How is the sourcing landscape likely to shift in 2014, and what strategies can help apparel firms and their suppliers to stay ahead? While China is still seen leading the pack, forging strategic relationships with key manufacturers and supply countries, a growing interest in onshoring or reshoring for the US and EU, and striking a balance between speed and cost, are among the suggestions.

Roger Lee, CEO at TAL Apparel Limited:
There will continue to be two types of sourcing by the brands.

The first type will be brands chasing the absolute lowest costs, and their sourcing strategies will only get harder as the choice of truly low cost countries becomes more limited. Africa may be the next possible option but will take time to develop.

The second type of brands will understand that production costs will increase - but will find value added ways to offer a better product to their consumers. These brands would rather pay slightly more and get a better product than take costs out of the product to meet margin targets. As a result, China will maintain its position as one of the major sourcing hubs for many years to come.

Tom Nelson, managing director/VP global product procurement, VF Corporation:
Relationships will be key. Our industry has typically moved to the low point in the past years. One analogy used in the past was 'musical chairs'. The musical chair theme was initially created with the quota system. When quotas were eliminated, the musical chair theme moved towards finding the next lowest cost region or the latest government trade programmes. The future sourcing strategies will require a lot more thought around who and where to partner, who will be the winners and where they will be located.

Rick Helfenbein, president of Luen Thai (USA):
In the absence of any new US trade agreements for 2014, the top eight countries that ship to the US now control a 74% market share.

China still dominates at 37%, followed by Vietnam with a 10% share. Indonesia and Bangladesh are tied for 3rd/4th with a 6% share. Mexico is next (5%), then India (4%), Cambodia (3%), and Honduras (3%). In terms of share gains, both Vietnam and Bangladesh have improved significantly.

Many of the pundits in the past year would have you believe that there was a rush out of both Bangladesh and China, but the data is counterintuitive. Looking to 2014, watch for growth in both Vietnam and Cambodia.

The best 2014 strategy for sourcing groups is to stay focused on the top seven countries, or in countries where you have a strong working relationship, so as to not waste time and resources. Also, be sure to work only with quality factories, because retailers in 2014 will have little tolerance for mistakes or issues.

Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel (HKRITA) and lecturer at the Wharton School at the University of Pennsylvania:
After the recent concerns with working conditions and worker safety, there will be short term shifts to produce with experienced, well-financed, and well-established producers. The big and good producers will benefit from this.

For supply chain operators and manufacturers, this is going to be a win big or lose big proposition. To be competitive, investments in upgrades to machinery, training, and systems are important to win the confidence of their customers. For others who are not differentiated or seen to be so, they are at risk.

The same is true on the country level. Well-established country of origins will be more popular than ever, and problematic countries will see year-on-year declines. There may also be some new onshoring or reshoring efforts for the US, but these may be short-term reactions to global turbulence.

Mike Flanagan, CEO of apparel industry consultancy Clothesource:
Virtually all garment sourcing depends on assembly in a developing country, usually using fabric and/or yarn manufactured in China. Expect little change in this in 2014. But:

  • China's apparent productivity miracle has been the single major influence on global sourcing over the past five years. While this cannot go on forever it is hard to see a significant change in its share in 2014.
  • China's dominance of upstream textile production (spinning, weaving and knitting) is under greater threat. Its main operators are making substantial overseas investment, and while the timing of major upstream projects means this will have little impact on fabric and yarn manufacture in 2014, the subject will preoccupy observers.
  • Onshore garment development in Japan, Germany, the UK and US will continue to create much publicity, but limited amounts of garments.
  • Nearshoring continued to lose market share in the EU and US during 2013, though many buyers express growing interest, and there are signs of growth in some categories. It will be surprising if it shows any significant increase in 2014.
  • Most garments sold in Europe and the US come from developing countries that are not China. All have a worse infrastructure than China a decade ago, and recent history of significant social disruption. The ethnic, religious, social and political disputes underpinning these countries mean improving productivity is difficult.
  • With 40% of the world's population in national elections during 2014 - including Bangladesh, Turkey, Indonesia and India - there may be a global epidemic of election-related unrest.
  • Yet the pressure on garment brands and retailers to ensure better working conditions and greater environmental responsibility in developing-country supply chains is likely to go on.
  • Buyers will get sharper at matching sourcing to retail, and the logistics systems to support this. The industry is still full of garments going once round the world, arriving at a global distribution centre, then heading back to a store a few miles from the factory where they were made - or being imported into a country with immense garment-making capacity.
  • There will be no significant change in the trade rules under which buyers operate, apart from Pakistan getting duty-free access to the EU. Buyers deal with rules that have been ratified and then implemented: a process that, over the past decade, has averaged seven years in the US from the end of negotiations.
  • We cannot rule out the possibility that political tensions in one country might make garment sourcing impossible for at least a short time, as is currently close to the case in Bangladesh.
  • Suppliers need to accept that their customers aren't making more money and are under immense pressure to improve working conditions. Buyers need contingency plans for any worsening of local conditions, recognising the fact that airfreight capacity is always limited. Multiple-location sourcing is likely to become more significant, both as insurance against unrest and to support globalised store networks.
  • Safe havens will become more important. This may be India's year - but don't expect good prices or reliable turnaround.

