COLOMBIA HOLDS ITS BREATH
Byline: Joanna Ramey
MEDELLIN, Colombia — Colombian apparel manufacturers want the U.S. government to give them a break.
By March 1, the Clinton administration will likely announce whether to continue sanctions levied a year ago arising from Colombia’s entrenched drug trade. In addition, U.S. lawmakers will start debating in the coming weeks a White House proposal that would put Colombian apparel makers at a huge competitive disadvantage in the region by granting Caribbean and Central American nations the same textile and apparel trade benefits granted Mexico under the North American Free Trade Agreement.
Both decisions come at a critical time for the apparel industry here. It and the local textile industry comprise 25 percent of Colombia’s 1996 gross domestic product of $89.2 billion.
Apparel makers, competing in an open market for only six years, have gone through a major shakeout and restructuring. Now they are hoping to regain lost ground by exporting to the U.S., having already proven their mettle with a core group of big-name customers such as Liz Claiborne, VF Corp., Tommy Hilfiger, Donna Karan, Calvin Klein, Anne Klein, Guess and Levi Strauss.
The immediate threat to their expansion plans has to do with a process the U.S. calls certification. When a country is certified, the president acknowledges that a narcotics-supplying country is taking sufficient steps to stem the flow of drugs. A year ago, the Clinton administration decertified Colombia after learning that its president, Ernesto Samper, had accepted millions in political contributions from drug lords. The action led to U.S. withdrawal of 50 percent of its aid to Colombia.
Wide concern among business leaders here that President Clinton will not only continue the decertification, but levy additional sanctions that could impede trade. One fear is that the administration could restrict landing rights in the U.S. from Colombian-originating carriers, dealing a blow to industries like apparel that widely use air freight. Conversely, there are also concerns that if Colombia is decertified again, the Colombian government might retaliate.
Business leaders here argue that the White House, in passing judgment on the drug issue, needs to weigh the positive impact of Colombian private industry in counteracting the country’s illicit economy.
“People like us are trying to make it better,” said Alejandro Ceballos, president of Confecciones Leonisa SA, a Medellin-based vertically integrated intimate apparel producer, which exports extensively to the U.S. commonwealth of Puerto Rico. “The U.S. should separate what is the Colombian government and what is its private sector.”
Despite such uncertainties, Colombians nonetheless remain pragmatic when it comes to weighing the impact of such political forces on their business. They are used to coping with adversity, whether it’s an inflationary economy or being stigmatized by foreigners for Colombia’s violent drug trade, Marxist guerrillas and the bombings and kidnappings associated with each.
Juan David Rodriguez, sales and operations manager of Comercializadora Internacional Expofaro Ltd., says he shows a videotape of his Medellin factory and the city to prospective foreign customers to dispel worries about doing business here.
Expofaro this year will assemble 1.7 million pairs of jeans for Levi Strauss out of Brazilian denim for export to the U.S. The jeans are made in a quiet, clean, 700-worker factory with an employee credit union that last year issued $150,000 in low-interest loans to members.
“It’s sad because every time an American comes to Medellin, they think they are coming to a war zone, a mess. Then they see what a beautiful place this is and that we’re working, intelligent people,” Rodriguez said.
Overcoming Colombia’s bad press is part of Maritza Kaestner’s job as director of textile marketing and manufacturing for Colombia’s ProExport office in Miami. Earlier this month, her office paid for several U.S. manufacturers to attend the annual textile trade show Colombiatex in Medellin and to tour some apparel factories that boast manufacturing techniques as advanced as any in Hong Kong.
“This is like selling real estate,” Kaestner explains, referring to the need for such incentives. “Once companies get to Colombia, they can see for themselves.”
Carmer Robinson, director of international sales at Parkdale Mills, Gastonia, N.C., last year became sold on Colombia’s potential for business after touring 56 of this country’s apparel factories and interviewing industry officials as part of a study he then prepared for the American Textile Manufacturers Institute on the potential market for U.S. textiles.
“The drugs and violence facing Colombia are very real, and the commercial sector is trying to overcome it,” said Robinson. “The people who make the garments and buy the fabric are very good business people. They are very dedicated manufacturers and the quality of their sewing is probably one of the best in this hemisphere. That is why they don’t do a lot of inexpensive apparel. They run a very strict ship. There isn’t even a shadow of child labor.”
