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American Apparel Companies Look to Asia to Expand Sourcing

The state of sourcing today can be summed up rather simply: costs are still rising and companies are still reeling, Africa is still trending, and no one is leaving China.

In its 2015 U.S. Fashion Industry Benchmarking Study, the United States Fashion Industry Association (USFIA) found that respondents are fairly optimistic about the five-year outlook for the industry, and though costs will no doubt go up, many expect those increases to be more modest this year.

The sourcing sector continues to globalize and businesses are diversifying their supply chains and making product in more and more countries—some in search of new ways to cut those costs.

More than half of the study’s respondents (53 percent) said they source from 10 or more countries, up from 41 percent last year. And apparel companies, at least those surveyed, are sourcing from 41 different nations.

One hundred percent of respondents said they source from China—and the study found that companies aren’t at all pulling out of the Asian nation.

Forty-three percent said they expect no change to their business in China in the next two years, or even a slight increase. Forty-seven percent said their sourcing volume or value from China would decline in that time, but only by a bit. Less than 7 percent indicated plans to significantly reduce their China sourcing.

Vietnam followed as the second most-used sourcing locale with 90 percent of respondents mentioning they make there, and India (80 percent), Indonesia (67 percent) and the United States (53 percent) rounded out the top five.

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“Among the top 10 sourcing destinations, eight are located in Asia, suggesting that the region as a whole remains the most important source of textiles and apparel for U.S. fashion,” the report noted.

In this year’s study, respondents expressed a stronger interest in sourcing from other Asian countries, like Vietnam, India, Bangladesh and Indonesia over the next couple of years, but moving completely away from a mature manufacturing base like China in favor of still-developing nations without complete capacity or inputs isn’t likely.

“We shall not forget that even apparel manufactured in Vietnam, Bangladesh, and Indonesia contains textile inputs from China,” the report noted.

And in keeping with the move toward more expansion in Asia, 72 percent of businesses said they would source more textiles and apparel from the 11 Trans-Pacific Partnership (TPP) countries once the pending U.S.-led trade agreement is settled. The U.S. is in talks to finalize a free trade agreement with Pacific Rim nations, which together took in 55 percent of U.S. textile and apparel exports, or $13.3 billion.

Nearly half of those surveyed said they would “strategically adjust or redesign” their supply chains based on TPP.

“TPP could be a game changer and has the potential to shape new patterns of textile and apparel trade in the Asia-Pacific region in the long term,” according to the study.

However, only 7 percent said they would export more to TPP partners and 10 percent expressed intent to invest more in those countries after the agreement’s implementation.

Expanding the TPP Short-Supply List and the proposed yarn-forward Rule of Origin could prove hurdles in the industry realizing the trade pact’s benefits.

The proposed yarn-forward rule stipulates that a good qualifies for duty free privileges if production takes place in one or more of the free trade agreement’s member countries from the yarn manufacturing stage forward to the end of the product. The problem there, however, is that some products won’t be readily available from TPP members.

A short supply list would outline inputs that aren’t available in TPP countries and are thus eligible for use from third party countries.

As many as 83 percent of those surveyed said they “support” or “strongly support” throwing out the restrictive yarn forward Rule of Origin in favor of a more flexible one for future FTAs.

“The benefit of TPP for the U.S. fashion industry and the utilization of the agreement will largely depend on the Rule of Origin,” the report noted.

USFIA president Julia K. Hughes said, “We’re still a long way from realizing benefits for the industry—and we have a lot of work to do to ensure it’s worthwhile for fashion brands and retailers.”