By  on May 24, 2007

WASHINGTON — Still king of the blue jeans hill with more than 20 percent of the import market, Mexico is rapidly losing ground to countries such as China, Indonesia and Pakistan as they expand their production prowess in the area.

Cost is the most important element determining where brands ultimately place their orders, but a number of other factors are influencing sourcing decisions, from developments in trade law to growing expertise in laundry and washing techniques in the Far East and growing consumer markets outside the U.S. Combined, those trends could help supplant Mexico as the top supplier soon.

For the 12 months ended Feb. 28, producers in Mexico shipped 3.9 million dozen pairs of women's jeans to the U.S., a 40.9 percent drop from a year earlier, but still enough to make up 23.1 percent of the market. China's share rose to 14.1 percent of the market after shipping 2.4 million dozen pairs, a 56.7 percent rise. Other gainers included Indonesia, with an increase of 45.9 percent to 814,000 dozen, and Pakistan, with a 97.4 percent rise to 712,000 dozen.

"The cost structure is one where it's hard to ignore the Asian option," said Mark Messura, executive vice president of global supply chain at Cotton Incorporated, a not-for-profit research and promotion group. "It's very difficult to make some of the Western Hemisphere options work relative to China, relative to the Indian subcontinent."

Messura pointed out that the jeans selling for $22 to $23 are the vast majority of the market, making price vital. However, producers in the Western Hemisphere do have the advantage of quicker ship times to the U.S.

Companies also are beginning to look at where they might be selling their jeans in the future.

"A lot of companies are now looking at selling product not just in the U.S. market, but selling it in developing markets like China, like India," said Messura. "If you have a China program, maybe it makes more sense to increase your production in China and keep a chunk of it there for selling into the Chinese consumer market."

With a total population of 1.3 billion, China's market has great potential, though people there generally have little disposable income compared with Americans. The sheer girth of China also can work against it.As the country has moved toward a more market-based economy and become a manufacturing powerhouse, wracking up a record trade deficit of $232.5 billion with the U.S. last year, there also have been efforts to curtail trade. China is one of the few countries still subject to quotas on apparel, under a 2005 deal that restrains imports of 34 types of goods this year and in 2008 to the U.S. at predetermined growth levels. Imports of women's jeans are among the goods covered under quota, a dynamic influencing orders.

Quotas are by no means the only element of trade policy developed in Washington and capitals around the world that can shift where companies choose to source their jeans.

For instance, recent changes to the African Growth & Opportunity Act, which offers duty free access to the U.S. market, have thrown a monkey wrench into the sourcing process for some. An "abundant supply" provision in the law means producers, at first, need to use fabric from the region to get duty free treatment on jeans. Once a certain threshold is met, producers can begin using fabric from outside the region, but some say the threshold is too high.

"We've actually placed our denim production plans in Africa on hold," said Helga Ying, director of worldwide government affairs and public policy at Levi Strauss & Co. "We're still committed to Africa for our nondenim production."

Some of the big winners in the denim sourcing game, however, have gained ground because they have obtained expertise that is vital to the small, but trendsetting, premium market.

"The technology and the artistry of laundry and finishing of fabrics were sort of the last frontiers of China," said Michael Silver, president of the Silver and 1921 jeans lines based in Winnipeg, Manitoba. "We've continued to push and have really upped the amount of premium product that we've made in China."

Producers in Pakistan and Bangladesh also have been paying greater attention to the technical side of the business, from investing in laundry plants and water-treatment facilities to employing experts in the process.

"They've gotten better at the game of denim," he said.

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