PORT LOUIS, Mauritius — Maybe it’s just a temporary boost, but with SARS affecting manufacturing centers in China and Southeast Asia, many manufacturers are looking for alternate production sites and countries like Mauritius appear to be the short-term winners.
This story first appeared in the May 20, 2003 issue of WWD. Subscribe Today.
There have been more than 7,700 reported cases of SARS infections to date worldwide, with 623 deaths, as of Saturday, according to the World Health Organization. In China, 5,209 cases and 282 deaths have been logged, and in Hong Kong, there are 1710 cases and 243 deaths reported. With the daily infection rate hovering at just under 100 people a day, China’s huge textile and apparel industry is suffering some serious setbacks.
A bleak zero percentage growth rate is forecast for the industry in the second quarter. This is in sharp contrast to the exceptionally strong growth experienced during the first three months of this year. Textile exports for January and February alone this year totaled $9.6 billion, an increase of 23.3 percent from the same period last year, according to industry analysts.
So, other low-cost countries are poised to reap the benefits, albeit in the short term, as foreign orders shift production to unaffected areas. Besides Mauritius, others include India, Bangladesh, Pakistan, Turkey, Vietnam and Cambodia.
“It’s too early to say what impact SARS will have on the textile industry,” cautions Danielle Wong, director of the Mauritius Export Processing Zone Association. But she reports a definite increase in queries from potential new customers. “Companies that would normally source from China and the rest of Asia are coming here to check out the island’s manufacturing capabilities,” says Wong. “If they can’t go anywhere in Asia, they have to look for other possibilities.”
For the most part, the industry is adopting a wait-and-see attitude. Marie-Claire Woo, marketing director of Compagnie Mauricienne de Textile, says buyers have approached CMT with requests for samples and costings for styles that are normally sent to Chinese factories. “They are also demanding shorter production lead times, anywhere from two to six weeks,” she says. The majority of CMT’s production is destined for European markets, and Woo says commercial efforts are currently concentrating on summer 2004.
There has been a rise of 10 to 15 per cent in orders on the T-shirt side, according to MEPZA president and managing director of southern textiles, Mookeshwarsing Gopal. “Buyers are placing their orders now for delivery in July and August,” he says, “which indicates that they are making early decisions. This may be in anticipation of potential production and delivery problems due to SARS, I can’t really be sure.”
All this talk about increased business is purely speculative — and optimistic — according to Ahmed Parkar, deputy chief executive of Star Knitwear Ltd.
“We have had an increase in business,” Parkar says, “but it is difficult at this point to say whether or not this is due to SARS.”
He added that the market is undergoing “some fundamental changes, which naturally impact the industry.” He noted that the phenomenal success of chains like Zara have made the traditional fashion- and volume-driven approach to buying and production with a six-month lead time outdated. “This is where Mauritius enjoys an advantage,” says Parkar. “Many factories are vertically integrated, and are capable of working on shorter lead times.”
There is no denying that SARS has had an impact on the global textile and clothing industry, which employs some 30 million people and has a combined annual volume $290 billion. China’s share of the market amounted to $61.77 billion in 2002, according to Chinese government statistics. That travel to infected areas has effectively been curtailed by the epidemic makes Parkar wonder whether, in this age of e-mail, Internet and satellite communication, traveling is all that important in the textile industry. “Is direct contact still as critical, when communication is made possible through the Internet and video-conferencing? Samples can be made up and sent off for approval via DHL.”
Woo insists that face-to-face contact is still necessary. “Some of the buyers have to see the product firsthand, and discuss changes in color or pattern or sizing right there before they can make a decision.”
Alain Rey, managing director of Novel Garments in Mauritius, agrees. Face-to-face contact is vital in finishing orders, and SARS has not helped the beleaguered manufacturing giant.
“It’s very difficult to quantify the impact of SARS on our business,” Rey says. Novel, which counts among its customers American giants like Liz Claiborne and Tommy Hilfiger, has its marketing arm based in Hong Kong. And while none of the staff in Hong Kong has been infected, the WHO travel advisory has severely “restricted our marketing and merchandising activities. Buyers have said: ‘Don’t come see us, and we won’t come see you’, which makes business very much a struggle at the moment,” according to Rey.
Industry analysts say that at the end of the day, despite being able to work on shorter lead times, Mauritius is not as well-positioned as one might imagine to take orders that would otherwise have gone to China, particularly where U.S. customers are concerned. “Distance is an important factor,” explains one garment manufacturer, as is cost. “Labor is not all that cheap anymore in Mauritius, and cost is anywhere from 12 to 20 percent more than China. You would get cheaper labor in India, Bangladesh and Vietnam, for instance.” As for distance, shipments from Madagascar and Mauritius to the U.S. take at least 30 to 35 days, whereas shipments from the Indian subcontinent and Southeast Asia can get to the U.S. in 10 days. “And, when time is of the essence,” says Parkar, “shipments will have to be airfreighted, thus driving up costs even further.”
Bangladesh has already reported an increase of 20 percent in clothing export orders as buyers seek to steer production away from SARS-afflicted areas, according to the Bangladesh Garment Manufacturers & Exporters Association. This is no small boost to the Bangladeshi economy: clothing accounted for 75 percent of its average export earnings of nearly $6 billion in the last fiscal year.
In displacing orders to other secure and uninfected centers of production, buyers are essentially offering only “very temporary relief,” Rey believes.
“In a very competitive situation, this is not very good,” he concludes. “Once SARS is under control and the situation has been corrected, those manufacturers in the Far East who have lost out in the interim will be very hungry for more business. This will make the price war far fiercer than it already is. I only hope we can get over this.”