GUATEMALA CITY, Guatemala — Guatemala’s apparel industry has improved deliveries and moved into more value-added products but the country continues to face sourcing challenges it must fix quickly or risk losing more market share to Vietnam and other Asian rivals.
“They have improved a lot,” Sheyla Molina, a regional analyst with S&M Consulting, said during the 24th Annual Apparel Show held here last month. “A few years ago, Guatemala was just sewing. Now 30 to 40 percent of the industry is doing full-package.”
Karin de Leon, a textiles industry investment consultant for investment promotion agency Invest in Guatemala, added: “We have added a lot of value in knit tops, synthetic and woven pants and sportswear.” She echoed views the Central American nation makes the most fashionable tops in the region, where the six countries comprising the CAFTA-DR Free Trade Agreement with the U.S. are each working to independently win new American customers, putting once highly touted integration efforts aside. The CAFTA members are Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Dominican Republic.
“We are not like Honduras, which focuses on basic T-shirts,” de Leon added. “Here we make fashion, special finishes with screen printing and diverse stamping.”
She said Guatemalan mills are oversold, helped by U.S. brands’ rising desire to source closer to home amid more difficult — and costly — manufacturing in Asia. De Leon predicted sourcing contracts will rise 20 percent this year, up from a 12 percent gain in 2014.
Already, Tommy Hilfiger and Polo Ralph Lauren are set to ramp up production by 4 million and 6 million garments, respectively, revealed Renata Morales, factory compliance director at main industry lobby Vestex. Hilfiger will make more polo shirts, knits, T-shirts and kid’s wear, notably girl’s dresses, while Polo will produce more boy shorts and T-shirts.
De Leon said response times have also increased significantly and are 30 percent higher than other Central American nations, especially in knit tops and sportswear. “We have had to compensate higher labor and production costs with faster lead times,” she said.
Those costs include a $327 monthly minimum salary, twice as much as Nicaragua. However, the government is working on a scheme to halve them in secondary cities that could be ready in three to four months, she said.
Morales said top manufactures, the bulk of which are Korean, are hastening delivery speeds. These include SAE-A, CNT Trading, CSA Guatemala, Modas Kotop, C Site Texpia and Grupo Imperial.
She added these and other mills make clothes for Wal-Mart, Kohl’s, Target and Old Navy, which she said are set to maintain or slightly increase production this year.
Sportswear labels such as Nike, Under Armour, Reebok, NFL and NBA are also set to boost sourcing in Guatemala while Carhartt is looking to make workwear, Morales claimed.
Still, the embattled government of President Otto Perez Molina (a major corruption scandal is prompting calls for his resignation), is moving to woo more investment by slashing energy prices 30 percent. It is also looking for ways to maintain the country’s 10-year “freezone” maquila tax breaks, which expire December 31 as part of World Trade Organization requirements. The administration is looking to pass a new law called Law of Investment and Employment that would essentially maintain the same benefits though political turmoil could hand the job to a new government. Elections are in September.
“We hope this will be approved,” de Leon said. “We risk losing investment to other Central American countries. The industry employs 45,000 directly and 100,000 indirectly. It is the main export sector in Guatemala, ahead of sugar and coffee.”
Investment — in fact billions — are needed to help Guatemala build its own synthetics and polyester feedstocks manufacturing capacity crucial to more quickly assembling export garments. In fact, much of the country’s future near-sourcing opportunities hinge on this, observers said. Currently, much of the synthetic fabrics for the growing sportswear segment is being imported from the U.S., Central America, and increasingly from Colombia.
Floribeth Gonzalez, regional manager for Cotton USA, said Guatemala faces competition from nimble players in El Salvador, which are quickly specializing in fashionable garments with strong embroidery, prints and washing finishes. Unlike Guatemala, suppliers there have their own fabric supplies. Honduras – the region’s largest garment producer — is also moving beyond basic y-shirts and underwear.
Still, she noted Guatemala has one of the highest productivity ratios in the region and that, coupled with its strong knits sector, makes it a top sourcing destination. Gonzalez added Guatemala is attracting new buyers, and not just big ones. “We are also seeing small, boutiquelike companies coming from the U.S. West Coast.”
Guatemala and other Central American nations must bolster their manufacturing technology at a time when only 10 to 20 percent of production is automated, executives said during an Apparel Show tech panel organized by consultancy TC2. They pointed out there are no more than 35 cutting machines in 22 companies across Central America, compared to roughly 500 in Mexico.
Central American companies have so far been slow to recognize the benefits of new technology investments and inventory management software, with some panelists saying the Trans-Pacific Partnership’s rising competitive threat — especially from nimble Vietnam — may encourage them to become more technical.