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Experts Talk Sourcing Outside China and Up-and-Coming Countries

China has consistently been the dominant global locale for sourcing apparel, but as costs increase not only in China but around the world, manufacturers are looking for alternative places to produce.

At a Texworld USA seminar Wednesday titled, “Sourcing Outside China,” industry exports spoke about the greater sourcing landscape and the potential plusses to making goods outside of the Asian nation.

Rick Helfenbein, president of Luen Thai USA, JC Mazingue, apparel trade advisor for Origin Africa and Jeff Kriendell, director of sales and marketing for Pearl Global USA spoke on the panel moderated by Edward Hertzman, Sourcing Journal founder and publisher.

Hertzman started the panel off acknowledging China’s cost increases and asked the panelists what these price jumps have meant for the industry. The consensus across the panel was that costs are increasing globally, not just in China, as the price of inputs continue to rise.

“No matter where you’re going in the world, your costs are going up,” Helfenbein said. “Duty free is the only competitive advantage you’re going to get when input costs keep going up.”

Kriendell went on to explain that in light of the Rana Plaza tragedy in Bangladesh and the ensuing media storm about labor conditions in the country, input costs have gone up dramatically. Wages went up 77 percent, and the higher costs for now-required factory audits and inspections have driven up the cost of making there, he said.

But the reality there is that while some companies fled the country following the tragedy, its apparel business is still booming. The country’s ready made garment industry accounted for $21.5 billion of the its exports in the 2012-2013 fiscal year and experts expect that number to reach $24.1 billion this fiscal year.

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In the first three to four months after Rana Plaza collapsed, Kriendell said, brands pulled production from the country, but when it came time to placing Spring ’14 buys, companies came back and Bangladesh recovered as it still can’t be beat on price. “Top factories today are completely full, and in some cases turning business down,” he said.

Some countries, like Vietnam, have managed to maintain reasonable costs despite increasing input prices and growth in sourcing there has been steady. In 2013, the country was the United States’ second largest trading partner for textiles and apparel and imported $8.77 billion worth of goods, according to the Office of Textiles and Apparel (OTEXA).

Vietnam has gotten a lot of buzz of late as an alternative to China, but talks about the ever in-progress Trans-Pacific Partnership (TPP)–a proposed trade agreement between the United States, Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam–has stirred controversy as some say it will put Vietnam at an unfair advantage.

The goal of TPP is to enhance trade and investment among the 12 partner countries and promote economic growth and development, who together control 40 percent of the world’s gross national product, according to Helfenbein. And Vietnam, which already controls nearly 10 percent of the U.S. market share for apparel and textiles, could stand to benefit considerably from the agreement.

“If you give a country with 10 percent market share duty free access,” Helfenbein said. “You tell me what’s going to happen.”

Sourcing in Africa has become a hot topic as H&M has already mentioned it would increase its manufacturing on the continent, and companies like PVH and VF Corporation have made visits to the region and noted plans for expansion. “PVH just opened an office and very soon you will see Tommy Hilfiger and Calvin Klein products made in Africa,” Mazingue said.

Hertzman asked Mazingue about what is being done in Africa to build the infrastructure and train the workers, and whether the continent is ready for an influx of manufacturing.

Mazingue said, “To understand what is going on in Africa, you first need to understand AGOA [African Growth and Opportunity Act]”

AGOA is a trade preference program that allows eligible sub-Saharan African countries to import certain products to the U.S. duty free. “There are 54 countries in Africa, 44 are eligible for AGOA, and out of that,” Mazingue said, “10 or 12 have taken advantage.”

Under AGOA, the Third Country Fabric provision stipulates that as long as a garment is cut and sewn in Africa, fabric can be imported from anywhere in the world and the goods can be shipped to the U.S. duty free. Currently, according to Mazingue, 90 percent of apparel made in Africa is made of imported fabric.

The AGOA agreement is set to expire in September 2015, and while many say renewal is likely, it isn’t certain, nor is the duration of the pending extension. “How can you [brands and retailers] invest if you don’t know if you’re going to get renewed?” Helfenbein said. The fear, Mazingue noted, is that if the agreement is not renewed, companies like PVH and H&M will leave the region. “No doubt about it,” he said.

In terms of the continent’s readiness to be a major apparel producer, Mazingue said honestly, “Ports are still slow, infrastructure needs to be improved. I’m not going to hide the fact that there’s corruption in Africa, but there’s corruption in Asia too.”

With regard to the continent as a whole, Mazingue said, “Things are surging, the lion is roaring, but what we don’t know is what will happen in September when AGOA expires.” He added, “We hope the agreement will be not only extended, but the third country fabric provision will be recognized, and then we can expect double digit growth.”

Mazingue said the five African countries that have so far been successful in apparel manufacturing and are the ones to watch are: Lesotho, Kenya, Mauritius, Ethiopia and Madagascar.

Despite the Sourcing Outside China panel topic, the fact remains that companies are still sourcing in the country. Hertzman asked whether that would change and if there’s a “next China.”

Helfenbein said for the last five years, China’s market share in the apparel and textile industry has been flat at 37-38 percent. Despite the costs, “It hasn’t slipped one iota no matter what people are saying,” he said.

“The way forward for retailers is to link up with factories and think more long-term, build partnerships together.” Kriendell said. In terms of costs, he added, “Everybody is facing these challenges.

Hertzman concluded the discussion with a nod to compliance and a note to brands and retailers that asking for a lower price but more compliance doesn’t really work and won’t yield the improvements the industry needs.

“You can’t ask for fire proof stairways and ten fire extinguishers and five on-hand nurses and a water treatment plant, and then turn around and ask for a $5 jean,” he said. “What are we really doing?”