Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Could Central America Trade Benefit From an EU-Modeled Market?

Join McKinsey & Company, NewTimes Group, Arvind Limited, Asmara, Google, Bluesign, the Retail Prophet and more at Sourcing Journal’s Virtual Sourcing Summit, R/Evolution: Overhauling Fashion’s Outmoded Supply Chain, Oct 14 & 15.

In today’s sourcing market, no country is an island, especially when regional sourcing could be the solution to the speed to market conundrum.

Zara and its supply chain model may be over-referenced, but there’s no denying the fast fashion retailer has nailed close-to-market sourcing. And as companies face consumers’ increasingly demanding needs, many are trying to mimic the model in a market close to their own consumers.

For U.S. manufacturers, creating a complete supply chain for a mass market or better product remains challenging when it comes to competing on costs, so many are turning to Central America to source.

In El Salvador, where a group of manufacturers have gotten together to form a synthetic cluster, making a virtual vertically integrated supply chain for synthetics, activewear is making it to market as quickly as three days in some cases. And if the region had greater access to more raw materials from its neighbors, it could do even better.

“Why can’t we have complete free customs for the whole Central America region?” posed Jorge Salazar, sales and administration director for CS Central America, a synthetic yarn supplier in El Salvador. “Europe has it and they don’t even have the same languages.”

With the ease of communication coming from a region where Spanish is spoken throughout, and a group of countries each individually trying to grow their textile industries, opening borders for free trade across the nations could be the next smart move for all involved.

“Those are the types of things that are going to help with the imports and attract more investments to the region,” Salazar said.

When faced with the prospect of the Trans-Pacific Partnership and the boost it would have brought for Vietnam, manufacturers in El Salvador were concerned about their competitiveness. Though their quality and capabilities are on par with Vietnam, El Salvador isn’t able to produce all the yarn it needs to bring in from Asia.

That’s why companies like narrow elastics manufacturer George C. Moore, which was just named “2016 Partner of the Year” by Fruit of the Loom, invested in package dyeing to be able to dye its own yarn and not tack on to lead times waiting for inputs from Asia.

“Lead times can be as short as three weeks from order to shipping if we have it here. I think eventually the yarn suppliers are going to have to develop themselves to supply what the world needs,” George C. Moore general manager Carlo Melara said. “I think the picture of the region is going to shape up very differently in the next five years. There will have to be more offered in the region for more competitive prices and more quality.”

And as George C. Moore marketing and innovation manager Elisa Torres added, “It will also depend on our ability to act as a region. If we don’t act as a group, it’s harder for a yarn manufacturer to justify their investment in coming to the region.”

Partnership from the region, however, will have to be the first step. It’s going to take each country’s customs coming together to foster free borders and eliminate some of the dual processes for moving goods that don’t add any value to the end product.

“Each country that is part of the CAFTA [Central American Free Trade Agreement] has to agree to a free flow of products or services or people so it’s a more seamless operation altogether,” Andres Patino, general manager of textile manufacturer Supertex said. “The replenishment and the quick response is taking more priority.”

For now, fabric manufacturer Pettenati has been the lifeblood of the synthetic cluster in El Salvador, but for the country’s capacity to grow, there needs to be more Pettenatis that are vertically integrated and can knit, dye, stamp and finish fabric.

“It is undeniable that Asia is going to grow and their consumer is going to grow and somebody is going to have to supply,” Pettenati director of operations Francesco Pilenga said. “For Central America, the garment industry will be more competitive than what is going to happen in Asia in terms of salary and abundance of labor force.”

Unifi, which has been in El Salvador for six years is considering expanding there because business growth has been so positive. The yarn manufacturer produces quite a bit for the region and for customers in the United States that are taking advantage of CAFTA.

“Customers want the fiber closer for proper reaction because market conditions are moving more into supply and demand than just projections driven mainly by retail,” Unifi general manager Jaime Campos said.

It’s exactly that shift that has apparel manufacturer TexOps trying to think outside of the box—or the country, really.

Thinking solely about TexOps, or manufacturers in El Salvador, won’t work for bringing big business to the region. It’s going to be about creating a bigger pie, so to speak.

It will be about bringing a better logistics infrastructure to the country—and the region—for all players to feed off if it, TexOps CEO David Ha explained. “We could grow 10 times more than this building but there’s no raw materials,” he said.

And as TexOps director Juan Zighelboim added, “I think each individual country alone is too small to be meaningful, but as a bloc we can do a lot.”

Related Articles

More from our brands

Access exclusive content Become a Member Today!