Supply chain diversification may have been a savvy business move a decade ago, but today, amid the heated and hasty handling of global trade relations, where longstanding relations can turn into tenuous ties overnight, it’s closer to mission critical for those in global sourcing.
Despite this weekend’s truce, the saga of unsettled trade relations between the U.S. and China continues—plaguing an apparel industry already suffering from margin pressures and store closures—and one region in particular stands to benefit from the fallout: South Asia.
“People are really interested in exploring a new sourcing option other than China, and also a direct FOB business,” said Guido Schlossman, Group CEO of Synergies Worldwide, a global sourcing company known for its low cost and fast fashion sourcing. Synergies—which operates out of Bangladesh, Pakistan, India, China, Thailand and Vietnam—just wrapped a weeklong visit in New York City, meeting with U.S. brands and retailers ever ready to test or expand their sourcing from the region in light of the current market conditions.
According to Schlossman, the region is just as ready to receive them.
“Bangladesh has expanded its product offering and improved its lead times. India has become more efficient and has added new apparel categories. Pakistan has had a major currency devaluation and the FOB prices are lower. Vietnam is a natural benefactor of China woes,” he explained.
What’s more, whether the G20 borne truce holds or proposed tariffs ultimately materialize, China’s own internal shifts—be it rising wages or the push to a consumption-driven growth model—will continue to see manufacturing go to other sourcing countries keen to capitalize.
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Bangladesh
No stranger to manufacturing, Bangladesh has secured its spot as the second largest garment exporter in the world after China, with investments in place to see its apparel and textiles exports cross $50 billion (up from what was nearly $33 billion in 2018) by 2021. And the country may be well on its way to realizing that goal.
Companies that were once waffling on their decisions to source in Bangladesh are now taking more deliberate actions.
“Customers have tried to test out various programs with us to see the lead times…and to get some experience,” Sadruddin Hirji, director of Synergies Sourcing Bangladesh, said.
While lead times may still be a thorn in the side of American wholesalers chasing quick-to-market options, Bangladesh could benefit in that department thanks to China’s Belt and Road Initiative (BRI). One project within the much-discussed BRI is expected to create a Bangladesh-China-India-Myanmar Economic Corridor, easing land connectivity between the countries. Though it’s not entirely clear whether or when the project will begin, it could cut the time it takes for Bangladesh to bring in its raw materials by two-thirds.
“Now, if you’re importing raw materials out of China by sea, it takes 12-14 days on the water, and five to 10 days to clear customs,” Hirji said. “Once we have that road it would take only one week.”
Beyond logistics, Bangladesh has taken the disaster that was the Rana Plaza building collapse in 2013, and turned it into an opportunity to overhaul compliance in the country.
“Bangladesh does have the most registered compliant factories in the world,” Hirji said, adding that of the 24 platinum-rated Leadership in Energy and Environmental Design (LEED) certified factories in Bangladesh, six are among the top 10 in the world.
In line with that shift, Hirji said there’s an influx of Chinese investment in Bangladesh—they’re improving factories, building up vertical capabilities and bringing in more raw materials—all of which will help improve infrastructure and capacity in the country.
“They will still have semi-finished goods in China and then partly finish in Bangladesh and ship to the U.S. to avoid the duties,” Hirji said. “Now instead of manufacturing, they would ship the goods themselves, so they would still hold on to the product development and R&D and outsource the production to a country that suits its customers best.”
Pakistan
A similar pattern is taking shape between China and Pakistan.
“The only way they can survive is by investing in this way into these countries,” Monty Mashooqullah, the head of Synergies Sourcing Pakistan, said of Chinese manufacturers with investment money to spend. “All this infrastructure has to be built, so the Chinese are investing in these countries and it’s no small investment.”
As with Bangladesh, U.S. brands and retailers are increasingly mulling more sourcing from Pakistan.
Among U.S. buyers he met with this week, Mashooqullah said he could “sense the concern and anxiety” many have about keeping too much sourcing in China.
“A group of people were here [Wednesday] and spent nearly three hours just trying to see how they could shift something to India to Pakistan to Bangladesh,” Mashooqullah said. “That concern is there.”
Shifting sourcing typically isn’t easy, but in recent years, as companies have looked to skirt China’s rising costs, they’ve already started the shift to Southeast Asia. And they’re also looking to India.
India
“We’ve seen a massive shift from China to India, and fortunately the Indian rupee has been supporting of export,” said Ramit Aggarwal, CEO of Synergies Development & Sourcing in India. “The Indian government has also given incentives to get the benefit of the shift.”
Though some have expected India’s removal from the United States’ Generalized System of Preferences (GSP) program to be a hit to the country’s exports to the U.S., Aggarwal said while there will be an impact, it won’t be wide-reaching.
“India losing GSP is definitely going to have an impact on Indian exports but I feel that the GSP was on products which are not easy for any other country to replicate, so the exports for those products will definitely not suffer to the extent that the feeling is in the market,” he said.
Regardless, Indian factories are also investing in Bangladesh, both to accommodate the regional market and as an alternative for reaching the U.S. market.
All signs, it seems, point to a region poised to pick up whatever China puts down, whether voluntarily or because tariffs forced their hand.
“We see a silver lining, because if the business shifts, it could impact 5 percent growth in Indian exports,” Aggarwal said.