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PORT LOUIS, Mauritius — Like their competitors around the world, the apparel manufacturers of this Indian Ocean island nation are preparing for the phaseout of quotas in 2005 and wondering how can they avoid going the way of the island’s most famous former resident —?the dodo bird.
This story first appeared in the February 11, 2003 issue of WWD. Subscribe Today.
The threat is clear: China and India each have massive populations, well established industries and enormous supplies of cotton and other raw materials. They are also seen as preferred suppliers by U.S. importers, who contend that economies of scale make it worth their while to limit the number of countries from which they buy apparel.
Mauritius, and the nearby African continent, also faces a set of internal problems. While Africa is greatly in need of economic development and further employment, its economy is not uniform.
It’s been about 30 years since Mauritius turned to apparel and textiles as a way to diversify its economy beyond the sugar cane industry that had been its main product for centuries. The strategy worked. Mauritius now boasts the highest per-capita gross domestic products in the region —?$10,800 in 2001, according to U.S. government estimates — and signs of relative affluence are starting to become common.
As was discovered by many of the delegates to last months’ trade forum here, car ownership has become relatively common, leading to traffic jams that can make even a short trip on this tiny island a time-consuming affair. Mauritius also has developed its tourism industry as an important source of employment. Job creation has made garment work less appealing to the nation’s youth, and manufacturers are increasingly importing foreign laborers, primarily from China, to staff their factories.
The island does enjoy some advantages in the apparel industry. Its workforce is highly skilled and experienced, and as a result, its factories also are highly efficient. The industry also has become vertical — Mauritian yarn and textile mills serve the island’s manufacturers and the growing production base on the continent of Africa.
But to cover their bases, Mauritius’ apparel manufacturers are expanding their reach, both to the larger neighboring island of Madagascar and to the continent. Still, that’s not a foolproof strategy, as local manufacturers discovered last year when a disputed election on Madagascar led to unrest and brought business on that island to a halt.
One company that got burned during the crisis was CIEL Textile, the parent company of Floreal Knitwear, one of Mauritius’ oldest garment companies. According to Harold Mayer, chief operating officer of CIEL’s clothing division, the company was exporting about $180 million worth of apparel before the Madagascan crisis, but lost 20 to 25 percent of its volume when it had to close its factories there.
Now that order has returned to Madagascar —?its new president, dairy magnate Marc Ravalomanana, is seen as pro-business — CIEL is considering re-opening its operations there.
“If you want growth, Madagascar remains, for me, the best Africa bet, relative to Kenya, relative to South Africa, even Mozambique, where the costs are low, but there are no logistics,” Mayer said. “We don’t think Madagascar is a higher political risk than elsewhere in Africa.”
That island is two days from Mauritius by boat, Mayer said, making it a logical place to produce garments of Mauritian fabric. Wages are also lower there, making the island an easier place to produce moderate-priced apparel, while Mauritius has started to focus on better-priced goods for retailers such as Brooks Bros. and J. Crew. Madagascar, like Mauritius, also enjoys duty- and quota-free access to the U.S. through the African Growth & Opportunity Act.
South African manufacturers are looking to diversify into lower-cost African nations. Mike Destombes, managing director of the South African textile company Traclo International, said his company is expanding into Swaziland.
“There’s no doubt that the lesser-developed countries are attractive places for factories [because of lower costs],” he said. “Price is key and people have no problem in heading from here to Vietnam in a second.”
Foreign-owned Mauritian companies, such as Textile Industries Ltd. and Leisure Garments Ltd., each divisions of Hong Kong-based Esquel Enterprises Ltd., are also seeking ways to improve efficiency to remain competitive.
Cheung Long, director of strategic planning for Esquel, explained that his company has manufacturing operations in 10 countries, including China, and expects to remain a multinational manufacturer even after the WTO nations drop quotas on textiles and apparel in 2005. That’s because he believes the U.S. will use some of the tools at its disposal to limit Chinese imports.
