Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, Patricia Figueroa, executive director of Chamber of the Textile, Clothing and Free Zones Industry of El Salvador (CAMTEX), discusses U.S. brands’ nearshoring opportunity and the state of apparel production in her country.
Name: Patricia Figueroa
Title: executive director
Organization: Chamber of the Textile, Clothing and Free Zones Industry of El Salvador (CAMTEX)
What is the number one question or concern you hear from your members now that was never really a consideration before?
For some members, one of the biggest challenges facing the industry is the lack of personal interaction that arises from the inability to travel and meet face-to-face with the client given the nature of the industry. Although technology platforms have been a great tool that has permitted us to survive during the pandemic, digital meetings cannot supplant the interaction that occurs in a face-to-face meeting with the client. It has been especially hard, for example, in the validating process of the properties of the garment, whereas before this process was carried out in a single location and now, we must do it through a decentralization process, given that all buyer and client offices are closed. Since this concern is not unique to any one supplier, producers in El Salvador have been working to adapt, be much more creative and handle these new modes of engagement with greater speed and efficiency.
For many members, volatility and short-term uncertainty have been their number one concern, due to unprecedented swings in demand because of Covid-19. During the worst of the pandemic, sourcing strategies at the brand and retail level became more reactionary, which had an unforeseen impact at the factory level. At the start of the pandemic, everything froze, and many orders were canceled or postponed under a wait-and-see attitude on how the crisis would unfold. Worldwide, many factories were negatively impacted depending on their niche.
In the case of Salvadoran factories, those focused on outerwear, activewear, leisure wear and personal protective equipment (PPE) were winners. However, as the orders had been frozen due to uncertainty, then they experienced a demand that was greater than expected, which created great strain on the supply chains. In other words, production planning and procurement got more challenging than ever and at the start, not all factories were able to respond as quickly as desired. However, this was part of the adjustment process, and the positive aspects were that at this moment, companies in El Salvador have been able to adapt and conditions exist to continue producing and satisfying the needs of our clients. Much interest has come to the region, since due to the previously exposed conditions, many retailers that sold online were left without product. Everything has been totally unpredictable.
How should factories be evaluating potential brand and retail partners differently now compared to before the pandemic?
At the onstart of the pandemic, many members felt that trust and relationships between factories and buyers were being tested due to the difficult times. What saved and ultimately strengthened these relationships was an open and transparent communication, financial strength and a commitment to ensuring a long-term relationship.
Our geographical location gives us a natural advantage when working with brand and retail partners who see delivery time as a key to their success. We are already positioned for faster deliveries and speed to market is more important today than ever. Post-pandemic, we want to grow with our partners in this area and would benefit from adopting a more strategic and targeted approach at the factory, national and CAFTA-wide level.
CAFTA-DR has strong labor, environmental and rule of origin commitments, which have required us to invest over time, in strong compliance departments with ample tracing capabilities. We feel we can leverage the work we have undertaken in the last 14 years to deliver completely reliable and traceable products.
How can the relationship between these parties evolve?
We foresee that we can continue to evolve and build on lessons learned from the Covid-19 pandemic. We are developing new post-Covid strategies with brands and retailers who have shown a genuine interest in a long-term sustainable relationship. Many of these strategies center on strengthening our factory capabilities to address up-and-coming markets, such as fast fashion and e-commerce. We need to build strong partnerships based on win-win conditions.
What should be manufacturers’ top lesson from the pandemic? How can they address this in their operations?
Among the top lessons learned from the pandemic is that there needs to be a more diversified and broad-based business model that is less vulnerable in difficult times, making it important that factories are not overly concentrated on one client or one supplier in order to survive shocks or changes in the supply chain.
Flexibility is also key. We have seen that our ability to quickly convert operations and adapt to new needs of the market has been key for survival. Going from intimate wear to PPEs, for example. Also, cash liquidity is key for surviving any situation. It’s important to be prepared and also be aware of your customers’ financial strength and that they will also honor their commitments.
Our members have also stressed the importance of having an active and healthy labor force, by supplying the necessary and adequate personal protective equipment and installing high protocol controls to protect all employees. Our members quickly adopted and exceeded the required protocols and we embarked on an education campaign which is still ongoing to enhance knowledge at a factory level of how to prevent Covid-19. Many companies have also continued to provide private transportation. As a result, we have been able to continue operating safely.
