The diversification of global apparel and textile sourcing is accelerating, as China’s hold as the top source of U.S. apparel slips.
Companies are looking to a China Plus Many strategy to spread out their apparel manufacturing to gain advantages of speed and cost, and reduce their risks in the highly charged political environment. Trade wars that have led to tariffs between the U.S. and China and the European Union, and renegotiations of free trade agreements such as the North American Free Trade Agreement (NAFTA) and the U.S.-South Korea FTA, have companies hedging their sourcing options to limit their risks.
The China syndrome
China’s market share of apparel imports fell 2.43% for the year through June to $26.8 billion worth of goods and a 33.05% market share. That’s a far cry from consistent double-digit annual increases seen over the last couple of decades up until the last couple of years. A year earlier, China’s apparel import value were flat from a year earlier, but it held a 41.75% market share, while for the year ended June 2016, China’s imports had increased 3.14% to hold a 41.76% market share.
Looking back further, for the 12 months through June 2015, China’s apparel imports rose 5.32% to hold a 41.88% market share, and in June 2010, the country that became known as “the world’s manufacturer” had seen its imports in the category jump 16.32% to hold a 41.3% market share. This means in eight years, China has lost roughly 8 percent market share, mostly due to increased costs and its desire to focus more on domestic consumption.
“The numbers are skewed because companies that were planning on China production rushed their deliveries with everything that was going on,” Gail W. Strickler, president of Global Trade at Brookfield Associates, said. “I expect a much more significant downward change by the end of the year.”
While she doesn’t expect a “huge jump” in any one country or region, Strickler said rather, “What I’m seeing and advising clients on is sourcing being spread out…No one place should be more than 25 percent of your sourcing.”
China’s Asian neighbors have been the main recipient of the business it has lost, but other areas like the Western Hemisphere have established themselves as alternatives for certain products and better speed to market, while Africa could finally be building momentum as the next fertile ground for apparel manufacturing.
Vietnam leads the pack among the group of Asian apparel manufacturing nations, with apparel imports to the U.S. growing 7.36% to $11.89 billion in value and a 14.67% market share. Cambodia was the next big gainer, with imports increasing 10.1% to hold a 2.82% share, while Pakistan’s shipments grew 5.66% for a 1.62% share, India’s imports were up 3.86% for a 4.83% share and Bangladesh’s shipments inched up 0.7% to hold a 6.4% share. Myanmar could be starting to pick up momentum, with imports increasing 56.22% to $150.23 million.
“Companies are going to increase their manufacturing in places they are already in and take some production away from China because of the risk,” Strickler said.
Vietnam is starting to face the problem of companies already having substantial production there, prices are starting to increase and capacity issues are arising, Strickler noted. Companies are still concerned about the risks of Bangladesh, too.
Imports from the Western Hemisphere increased 1.1% in value to $13.9 billion and a 17.15% market share in the year, with the countries of the Central American Free Trade Agreement (CAFTA) seeing their shipments dip 0.93% to $8 billion and a 9.87% market share. NAFTA partners Mexico and Canada hold a 4.35% and 0.8% market share, respectively, with steady gains in the year, despite political controversy.
The yarn-forward rule in CAFTA, Strickler noted, has held back growth those countries, particularly in wovens.
“I really feel the potential of CAFTA isn’t being realized because of the limits of the type of fabrics that can be used there,” she said.
Out of Africa
As for percentage growth, the largest increases have come from the countries that are part of the African Growth & Opportunity Act (AGOA) trade preference program, as well as from Egypt.
Apparel imports from Sub-Saharan Africa increased 9.15% in the period to $1.11 billion, grabbing a 1.37% market share. Egypt has the largest stake from the continent, with shipments rising 16.02% to $784.04 million. Other important players are Kenya, with a 5.64% gain to $344.64 million; Lesotho, with imports increasing 7.32% to $310.53 million; Madagascar, with imports jumping 34.99% to $174.3 million, and Ethiopia, which saw its shipments skyrocket 84.21% to $75.23 million.
DHL Global Forwarding and Ethiopian Airlines recently formed a joint venture company–DHL-Ethiopian Airline Logistics Services Ltd.–to enhance Ethiopia’s logistics infrastructure and connections.
Tim Scharwath, CEO of DHL Global Forwarding, said by creating the joint venture, “We are opening up an important access to international trade for Africa’s fastest growing economy and at the same time strengthening our position in the African continent.”
The joint venture will provide much-needed freight capacity and logistics infrastructure to Ethiopia, where soaring economic growth has fueled demand for international forwarding and handling services, DHL said. Door-to-door solutions will also connect Ethiopia’s growing number of industrial zones and business parks, covering fast-growing sectors including garments, pharmaceuticals and automotive production.
Now that Ethiopia and Eritrea have settled longstanding differences, Strickler said the port in Massawa, Eritrea could help Ethiopia export and create a supply chain in the northern part of the country. Prior to this development, Ethiopia had been relying on the port in Djibouti, which contributed to delays and curbed the country’s speed to market.
PVH Corp., one of the leaders in entering the African market for manufacturing, has focused on working with key supplier mills in Ethiopia. In partnership with the government and other key stakeholders, the company broke ground on the Hawassa Industrial Park in 2015, finishing it in 2016. PVH has gone from producing less than $100 million worth of goods in 2016 to what could potentially reach $1 billion in 2018, and $30 billion by 2025, if the company hits its targets.
Overall, companies have been forced to become more diversified in their sourcing, whether they intended to or not, just to sustain themselves against political and economic trade winds.
“People have to really be smart and strategic about where they place their production,” Strickler said. “In some cases, companies are helping factories in a certain country to expand their production there. Those are the companies that are going to create the good, long-term partnerships. It’s not China Plus One anymore, its China Plus Four or Five.”