But the company’s Mauritian managers see the need to improve their efficiency to compete with China’s lower costs. One advantage is that its workforce is fairly experienced: The company’s typical Mauritian workers are aged 30 to 45 and have more than 10 years experience in the factory. But with Mauritians facing many other employment options, the company now has to import about one-third of its more-than-6,000 employees on three-year contracts from China.
“Our labor costs will continue upward every year,” said Alan Cheng, general manager of Leisure Garments. “To remain competitive, there is a lot we can do to improve efficiency.”
The company has invested in new technology to improve efficiency. One new addition is an Eton system for managing garment pieces. It’s a conveyor belt that moves garment pieces from sewing machine to sewing machine as each operator completes his or her piece of the garment. This saves the operators from having to tie bundles and carry them around the factory, and through a computerized tracking system, allows managers to tell whether certain operators are falling behind.
“The improvement is in the product handling,” explained Ashley L.E. Choong, general manager of Textile Industries, adding that its has improved efficiency by more than 25 percent on the production line where the company has installed it.
Cheung, of Esquel, said the major challenge Mauritian factories face is clear: “China is too strong a competitor for many countries.”
U.S. retailers who made the trip to last month’s AGOA Forum urged the region’s manufacturers to take seriously the increased competition African countries will face in 2005.
“AGOA has plenty of competition from regions, such as NAFTA, Israel, the Andean countries and Saipan,” all of which have preferential access to the U.S., said Martin Trust, a senior adviser to Columbus, Ohio-based Limited Inc. While sub-Saharan African exports from the U.S. have grown quickly, he added, “Vietnam is growing much faster.”
Ultimately, he said, “the challenge comes from China. We must never underestimate China’s capacity to serve a large percentage of the U.S.’s needs in apparel.”
Rod Birkins, director of sourcing at J.C. Penney Co., Plano, Texas, told African manufacturers that U.S. retailers will limit the number of countries they buy from in 2005.
“Companies have factories in seven or eight countries because of quota considerations,” he said. When those are lifted, “they’ll probably have two or three megafactories.”
Nancy Marino, executive vice president of brand development at Sears, Hoffman Estates, Ill., offered a dire assessment: “Within the next five years, half of the garment factories in the world will go out of business.”
While retailers emphasized that there is potential in African production —?and have repeatedly said they don’t intend to put all their production into China — they said African makers have a limited amount of time to become productive.
“The window of opportunity is small and closing rapidly,” said Limited’s Trust.
Peter McGrath, president of J.C. Penney Purchasing Co., said he worried that many of the factories springing up in Africa might not last in 2005.
“It’s not the story you’d like to hear, but I think we’re seeing the start of a flurry of action that will fall off when quota is lifted,” he said. “When the quotas go away and the third-party fabric provision expires, only a small number of companies will be able to succeed.”
Through September 2004, Africa’s LDCs are allowed to use fabrics made outside the continent in garments that still qualify for duty- and quota-free treatment. While the Bush administration has said it will consider extending that measure, the provision is highly controversial in Africa and the U.S., and would be subject to Congressional approval.
Concerns about the long-term viability of the region has some African manufacturers considering opening factories elsewhere in the world.
“Our objective over time would be to be global,” said CIEL’s Mayer. “We might decide not to come back up to full capacity in Madagascar or ramp up there and reduce our capacity in Mauritius [in favor of producing outside Africa],” he explained. “We think we need to be one of the places where traffic will come in, in 2005,” like Sri Lanka or India.
“The one country we will not look at is China, because we think most companies will want to have a balance,” he continued.
Overall, U.S. observers said AGOA has given the 38 nations of sub-Saharan Africa a chance to see strong economic development. But they contend that with competition bearing down and the rules of apparel importing set to change dramatically in 2005, Africa needs to think of life after AGOA and look at developing industries beyond apparel and textiles.
“Garment production is not a destination. It is a direction for economic empowerment,” said Ron Shulman, vice president of strategic sourcing for Limited. “Economic transformation is the destination.”
He acknowledged that garment production can play a key role in jump-starting the industrialization process in developing countries.
“But the reality is that business is done for finance,” he added, “not romance.”