While the issue of Colombia’s certification status is of wide concern among exporting businesses as a whole, the garment and textile industries are separately concerned about the U.S. granting free-trade status to Caribbean Basin apparel and textile-producing countries.
Manufacturers have seen how NAFTA alone has already drained off a large piece of Colombia’s denim and cotton garment assembly business in favor of Mexico. Extending NAFTA benefits to Caribbean and Central American countries, an issue known as Caribbean Basin Initiative parity, has been rejected by lawmakers in the past, but has resurfaced as a proposal in Clinton’s 1998 budget, released this month. (Although Colombia has a Caribbean coast, it is not considered by the U.S. as part of the Caribbean Basin.)
“The major threat to exports of Colombian apparel and textiles would be if the U.S. Congress passes the Caribbean bill,” said Guillermo Valencia, president of Industrias e Inversiones Cid, acknowledged to be the largest garment exporter in Colombia, employing 2,500 workers in an orderly Medellin factory that is almost as quiet as a library. On his own bookshelf, there is a copy of “Sam Walton: Made in America, My Story,” the autobiography of the late Wal-Mart chieftain.
The company can produce 5,000 dozen garments a week. Annual sales are reported at around $50 million.
Among Valencia’s customers are Donna Karan, Oleg Cassini and Oxford Industries, which sells private label men’s suits to U.S. retailers like Macy’s and J.C. Penney. Oxford has been one of Valencia’s customers since 1973.
More than half the apparel produced in Colombia is exported to the U.S. Of that, 60 percent is assembled from U.S. or other foreign-made textiles and exported to the U.S. under the American Section 807 program, which provides these products unlimited quota and, in the case of U.S.-made components, duty levied only on value added in the sewing of garments.
Even now, benefiting from the same trade breaks as its Caribbean and Central American competitors, Colombia hasn’t been able to match their Section 807 volume. While Colombia’s wages are lower — an average of $1.05 an hour, compared with $1.62 in the Dominican Republic and $1.31 in Honduras — the cost of freight, overhead and an inflationary economy has placed Colombian apparel prices at a disadvantage. The government has vowed to drastically reduce the 19 percent rate of inflation this year.
For the first 11 months of 1996, the Dominican Republic led the Caribbean nations in the amount of apparel shipments to the U.S., sending 644 million square meters, making it the fourth-largest supplier, behind Mexico, China and Hong Kong. Colombia shipped 67 million square meters during the same period and was the U.S.’s 26th-largest foreign apparel supplier and the leading South American apparel exporter to the U.S.
The Colombian apparel industry comprises an estimated 10,000 factories. About 60 percent have no more than 60 sewing machines and are considered small concerns. The 15 largest companies account for the remaining 40 percent balance of production. They are primarily Section 807 apparel producers. These factories largely specialize in mid-to-higher-priced garments, although there are companies assembling apparel for the U.S. mass market, which mostly occurs in free-trade zones.
And it’s these brand-name garments requiring more detailed sewing that Colombian apparel makers want to be known for, as they tout the value of quality, service and reliable deliveries to offset price differences with their Caribbean competitors.
Fourteen Colombian apparel makers will be making this pitch at the WWDMagic trade show in Las Vegas, which got under way Tuesday.
“We have found Colombia to have very high quality,” said Jack Broer, director of 807 sourcing with the Jantzen swimsuit division of VF Corp. Jantzen has been producing suits in four Colombian factories, in Bogota and Cali, for four years. Jantzen also produces swimwear in Honduras, Guatemala and Mexico.
Nevertheless, as an example of how free trade can influence manufacturing decisions, Broer said any expansion of Jantzen production will likely be in Mexico. Still, he said, the company won’t cut back its Colombian orders, adding, “We have developed good, reliable partnerships in Colombia with a reasonable cost structure.” Furthermore, following Jantzen’s success in Colombia, VF’s Lee jeans division recently started producing there as well.
Liz Claiborne has had apparel assembled in Colombia for six years at one of the largest manufacturers. The company, Sara International, has four factories and also owns three cutting facilities in Miami, enabling it to offer complete apparel-making services. Bob Zane, senior vice president at Claiborne’s sourcing and manufacturing, said Sara is a leading supplier for the company, which in the Western Hemisphere also has apparel produced in Guatemala, El Salvador, the Dominican Republic and Mexico.
