HONG KONG — Economists and apparel executives at the Prime Source Forum said the pain of the global recession is lingering, and trade friction between the U.S. and China could hinder a recovery.
This story first appeared in the April 5, 2010 issue of WWD. Subscribe Today.
Panelists at the three-day event that ended Wednesday also questioned the direction the U.S. and Chinese governments have taken regarding global and domestic economic issues.
“There is a lot more pain out there to come,” said David Dodwell, chief executive officer of Strategic Access Ltd., which specializes in government relations and public policy analysis.
Dodwell cited the high U.S. unemployment rate — the Labor Department on Friday said the rate in March held steady at 9.7 percent and payrolls climbed by 162,000 — and the still-struggling housing market as negative indicators.
“We face an austere few years ahead,” he said. “Governments need to rebalance their own budgets. Taxes have to go up. They will have no policy choice but to contract. The issue is how they’re going to do this without inflicting major problems on the rest of the world.”
Ben Simpfendorfer, chief China economist at the Royal Bank of Scotland, said Chinese manufacturers are increasingly looking at emerging markets, in addition to domestic consumption. China needs to spend more and trade less for the health of it own economy and the world’s, he said, but this has yet to happen and China has gained more market export share during the financial crisis.
Premal Udani, chairman of Apparel Export Promotion Council in India and chairman and managing director of apparel manufacturer Kaytee Corp., said the recession showed the industry in his country the consequences of overdependence on the U.S. and European Union markets.
“The demand in the U.S. and EU seems to have peaked — the absolute growth in demand is in single digits,” Udani said. “We need to generate demand in Asian markets and countries in the East need to drum up demand within their own countries. When exports in India fell by 7 percent in 2009, we diverted attention to the domestic market, and the pace of growth has been phenomenal.”
The shifting geopolitical landscape and the rise of major emerging markets are generating social and political anxiety in developed countries, leading to increased trade tension. Janet Fox, vice president director of sourcing at J.C. Penney Co. Inc. and chairwoman of the U.S. Association of Importers of Textiles & Apparel, said the Obama administration has not prioritized import trade.
Fox said the U.S. has been critical of China’s currency policy and the use of government subsidies, which domestic manufacturers and some elected officials contend unfairly drives down the price of imports.
“In the opinion of the retailer, consumers get good value [from China],” Fox said. “Pushing manufacturing into the U.S. will only increase prices for Middle America. Consumers are not yet ready to pay higher prices. The U.S. textile lobby is also trying to reinstate textile monitoring in China and Vietnam. To be honest, I’m not sure what the U.S. is trying to protect, at least when it comes to apparel. The number of people that are still producing textiles in the United States only comes to around 109,000.”
Willy Lin, chairman of the Textile Council of Hong Kong, noted that with the deadlock in the Doha Round talks, which are aimed at lowering global tariffs, countries have done more to support their own markets.
The recent free trade agreements among countries in the Association of Southeast Asian Nations and New Zealand, and between China and India shows that the world is moving ahead on bilateral and regional trade deals. The U.S. recently joined talks on the Trans Pacific Partnership, a large regional pact. Lin said governments need to stop imposing regulations and instead act as facilitators to support policies that will help sustain growth.
Environmental factors were also a hot topic. Peter Pfneisl, president of the European Apparel & Textile Confederation, said Europe is particularly sensitive to environmental concerns, but that it is difficult to employ environmental regulations with no costs. He warned the European Commission and Council must avoid putting extra monetary burdens on textile industries at a time when increased global competitiveness is the key to survival.
When it came to innovation, the focal point was on how best to employ new technologies and strategies to create a more efficient supply chain to meet the demands of the industry’s shift toward “fast-fashion” business models.
Stanley Szeto, chairman and ceo of Lever Style Inc., emphasized that while technology is most often used as a tool to shorten manufacturing time, the industry must now begin to look at what can be done to streamline processes on the entire supply chain, most specifically on the development side.
“We have a small retail client that tells us what styles they want more of after weekend sales,” Szeto said. “So they place an order with us on Monday and we ship it out on Friday. They pay a premium for this service, but it is more profitable for them as it eliminates dead inventory.”
As the concept of speed-to-market is becoming the new norm, Robert McKee, industry strategy director at Lawson Software Inc., said the future may now be gearing toward “time to consumer.” He cited Threadless.com as an example of a successful integration between social networking and e-commerce.