You will be redirected back to your article in seconds
Skip to main content

Central America Looks to Surpass Asia for Affordable Quick Response

Central America’s advantages as a sourcing destination generally outweigh its disadvantages as the region tries to solidify its position as an alternative to Asian sourcing.

The pros – locale, quick response capability and duty-free status – and cons – political uncertainty, lack of uniformity and growing wage rates – were debated in a comprehensive panel discussion at the Lenzing seminar series at the Jacob K. Javits Convention Center on Wednesday.

Mark D’Sa, special projects coordinator for Haiti, said, “The biggest advantages are the flexibility for rules of origin, proximity, the ability to react faster and produce quick response, and competitive labor. This is something that very few other places can offer.”

D’Sa said one factor for U.S. brands and retailers that cannot change is geography – estimating three-and-a-half to five days ocean shipping time to the U.S., a growing “verticality” in the region, such as cotton yarn capability expansion in Costa Rica and filament yarn capacity investment in Honduras, leading to the ability to produce 300 million more garments a year in Central America.

“The gap is closing,” with Asian manufacturing,” he said, “that redundancy is increasing and Central America is becoming more important to American retailers and brands such as Nike, Lululemon, Under Armour and Gap that are bringing more manufacturing back to Central America and to Haiti.”

D’Sa noted that the “Amazon factor” of on-demand ordering from consumers and e-commerce brands is also changing the way companies think about their sourcing and Central American and Caribbean Basin countries are positioned to serve that need “if they add data and data analytics to their supply chain and production.”

David Adkins, commercial manager of textiles for North and Central America at Lenzing Fibers, said he is working with brands and retailers to explain the region’s capabilities and advantages.

Related Stories

“They are looking for more differentiated product for producers in the region beyond the basics,” Adkins said.

Lucia Palacios, marketing and promotion manager for Vestex in Guatemala, cited the region’s ability to react quickly to fashion trends with smaller, nimble factories that can handle smaller runs of fabric and yarn types, as well as the foundation of local value-added materials, as opposed to imported yarns and fabrics from the U.S., as attractive sourcing qualities.

The key aspect of duty-free status of finished goods imported from countries that are part of the Central American Free Trade Agreement – Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic, and under Haitian trade preference programs, representing an average 33% savings, was cited by the panelists.

Moderator Edward Hertzman, founder of Sourcing Journal, noted that under the “yarn-forward” rule, those imports must contain fabric from the CAFTA countries or the U.S. to be eligible, although Haitian imports can use foreign fabrics or yarns.

Palacios also noted that goods from Guatemala and other Central American countries can qualify for duty-free status if the items are part of a “short supply list” compiled by the U.S. that consists of items not readily available from domestic suppliers, as well as single transformation items such as underwear.

[READ MORE ABOUT CAFTA: Is the CAFTA Trade Deal Untouchable or Are We In For a Change?]

Diego Cuenca, sales agent for Mercados Internacionales in El Salvador, said, “Government politics have somewhat affected the textile industry in the country and throughout the region.”

He noted a 13% increase in the minimum wage, for example, has had an impact on manufacturers trying to compete globally.

“Central America is an underdeveloped region and there is some political instability, but we were more hesitant and concerned about what was going to happen with the new president in the U.S. than we were in El Salvador or Central America,” Cuenca said.

“It’s true, we’ve seen different governments and changes over the years, but we’re still in business, we’re still selling,” he continued. “It’s more what’s going to happen in the U.S. market and what type of treaties and what type of politics that Trump administration will come out with that’s going to affect us more than the actual politics of each of the countries of Central America. Thankfully TPP was not approved, so that gives us a push and reason to be optimistic.”

Palacios said the U.S. is 80% of Guatemala’s exports, so now that President Trump has pulled out of the Trans-Pacific Partnership, she hopes Chinese investors will look toward the country and region instead of Vietnam.

Adkins said what’s needed is investment in equipment and training to run them, achieve better warehousing in the region and greater product development between players in Central America.

D’Sa said the region needs to build better linkages between countries and suppliers to better take advantage and grow capabilities. He said CAFTA reached $8.5 billion in industry exports in 2015, paling in comparison to some of the Asian giants.

“For this region to grow to $15 billion or $20 billion, the countries have to work together and develop a regional strategy,” he added.