“We like the relationship we have with Sara and their ability to anticipate our needs. It’s a good partnership that we want to perpetuate,” Zane said, citing quality, workmanship and timeliness as factors other than price that help Claiborne decide the countries from which it will import.
In four years, Levi Strauss has increased its production in Colombia from 86,000 units to 5.7 million. Most of the garments are jeans assembled for export to the U.S., but Levi’s is also using Colombia as a springboard for business in Argentina and Mexico. Only 1.4 percent of what’s produced here for Levi’s is rejected as seconds, well below the 3 to 5 percent industry norm in other countries, including the U.S., said Juan Carlos Penagos, source relations manager in Colombia for Levi’s.
“The biggest strength we have here is quality,” he said.
When the apparel industry here produces for the Colombian market, it’s a mix of high- and low-end garments. There are no department stores in this country of 35 million people. Five mass market chains, selling everything from groceries and electronics to apparel and makeup, compete for the bulk of retail sales. There are also no foreign-owned chains in Colombia, although the French hypermarket Carrefour is scheduled to open one store in the country this year.
The advent of competition — and the demand by customers for young, with-it fashions — has spurred a facelift in the retail market, as well as demand for imported apparel.
“MTV has started to be a big influence on our customers,” said Esther Lucia Alarcon, fashion director at Almacenes Exito SA, which, with nine 90,000-square-foot stores, is Colombia’s second-largest retail chain. Alarcon scours trade fairs internationally for ideas to be reproduced by Colombian apparel makers. Additionally, about 5 percent of apparel sold at Exito is imported.
Since the mass market chains cater to all Colombians, they have to meet the needs of a diverse clientele. While about 30 percent of the country is considered middle class and the target group for apparel merchandising, Colombians as a whole are fashion-conscious, so regular apparel purchases are made at all economic levels. In addition to price, garment sales can also be differentiated according to regional tastes and climates, ranging from the cooler, urban capital of Bogota to the hot, casual coastal port of Baranquilla.
Two other levels of retailing also vie for consumer pesos: the thriving black market and, at the other end of the spectrum, a new generation of specialty stores, a combination of foreign franchises, like San Francisco-based Esprit and Paris’s Chevignon, and shops opened by apparel manufacturers as channels for their private label lines. In Medellin, the black market is focused in a downtown neighborhood called Guayaquil, also referred to as “el hueco,” or “the hole,” where name-brand goods of every sort are sold. The merchandise is either smuggled in or, in some cases, particularly with apparel, is carried in by Colombians returning from trips to the U.S.
By opening specialty stores, apparel manufacturers — some of which are also textile producers — are working to change the mentality of black market shoppers by creating fashionable Colombian brand names. The strategy also creates a bigger domestic market for their wares.
Rodriquez’s Expofaro has a line of casual clothing it produces and sells in a chain of seven stores called Denim. The giant Medellin-based Coltejer Textil, which has vertically integrated textile and apparel operations, already has 20 stores called JeansWear, and this year will open an additional 30.
“Our growth strategy is to increase sales of our own private label and increase our textile and apparel exports,” said Ana Lucia Jaramillo Toro, Coltejer’s fashion director.
Confecciones Colombia SA, a giant, vertically integrated woolen mill that also produces wool suits and coats for export to the U.S., opened its first specialty store two years ago after realizing its domestic sales at mass market outlets had peaked. Named Everfit after one of the company’s private labels, the chain has grown to seven stores and five franchises.
The garment division has a capacity to produce 2,300 dozen units a week, with sales reported at some $43 million.
The stores have also become a marketing vehicle, allowing the company to test new styles, keep track of bestsellers and, crucially, teach its distributors serving traditional retail customers the value of display, said Maria Luisa Mejia Arango, president.
The company has also taken the idea of expanding Colombia’s retail offerings one step further. It is opening specialty stores carrying imported apparel, which other than a few upscale couture boutiques, hasn’t been available. The company’s nine new stores, called Paseo Drive, offer Liz Claiborne exclusively in Colombia. Claiborne is the only women’s apparel sold in the boutiques. The stores also sell Nautica, Ralph Lauren and Tommy Hilfiger for men.
“We are showing the Colombian market new things,” said Arango, whose company epitomizes the relatively new open-market thinking of Colombia’s apparel, textile and retail sectors. “In the past, we didn’t have competition. Now that we have open borders, we need to show the market there are options, even though they may be more expensive.”