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Trade Craze Set to Drive Apparel Manufacturing’s Move Out of Asia

As the gap between fashion’s winners and losers continues to widen, and tariff turmoil continues to roil markets, more apparel players will move their production out of Asia and closer to their customer base.

And provided they’re equipped to embrace the influx of automation, the technology will be what fuels the shift.

In fact, automation technology already on the horizon stands to cut 70 percent of the labor time out of the supply chain by 2025, making even onshoring to the U.S. “a real economic opportunity,” Karl-Hendrik Magnus, partner at McKinsey and Company said announcing the findings of a study launched at the Sourcing Journal Summit in New York last week.

“We’re going to see, in the next five years, a significant increase in semi-automated production,” Magnus said. “And then in the next five to 10 years, we’re going to see with the labor technologies come real onshoring and full automation at scale.”

By 2025, 79 percent of respondents in McKinsey’s report said a step change in nearshoring is likely. But the road to realization for nearshoring and onshoring won’t be a short—or simple one. Particularly if trade continues to convolute things.

The major catalyst for bringing manufacturing back home, according to Reebok VP of product operations, Erika Swan, is what’s happening in Washington.

“It’s the trade barriers,” Swan said at the Sourcing Journal Summit. The trade war between the United States and China in particular, which has seen tariffs of up to 25 percent levied on Chinese-made inputs and apparel products, has given some companies an impetus to scale back on China sourcing to mitigate these unforeseen cost increases, but many have found themselves hard-pressed to quit the country because of how offshoring has reshaped the global supply chain in recent decades. “The big challenge is almost the monopoly of Tier 2 suppliers in this region… The consumer in this region is not willing to pay extra for nearshoring.”

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Apparel players in Asia will continue to invest in automation as they have been, only furthering their competitiveness and creating a more challenging case for pulling production. And with geopolitical tensions quickly diminishing the benefits of offshoring, sourcing markets for North America and Europe will need to make bold and immediate investments in nearshoring and automation, McKinsey said.

Nearshoring’s evolution from nascent to normal, Under Armour chief supply chain officer, Colin Browne, agreed, will really come down to how the apparel industry engages its Tier 2 suppliers.

“Over 50 percent of our cost is Tier 2 suppliers, and if you don’t get that bit right, if we don’t figure out how to engage those suppliers, it’s going to be really difficult to make that shift,” Browne said.

Albeit slowly, the apparel industry does seem to be making the shift to a supply chain less vulnerable to the whims of trade protectionism and punitive tariffs, and one more in line with the speed and proximity demands of the customer base.

For both MAS USA and some of its key customers, there’s already been a move to develop a greater presence closer to the consumer.

“We’ve established ourselves in onshore and nearshore locations already, but I don’t think the shifting can happen overnight. It’s going to take some time,” said Ramesh Fernando, CEO of MAS USA, the domestic arm of the Sri Lanka-headquartered largest apparel and textile manufacturer in South Asia.

It’s also going to take some data, and a definitive relationship between brands or retailers and their suppliers—and likely some investment from both sides.

“The old way of ‘let me squeeze them for the lowest FOB’ is not going to solve the chicken or the egg problem of who’s actually going to invest,” Magnus said. “It’s going to take a much longer, much deeper relationship.”

For Under Armour, which doesn’t own any of its own factories, its team is well interwoven with the suppliers that produce its product. As part of the company’s Baltimore, Md.-based Lighthouse initiative, a cutting-edge design and manufacturing hub, partnerships are part of what drives innovation.

“We do have a lot of partners and we work with them to think through how much we can innovate product, and they can then run through the innovations we can then place with them,” Browne said.

According to Swan, brands and retailers should also be considering how to share their customer data with Tier 1 suppliers and build an exchange between Tier 1 and Tier 2 suppliers to transfer that data to them, too.

“Data is not a PO, it’s just a forecast—so how can we really action it and how can I gain speed for my customer base?” Swan posed.

There may be a long road ahead for shortening the supply chain and really realizing nearshoring at scale, but according to McKinsey, it’s a road paved with plentiful opportunity for the industry.

“The opportunity of automation in a more demand-based supply chain is huge, but it requires a very, very different mindset than the historical FOB optimization and finding the next cheapest needle mindset…it’s about customer orientation,” Magnus said. “These disruptions that we’re seeing are so profound that they will lead to competitive advantages that are very difficult to mimic.”