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Sourcing in Central America Ramps Up in Line with Need for Shortened Supply Chains

In apparel sourcing, one region’s trashed trade deal is another region’s treasure.

For Central America, the U.S. pulling out of the Trans-Pacific Partnership that would have seen trade ease between America and 11 Pacific Rim nations, has meant more opportunity—and opportunity at a time brands and retailers are increasingly looking for closer-to-home sourcing options.

“We see an opportunity here now that TPP is cancelled,” Lucia Palacios, who does marketing and promotion for Vestex, a representative organization for apparel manufacturers, textile mills, services and trimmings in Guatemala, said at Texworld USA Monday. “What we do in Guatemala is flexible and high added-value garments. We will never compete with basic tees or basic shirts compared to Asia.”

For Guatemala, catering to the U.S. market has been priority No. 1 as the U.S. currently takes in 80 percent of the apparel and textiles Guatemala puts out. And in the first half of the year, Palacios said Guatemala’s textile and apparel exports are up 10 percent and she expects that growth to continue.

[Read about potential developments with CAFTA: Is the CAFTA Trade Deal Untouchable or Are We In For a Change?]

Sportswear has been Guatemala’s area of specialty ever since the spike in cotton prices some years back sent manufacturers seeking alternatives. For women’s synthetic knit tops, Guatemala is top in the Central America region, according to Palacios.

“This category has increased in the last three years 20 percent,” she said.

But apart from product, Central America has been the welcome recipient of brands and retailers flocking to it for faster fashion. Everyone is trying to chase the Zara model, no matter how futile, and in response, Guatemala has prepared itself to accommodate.

“A lot of factories have innovated and overcome and been able to do flexible production,” Palacios said. “If you are flexible then you have a plus in production.”

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Honduras has also benefitted from increased demand for speedy supply chains, but as Palacios explained, they haven’t been as able to cater to smaller, start-up brands as Guatemala has.

“They have big production to the U.S. but they can work only in high volumes,” she said. “Most of them don’t do 800 minimums.”

Catering to smaller brands with smaller runs has been a focus for Guatemala as the country reacts to America’s shifting retail landscape—especially as more of the market moves online.

“The market in the U.S. has changed. Stores are closing, physical stores, and everything is going online, and we in the association, we always try to be proactive and try to show our factories, ‘this is what you need to know if you want to be an online supplier,’” Palacios explained. “Online business requires more flexibility, the use of technology and that’s what we’re doing right now. We are re-accommodating and innovating in the process.”

Guatemala’s advancements have garnered it some added interest in recent years and now that investors are looking for places to spend their money other than Vietnam with TPP having the potential to be a no-go, Palacios said she expects some of those investment dollars will find their way to Guatemala. These potential investments will be in the area of textiles mills to encourage more fabric development and less reliance on time-consuming fabric imports from Asia.

“We really have a positive outlook on what the future is holding,” Palacios said. “There will always be competitors and there will always be countries rising up, like Haiti for example. But what we can differentiate now is in the type of products.”

Turning to Haiti, the country’s own advancements are well timed as brands and retailers are paying closer attention to perhaps more reliable places to ensure duty savings—like trade preference programs.

“Considering the proximity to the U.S. market and also the fact that Haiti has the HOPE/HELP access until 2025, this is a good time to think about Haiti,” Radley Joseph, assistant director of promotion for Haiti’s Center for Facilitation of Investments, which aids brands and retailers with any and all needs related to sourcing there, said speaking ahead of a Texworld USA panel on Sourcing in Central America.

Haiti’s HOPE/HELP Acts allow for duty free exports to the U.S. for qualifying products.

Despite the misperceptions that typically befall Haiti, the country has an abundant workforce and, contrary to popular belief, its production capabilities extend well beyond the T-shirt.

“As much as we do knits and wovens, we also do denim,” Joseph explained. “We also do screen printing, we are moving more toward embellishment and we can also do more added value.”

Knowing the potential impact growth in the apparel sector could have on the country’s economy, the Haitian government also has, according to Joseph, “generous incentive packages” in place for potential investors, including fiscal and customs exemptions for up to 15 years and no corporate tax for just as long.

“I definitely think it’s one of those times you should start rethinking your strategy,” Joseph said. “So that’s an opportunity to do it understanding that the world is changing and that other nations or partnering countries are rethinking their relationship to Haiti.”

One major company rethinking its relationship to the Central America region as a whole, is Lenzing.

Picking up on the uptick in interest in the region, the fiber producer has spent the last three to four years developing the supply chain for its products there.

“We were getting a lot of questions from retailers about what we were doing in Central America and a lot of them didn’t have an understanding of Central America,” said David Adkins, Lenzing commercial manager for nonwovens Americas and textiles North and Central America, who will also speak about sourcing in the region at Texworld USA Wednesday. “So we understood that there was going to be increased interest in that area coming. We needed to understand that market and get that supply chain in place.”

With that foresight, Lenzing has been educating its mill sources in the region about what the company can produce and about relevant trends in fiber and apparel. From there, Lenzing has started to move downstream to develop knowledge among weavers, knitters and cutters there.

Lenzing’s work in the region has really only just begun, according to Adkins, but it will continue to evolve as more power players take root in Central America.

“Asian manufacturers are starting to put a footprint in Central America, so we’re still early in our days, three, four years isn’t a long time, but we’re really encouraged about the reaction we’re getting,” Adkins said. “And we’re getting a lot of positive reaction from the brands about what we’re doing down there and what we can do to help develop sources.”