We’re forever reading consultants’ insights into the Next Big Place for sourcing apparel.
In many apparel manufacturing countries these days, though, there’s a constant stream of appeals to manufacturers, mostly from governments, to switch their selling from the “ex-growth” markets of Europe and North America to allegedly more promising markets in other developing countries.
Do local politicians and civil servants really have better insight into market dynamics than garment makers?
A recent example was RDS Kumararatne, director general at Sri Lanka’s Department of Commerce. Addressing a group of his country’s manufacturers in early April, he reportedly suggested the country should “diversify its export market from its Europe centric and North American trade habits and move towards exploring more lucrative regional export markets.”
With 1.5 billion people on the island’s doorstep, he argued, and their spending growing rapidly, why go to the trouble of dealing with markets on the other side of the globe?
The argument is common. The E.U. is forever making impertinent human rights demands of developing-world manufacturers in return for duty-free access, and Western markets are slowing down.
“Regions like Russia, India, Turkey, Southeast Asia, Central and South America, as well as the Middle East have enormous potential to be future destinations” for Bangladesh garment exports, claimed an April 9 article in the Bangladesh press.
The trouble is, though, those developing markets aren’t falling over themselves to buy clothes from other developing markets. Most of the 1.5 billion people on Sri Lanka’s doorstep are in India— whose 2014 apparel imports of just $498 million didn’t really compare with the U.S.’s $87 billion.
And Sri Lanka’s other neighbors? In 2013 (latest data available), Pakistan’s 185 million people imported just $47 million worth of clothes, and Bangladesh’s 158 million imported $333 million—mostly from China.
The problem isn’t restricted to the Indian subcontinent. China’s apparel retail market is worth about the same as America’s–but we estimate imports accounted for just 4 percent of it in 2013, about the same level as Argentina.
In other Asian countries with a substantial population, recorded apparel imports are almost non-existent. Though there are constant complaints in some markets, like Indonesia, of the damage done to local producers by garments illegally smuggled from elsewhere in Asia, the claims are rarely more than hard-to-prove anecdotes. However substantial the illicit trade may be, of course, feeding it isn’t a sustainable commercial strategy for serious manufacturers in Bangladesh, Sri Lanka or Vietnam.
Outside Asia, it’s a similar story. Brazil’s garment makers constantly complain about import competition: but the $2.4 billion (at ex-factory prices) of apparel imports the UN’s Comtrade recorded in 2013 couldn’t have made up more than 10-15 percent of its apparel market. In South Africa, we estimate imports had about 35 percent. But they’re both tiny commercial opportunities compared to the 95-99 percent that imports make up of the far, far larger apparel markets in the U.S., Japan, Germany or the U.K. And their imports just aren’t growing that fast.
BRICS Apparel Imports 2013
Source: Clothesource Tradetrack, from UN Comtrade
There are emerging economies with high apparel import penetration: but they’re mostly small—like Hong Kong, Singapore and the Persian Gulf.
An Asian (or Central American, or Mediterranean) garment maker looking for a real alternative to North America, Western Europe or Japan, will instinctively look at one of the BRICS group of emerging countries (Brazil, Russia, India, China and South Africa), or one of the next tier, like Turkey or Mexico.
There are four reasons these turn out to be unexciting targets for foreign garment makers:
- Competition. They’ve all got highly efficient, low-wage, garment making workforces of their own.
- Current import profile. Many of the garments they’re currently importing aren’t bought by local retail businesses: they’re bought by multinational chains like H&M or Gap.
- The marketing barrier. Most developing-world garment makers provide just an assembly service to their Western clients, who design those garments, specify their raw materials, and absorb the risks if shoppers won’t buy them. That’s rarely enough to succeed in selling to Chinese, Russian or Mexican retailers
- Trade protectionism. With large garment workforces to protect, the most savage new barriers to apparel imports over the past few years have been built in the bigger developing countries, like Turkey.
I don’t believe there’s a law of nature stopping Honduran manufacturers from selling clothes to Brazilians, or Cambodians selling to the Thai. But right now, doing so is neither a painless nor lucrative alternative to manufacturing for the big developed markets.
Developing country garment makers chasing sales to other developing countries will need new skills in marketing, design and managing different kinds of risk. I’m utterly confident many will develop those skills and do well.
I’m a lot less sure, though, that the advisers at home urging this strategy really appreciate how time-consuming, expensive, and risky a process manufacturers are going to find that strategic leap to be. It most certainly isn’t the easy alternative to working with Walmart or M&S.
Mike Flanagan, CEO Clothesource. Clothesource offers consultancy on the world garment industry using the wide resources of The Clothesource Knowledge Base – the most comprehensive collection of information anywhere about sourcing for the apparel industry. He can be contacted at Flanagan@clothesource.net.