What is the state of apparel production capacity in El Salvador? From your perspective, what is the outlook for 2021?
Exports of the textile and apparel sector from January to November 2020 amounted to $1.7 billion, a 28.8 percent decrease, equivalent to $697.3 million less compared to the same period in 2019. We estimate that we will close the year with 20 percent to 25 percent less exports in relation to the year 2019. However, we are optimistic about this year’s performance in that we are more prepared to respond to the situation.
How can the El Salvador government best support the domestic garment industry during this time?
We are part of a global value chain, which makes us more competitive at the regional and international level. Our main competitors reside in Asia and in Central America. At this time, both Covid and the reconfiguration of the large flows of international trade are giving rise to the nearshoring phenomenon. Some of the major world producers that went to Asia almost two decades ago are now studying how to diversify their value chains and bring part of the production closer to home and to the final consumer. Due to El Salvador’s proximity to the United States, this is an opportunity that we must seize.
To take advantage of this opportunity, the government should address some key issues such as:
- Streamline the clearance of goods, with a strengthened customs clearance team committed to increasing the country’s exports. Development and implementation of a modern customs law or code, which streamlines import and export operations and has at its base a speed to market strategy, investing in trade facilitation issues and the digitization of operations and most of all creating an ecosystem to facilitate e-commerce.
- Construction and improvement of infrastructure conditions in the medium and long term that ensure we keep our speed-to-market capabilities. This competitive advantage requires an integrated multimodal infrastructure network that ranges from a connected road network to an efficient port infrastructure.
- Legal predictability that allows investments to carry out medium- and long-term expansion plans and projects. This would allow international customers to evaluate the transfer of production programs and development of new products to the country and the region.
- Modernizing our labor code so that it allows for more flexibility in working hours, allowing companies to increase their installed capacities.
If companies aren’t already producing in El Salvador, why should they consider using it as a sourcing location?
We are a member of the CAFTA-DR Agreement, which allows our goods to enter duty free into the United States. Our neighbors in the region are also members of the CAFTA-DR Agreement, which allows us to cumulate origin and thus enhance our sourcing capabilities. The CAFTA-DR has strong labor and environmental commitments, which means that for more than 14 years we have strongly invested to increase our compliance capabilities.
We are a small country with big production capabilities, which means we all know each other in the textile and apparel business. This allows us to ensure we keep our value chains open, transparent and easily traceable.
We are in the same time zone as the United States, which allows us to collaborate more easily with our brands and retailers.
What keeps you up at night?
The coming of a second wave of Covid infections worldwide, of which El Salvador is no exception, and the uncertainty it creates. We need to be ready as soon as possible to offer the vaccine in the industry; that will certainly make a difference.
What makes you most optimistic?
At CAMTEX and in spite of this year’s hardships, we are optimistic at the closing of 2020 and are certain that by implementing lessons learned, things will be better in 2021. Though we are aware we are not out of the woods yet in terms of Covid, we are optimistic on what the future holds for our industry and our capacity to adapt and readapt as necessary and as quickly as possible.
What is in store for CAMTEX in 2021?
We are working with the El Salvador government and important institutions, such as the Inter-American Development Bank, on developing a Nearshoring Initiative for the Textile and Apparel Sector. This includes transforming El Salvador in an ideal center for e-commerce, the creation of new distribution centers and near sourcing opportunities.
We are also improving our communications strategy in key areas such as environmental sustainability, supply chain traceability and labor compliance. We hope to launch this year our first sustainability report.
We continue to work tirelessly with the government to reduce the barriers to investment and also to ensure that day by day we have a better business climate and can meet the milestones of the Bali agreement [aimed at lowering global trade barriers].
We are working with our U.S. counterparts in moving forward an agenda in the U.S. to ensure that CAFTA-DR remains competitive. We intend to start our work as soon as possible with the new Biden administration so that a common agenda can be devised, since CAFTA has proven to be an incredible tool to deter illegal immigration. It has been a win-win situation for both countries as our supply chain is integrated and our partnerships if anything should only be strengthened.