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Major Retailers See New Opportunities in Central America

Rising wages and labor shortages in China mean new opportunities for Central American textile manufacturers, as factories strive to offer more than proximity and free trade to the United States. Central American apparel and textile factories are working on offering creative skills, speed and short-supply fabrics in order to capture China’s business.

Demographic data from China’s National Bureau of Statistics shows that the Chinese population is aging rapidly and the rural labor pool shrinking, which many economists cite as the fundamental reason for the sharp wage rises in recent years. Minimum wages in China range from 1,500 yuan ($240 USD) per month for a 40-hour work week in Shenzhen to 870 yuan per month in Chongqing. According to The People’s Republic of China market plan posted on the government’s website ( earlier this year, the annual average growth of China’s minimum wages will be at least 13% by 2015, doing little to slow the labor shortages in the country. Real wages are often several times higher than minimums, particularly in industries suffering from shortages such as RMG.

At the 21st Annual Apparel Sourcing Show in Guatemala, Executive Vice President of Product Development, Design and Sourcing at JC Penney Kan Mangone said that JC Penney is interested in doing business in Central America now that Asia is getting more expensive. Last year, JC Penney reopened its Guatemala City sourcing office, which closed in 2003, and more recently started working with Guatemala City-based American Denimatrix on its denim jeans production.
In the mindset of many Central American factories, Denimatrix offers customers vertically integrated solutions “from the ground up,” managing the supply chain from cotton to logistics. Its clients include U.S. textile powerhouses Abercrombie and Fitch, American Eagle Outfitters, Urban Outfitters and Lacoste among others.
C.S.A. Guatemala, which makes 16 million t-shirts a year in its factory, opened up a design center in Los Angeles in 2010 in order to provide creative ideas to its customers stateside, which include Old Navy, Kohl’s and American Eagle Outfitters. Since opening the design center, the company has seen its sales move from $44 million in 2010 to $50 million in 2011. Sales are projected at $60 million for 2012.
Alex Findley, Managing Director in Guatemala of sourcing services for Target, said Central America has been important to the retailer for its ability to deliver duty-free goods quickly. The six Latin American countries that make up the Dominican Republic-Central American Free Trade Agreement accounted for 12.4% of the apparel imported by the U.S. for the year ending March 31, 2012.

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According to the International Trade Administration’s Office of Textiles and Apparel (OTEXA) Major Shippers Report, the top three Central American textile and apparel exporters to the U.S. are Honduras, El Salvador and Nicaragua, with Honduras as the ninth-largest exporter of apparel and textile products by volume to the U.S. market. For the year ending April 2012, Honduras exported 2562.9 million USD in textiles and apparel, a .83% increase over the year prior and 2.5% of total textile imports. El Salvador and Nicaragua exported 1803.5 million USD and 1441.8 USD respectively.
Honduras is the third highest Central American country for minimum wage rates, with salaries ranging from 4.6 to 7.1 lempiras and an average salary of 5.9 lempiras (.31 USD), reports data by the Ministry of Labor and Social Security (STSS). The Minimum Wage Act, which came into effect in January 2012, instituted a wage increase of 5.6% in comparison to 2011 and an additional 7.5% in 2013 over 2012 in hopes of stimulating the workforce. Nicaragua and El Salvador have one of the lowest minimum wages in the region, at $150 per month for a 40-hour work week.