Josh Green, CEO at trade intelligence platform Panjiva:
I see three trends:

  • Rising Costs - Manufacturing costs continue to increase, as wages increase in China, and the growth in aggregate demand puts pressure on commodities prices. Not much that can be done about commodities prices, but it seems that everyone is looking for alternatives to sourcing from China. Speaking of...
  • Getting beyond China - Companies are continuing to hunt for low-cost alternatives to China for their sourcing needs. In fact, a recent Panjiva survey showed that 74% of buyer respondents were looking for sources outside of China. There's no easy answer to the question of where to go next so, not surprisingly, companies are coming to a variety of different conclusions.
  • Tension between price pressure and social responsibility - Increasingly, I'm hearing executives talk about the tension between the competing objectives of retailers: containing costs, while ensuring that workers and the environment are treated well. Everyone hopes that there are no cost consequences to behaving responsibly, but increasingly executives are reaching the conclusion that hard choices will need to be made. Here's hoping that social responsibility carries the day.

In terms of how to succeed in the year ahead, my advice is to double down on efforts to get beyond China. Yes, it's proving harder than most expected, but the benefits of having a diversified geographic portfolio are real.

Also, make sure to manage your organisation's expectations about the trajectory of manufacturing costs. Despite the best efforts of sourcing executives, all signs point to rising manufacturing costs. The end of Cheap China, increasing aggregate demand, and the imperative of investments in social responsibility - all of these things will contribute to cost inflation.

Paul Forman, CEO, Coats Plc:
In the last decade there has been an unprecedented shift in the geographic focus of our industry. The slowing growth in Western Europe, North and Latin America and exponential growth in South and South East Asia has been widely recognised and, given that customers need to receive supplies within a short lead time, the operations of suppliers are inevitably also shifting eastwards to be in closer proximity to that customer base.

To drill down further, the top four growth markets currently appear to be Bangladesh, Vietnam, Turkey and India, although China is still holding many cards and is likely to retain a dominant position for some time to come.

The key to staying ahead is responsible sourcing across the end-to-end supply chain. The reputation of any company is at risk if its suppliers are not behaving responsibly and the larger the brand, the bigger the cost to its reputation. The challenge is around verification and certification. Large apparel firms with long supply chains need to be confident that every part of the chain conforms to globally accepted standard practices around labour, health and safety, the environment and ethical business practices.

Dr Achim Berg, a partner at McKinsey & Company and co-leader of McKinsey's Apparel, Fashion & Luxury Group:
Companies will need to approach sourcing even more strategically when balancing cost, compliance and capacity.

Some 72% of the sourcing executives we interviewed in our Apparel CPO Survey indicated that they are aiming to reduce their exposure in China. But defining the right sourcing strategy is becoming more complex, as some of the established alternatives now show price increases, compliance risks, and other issues. In addition, up-and-coming sourcing destinations are gaining awareness as a result of new trade agreements in the making.

Another important element of managing the balance involves maintaining a focus on increasing productivity at suppliers while placing increasing emphasis on optimising the interfaces - both in-house within the sourcing and buying teams as well as the supply chain as a whole.

Tom Travis, managing partner of international trade law firm Sandler, Travis & Rosenberg:
Apparel firms need to take a fresh look at existing and new free trade agreements and preference programs. The question people need to ask is: 'What's in it for me?' Not every trade agreement is good for every product in every industry, and we frequently advise clients not to focus their time and money on certain areas because they won't affect them.

Once they identify new opportunities that make sense for their operations and products, successful companies need to be willing to change their models to take advantage of these opportunities. Not all new markets can be served by the same supply chain model. The questions companies need to ask include: Are we streamlining operations and maximising efficiencies? Are we maximising our sourcing opportunities in multiple markets through a concentrated supplier base? How and when should I use independent intermediaries like agents or middlemen?

Another issue is that many people don't look at the cost of their goods sold; they only look at FOB price. This is really short-sighted. Many significant costs occur after exportation and before the goods are sold. The cost of moving the goods to the ultimate consumer can be much more significant than bargaining over 10-cents on the FOB price.

It's also about managing the supply chain data itself. How do you filter the information through the various requirements that companies must comply with in each and every country involved in the manufacture, distribution and sale of their goods? When you get down to it, it's all about the data.

Alek Adamski, head of the UK supply chain practice at Kurt Salmon:
[Staying ahead in 2014 involves] coming closer to the selling market and redefining fast response and how it can be maximised. As ever understanding costs and their trade-offs with stocks, sources and when you buy and what you make. There is a trend to increased verticalisation and for brands to begin to again look at buying key/essential/unique parts of their supply chain.

Kurt Cavano, chief strategy officer at GT Nexus:
Wages are rising all across the developing world, pushing up manufacturing costs in even the lowest labour countries like Bangladesh. This trend will likely continue and may even accelerate as workers everywhere, armed with cellphones, have access to information on wage concessions granted to their brethren in other countries.

