International trade agreements, tariff policies and wage inflation are just a few of the factors that play into a company’s decision to source its goods in one country over another. This month, the 12 nations negotiating for The Trans-Pacific Partnership deal failed to reach an agreement at their meeting in Maui, but there is still hope a deal will come together at some point in the not too distant future.
Luen Thai is eyeing the situation carefully, especially regarding Vietnam, a country in which it wants to expand its apparel production.
Here, Henry Tan and Sunny Tan discuss a few of the factors shaping business in some key sourcing regions around the world.
China has been doing well in terms of manufacturing but prices are going up….I think China will continue to be very important. [But] its market share will probably go down…also depending on how the trade laws move.
Sunny Tan: People are getting more relaxed and say, ‘OK, I’m equally happy to pay a certain amount for a Coach bag made in China.’ We’ve accepted that now.
H.T.: I think Vietnam will expand with or without TPP. With TPP, it will probably have a big run…. Of course, I do believe that the [minimum] wage will probably go up faster in Vietnam than other countries.
H.T.: I think Africa will probably be the last frontier. There is a big initiative by some of our customers to go to Africa. I think in Europe and the U.S., some of the customers and some of the governments actually would like to help Africa, but I think the challenges in Africa are the infrastructure and the whole supply chain is so fragmented, the logistics of moving goods into Africa is very difficult….I think producing the garment there is not a problem, but getting things in and out is a problem.
S.T.: If the number makes sense, we can always say that Ethiopia is the right one. But then, can we really execute? It’s a question mark.
H.T.: The minimum wage, I was told, was going to go up very rapidly and infrastructure is not the best. As an investor, comparing going to Myanmar and Vietnam, it’s probably not too difficult to [decide as] the minimum wage is almost the same.
H.T.: The Philippines is actually a great country. Not many people are successful there, and its wages are also higher than Cambodia or Vietnam, so many people choose not to go there. With TPP, people will choose Vietnam over the Philippines in a second. The GSP update will probably help them.
H.T.: I think Cambodia will be good for European business because it is duty-free into Europe. As TPP goes through, European business will be more in Cambodia and the U.S. business will probably shift to Vietnam.
S.T.: In Cambodia, there are still things that are not so predictable, so that will be more difficult to manage, right? Of course, the cost of operation is cheaper, but the lead time is longer, so it depends on the customer.