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China Pivots, Asian Garment Industry Fights To Adapt

After thirty years of robust economic development, China finds itself at a crossroads, its textile industry in desperate need of upgrades to keep it competitive in the future.

According to panelists participating in the China Cotton and Textile Industry Development Forum in New York City, China’s textile industry is beleaguered by problems that demand immediate redress. The steady rise of of the costs of energy and raw materials, as well as the increasing cost of once cheap labor, all compel the export giant to pivot in the direction of new strategies.

On the one hand, since China secured membership in the WTO it has seen its domestic sector grow impressively, increasing its own internal demand for raw materials like cotton. Between 2005 and 2011, China has extended its share of the global garment market by 15 percent. Exports from China account for a staggering 35 percent of the global textile export market.

Still, according to Lei Zhaohui, deputy general manager of Hebei Shengyuan Textile Co. Ltd., China needs to shift its core business model from the manufacturing of low cost products to higher end goods. Especially as discount garment manufacturing  transitions to havens of low cost labor like Bangladesh and Cambodia, China will have to revamp its infrastructure to capture clients in search of quality and ease of trade.

The economic landscape of Asia finds itself increasingly splintered into two distinct terrains, those countries that primarily offer an abundant supply of cheap labor and those that have the skill to produce more sophisticated, high quality craftsmanship. China, Thailand and Vietnam, all formerly known as sources of cheap labor, have matured into technically proficient providers of high quality goods, sometimes contracted by luxury brands. On the opposite end of the spectrum, Bangladesh, Laos, Myanmar and Cambodia have concentrated their garment sectors around inexpensive labor and the quick turnaround of low cost apparel.

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In this new commercial environment, Lei contends that China’s future success will be a function of its adaptability. For it to effectively make the transition to higher-end goods, it will have to dramatically improve both its overall technical and managerial resources.

Lei also contends the totality of China’s supply chain begs for more harmonious integration, overcoming the fragmentation that stymies reliable production schedules. Finally, he also argues that China needs a much more aggressive and comprehensive marketing strategy, targeting industries it now neglects to its own disadvantage, like the medical and construction sectors.

Asia continues to thoroughly dominate the global garment industry, gobbling up an outsized share of the exports sector. Since 2005, Viet Nam, Turkey, Malaysia and Thailand have all recorded impressive growth. Bangladesh, India, Pakistan and Sri Lanka now account for close to 18 percent of the global market.

Asia has always benefited from two distinct competitive advantages when it comes to textiles: a minimum of start up capital is necessary  to enter the market and there is a superabundance of cheap labor. This dual edge has resulted in many Asian countries becoming disproportionately dependent upon their garment industries; for example, Cambodia’s textile and garment sector comprises more than 80 percent of the country’s overall exports. It also represents about 18 percent of their entire GDP. Similarly, garment exports constitute 78 percent of Bangladesh’s export income.

Problematically, labor costs across the region have been persistently soaring. Viet Nam’s minimum wage has spiraled by 20 percent, while both Indonesia and Laos have experienced similar spikes. The average monthly salary for a Cambodian factory worker is about $100 compared to $36 for his Bangladeshi counterpart.

For better or for worse, Asia will continue to be the sourcing epicenter for global textile commerce. It remains to be seen how nimbly the continent will transform itself in response to tectonic market shifts experts now see as inevitable. Also, all eyes are on China, eager to discover if it has the executive savvy to reinvent itself anew, and join the ranks of rich, stable industrial nations.