This great wage levelling, combined with the continued shift of China manufacturing away from export to domestic consumption, will dramatically reshape the sourcing landscape. Combine this with the need for speed, and sourcing execs must more aggressively lean out their supply chains to make them cheaper, faster and more responsive.

Not only will companies need to invest in the latest supply chain technology but also look at new sourcing locations, regions that have different comparative advantages (such as the Americas) for proximity and speed. Change is good, change is hard.

Julie Hughes, president of the United States Fashion Industry Association (USFIA):
In the US, the sourcing landscape remains mainly Asia-focused. The top four apparel suppliers to the US market are China, Vietnam, Bangladesh and Indonesia. While China dominates with the largest share of US apparel imports (41% in the latest US government data), there continues to be growth from Vietnam, Bangladesh and Indonesia.

There is not the consolidation in sourcing that many predicted. But there definitely is a pattern that for the US, apparel sourcing is growing from Asian countries that currently do not have duty-free agreements with the US. Right now it seems that the trend will continue with growth from the top Asian suppliers, as many brands and retailers expand with their key supplier partners.

There definitely remains renewed interest in Western Hemisphere apparel sourcing as well. But the import data does not show the same consistent increases for overall NAFTA and CAFTA sourcing. In the US, one of our political priorities for 2014 is the extension of the Nicaragua Tariff Preference Level (TPL) for cotton and man-made fibre apparel. This duty-free access has been very successful for US brands and retailers, as well as for US textile mills who supply fabric (including bottomweight fabrics) used for the 1-for-1 matching programme. Without action by the US Congress, this benefit expires at the end of 2014 - so we are fighting to extend this successful programme that has a positive impact on all of the industry.

We also have to mention Made in USA opportunities. While the Made in USA business is not going to replace imports, it is an important, and growing, sourcing decision for brands and retailers. Targeted Made in USA programmes, and of course industry-wide initiatives, mean that there is a continued focus on finding new US based resources. We have been working with the US Department of Commerce and sharing information with USFIA member companies so that they can find new sourcing close to home.

In the long run, I believe that trade negotiations - like the Trans-Pacific Partnership (TPP) and the US-EU Free Trade Agreement talks - will also have a huge impact - and a positive impact - on sourcing apparel. But that is longer-term opportunity that we will not see in 2014.

Mike Todaro, managing director of the Americas Apparel Producers' Network (AAPN):
The Americas are here to stay in sourcing. At AAPN, we know the market niches, the maps to chains, the strengths of countries and the opportunities for investment in even more capacity.

Justification comes from addressing true costing. As Barbara Zeins of Gerson & Gerson said at our December Forum: "The markdown built into the typical price a retailer pays now dwarfs the first cost of sourcing from the Americas". There are big wins for brands who leverage the region for what it does best.

Strengths of the Americas are: speed, proximity, total cost, social, stability. Producers know the US customer better. 2D and 3D technology have made this a level playing field now. Lean teams have optimised factories. There are expanding fabric palettes.

We have factories proposing completely priced, rapid replenishment, fast-selling collections to surprised product developers because the factory has become the great problem solver in the chain. On top of that, social responsibility leadership is a new opportunity due to Bangladesh. There's a core of brands who are making money sourcing in the Americas.

Rick Horwitch, Vice President, Strategy & Solutions Business Development, Bureau Veritas, Consumer Products Services; President/Chairman of the AAPN:
In past years this was a county discussion: "What's the next China?" I believe the discussion has shifted from country specific (and cheap prices) to the bigger issues of speed and cost/efficiency. The days of chasing the "cheapest needle" are over.

Everyone I've talked to says they must have a balanced sourcing strategy. This includes numerous variables - cost, capacity, capabilities, FTAs, speed, quality, risk management (social, labour, political, health, safety, structural). The Americas is being rediscovered (especially the US and Central America) and retailers and brands are finding innovative products, suppliers and an active collaborative and sustainable environment.

From my perspective, the strategy needs to be build around an understanding of total cost versus first cost. Breaking this long-standing practice is hard, but if adopted, and executed properly, the rewards (gains in speed, margin, innovation, customer satisfaction) can be great.

Magdalena Kondej, head of apparel research at Euromonitor:
The decision by H&M, Tesco and Primark to source their clothing from Ethiopia has put Africa higher on the radar of sourcing experts. That said, apart from a few exceptions (Morocco, South Africa, Mauritius and Madagascar), the continent is still a long way behind. The Ethiopian government is dedicated to growing the country's apparel manufacturing industry and has set a target of reaching US$1bn in textile exports by 2016. This is a very ambitious figure, with developments in 2014 likely to determine just how realistic a figure it is.

From a consumer point of view, we are seeing a great deal of renewed interest in locally manufactured clothing, which is closely linked to the perception of superior quality.

Slow fashion is an emerging phenomenon and is capturing the imagination as more pro-social consumers (those who care about others and society as a whole) are rejecting fast fashion, which reflects commercialism and often social irresponsibility. A study conducted by researchers at St Gallen University found that a 'Made in Switzerland' label on a product can increase its profitability by 20%, and similar assumptions can be made in relation to other developed markets.

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