles manufacturing factories in China, so importers can't get their goods out on time," said Laskau. "Meanwhile, Vietnam boasts an educated and abundant labour force that can produce the units necessary to ship on time in a consistent quality level."

The value of exports from the garment and textile industry in Vietnam rose from US$7.5bn in 2008 to US$17.5bn in 2012, and these are expected to surge once free trade agreements with the European Union (EU) - now under discussion bilaterally -and the US (through the Trans-Pacific Partnership talks) come into effect.

Meanwhile, in Cambodia, where factory wages are roughly a third or lower than in China, exports of garments and textiles grew from US$3.98bn in 2011 to US$4.4bn in 2012.

"Cambodia has been benefiting from the exodus from China for two main reasons," said Ken Loo, secretary general of Garment Manufacturers' Association in Cambodia (GMAC).

"Firstly, market access - Cambodia enjoys duty-free access to most major markets in the world including China itself. Secondly, labour supply."

Buoyed by a surge of investment, the Cambodian government has been promoting expansion in the sector.

According to the Council for the Development of Cambodia, last year the government gave the go-ahead for the construction of 82 garment factories with a capital investment of US$499m, along with 13 shoe factories (US$116m), two sock factories (US$25m), four textile manufacturers (US$9m) and two glove factories (US$10m).

In 2011, 45 garment factories worth US$205m and seven shoe factories worth US$25m were approved.

Government officials and industry representatives have admitted common strikes over working conditions have been an on-going concern but said this would not prevent the industry expanding. 

Bangladesh winning Chinese business
Moving west, in an even clearer sign of the times, Bangladesh is not only attracting outsourcing business from China, it is becoming a supplier to the Chinese market. Indeed, China has more than doubled its clothing imports from Bangladesh over the past two years.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) vice president Mohammad Hatem said in the year ending June 2012, Bangladesh knitwear exports to China jumped to US$57.83m from $26.6m the year before - 117% growth.

And the total value of ready-made garment (RMG) exports from Bangladesh to China climbed to $104.52m in the year ending June 2012, from $52.81m the previous year, Hatem said. The Bangladesh government is targeting exports of $500m worth of garments to China.

"The reasons for the shift are clear. China's labour costs are high, and China is moving towards manufacturing high-tech products which are more capital intensive rather than labour intensive ready-made garments," Hatem told just-style.

Indeed, a recent delegation of Chinese RMG manufacturers to the country were investigating the idea of investing in the Bangladesh RMG sector, Hatem said.

With additional reporting by Connla Stokes and Poorna Rodrigo.

Click on the links below to read other articles in this management briefing:
Sourcing shifts: Living up to changing challenges
Sourcing shifts: Outsourcing options closer to home
Sourcing shifts: Defining parameters of ethical sourcing