SOURCING NOW: THE PROXIMITY FACTOR
IMPORTS: A CHANGE OF VENUE
Byline: Arthur Friedman
NEW YORK — The need for faster turn on production and rising labor costs in many Asian countries are bringing about dramatic shifts in foreign sourcing.
Many major U.S. importers are turning to nearby Central American and Caribbean countries for their production needs, where labor costs are still lower than they are in the U.S., and where proximity helps improve quality control and shipping times. Others are seeking Asian countries with less mature economies, such as Bangladesh, Indonesia, India, Sri Lanka and the Philippines .
Over the last 20 years, importing has gone from a small segment of the production strategy for apparel to a dominant force, now accounting for about 67 percent of all goods sold at retail, according to the Commerce Department.
While China remains an apparel export giant, trade pacts like the North American Free Trade Agreement and Caribbean Basin Initiatives, have made Mexico, Guatemala, Costa Rica, Haiti, Honduras and the Dominican Republic favorites among U.S. importers.
Apparel imports were up 9.9 percent in 1995 and were accompanied by significant changes in long-term trading patterns.
“The shift in trade to the Western Hemisphere countries accelerated at the expense of major Far Eastern suppliers as well as Europeans,” said Donald Foote, director of the agreements division in Commerce’s Office of Textiles and Apparel. “Imports from all of our leading Far Eastern suppliers were down substantially, with China down 13 percent in 1995, as opposed to a 3 percent decline in 1994.”
He said the growth rate for imports from Mexico nearly doubled to 59 percent, while the rate for the CBI countries was 22 percent compared with 15 percent in 1994.
China remained the U.S.’s leading apparel supplier in 1995, but was down 7.7 percent from a year ago. Hong Kong hung on to second place, but declined 5 percent from 1994. Mexico was the U.S.’s third-largest foreign apparel supplier, jumping almost 61 percent, followed by the Dominican Republic, which rose 15.8 percent for the year.
Taiwan was in fifth place, down 8 percent, followed by Bangladesh with a 20.7 percent increase, the Philippines with a 13.2 percent gain and Korea, which dropped 16.4 percent.
Andrew Jassin, a partner in Marketing Management Group, said one of the biggest political issues in sourcing right now is the viability of China.
“Many companies are approaching their China sourcing very carefully,” said Jassin, whose firm advises apparel companies on sourcing strategies. “There are also the issues of long lead times and tight quotas associated with China that are making people rethink sourcing there.”
With duties eliminated or reduced under new agreements, of which China is not a part, Jassin said many companies are looking to closer, more reliable production in Mexico, Central America and the Caribbean.
“We’re also seeing a growing manufacturing base in the Middle East — in countries like Oman, Bahrain and the United Arab Emirates — for moderate chain stores like Sears and J.C. Penney,” he added.
Jassin said Mexico is becoming fertile ground for jeans production, and predicted that by the end of 1997, most jeans would be made there.
He cited the growing production of wool products in Eastern Europe, notably, Romania, the Czech Republic, Hungary and Ukraine.
Tom Murry, president of Tahari Ltd., agreed that “one of the biggest changes in making manufacturing decisions concerns lead time,” which is considerably longer now.
“Importing has had dynamic impact on the industry because manufacturers have been forced to buy larger quantities to achieve lower [cut-make-and-trim costs], which creates an over-supply situation,” Murry said. “When manufacturing was predominantly domestic, using domestic fabrics, these pressures were much less.”
Bob Zane, senior vice president of manufacturing and sourcing at Liz Claiborne, said the company’s origins coincided with the rise of imports in the mid-Seventies. He said Claiborne owes its prosperity largely to its successful import strategy.
“Over the years we have developed long-standing relationships with many foreign factories,” Zane said. “For us, it’s been more a factory-driven strategy than a country strategy.”
Zane said the biggest factor in apparel manufacturing today is the shorter lead times from retailers and the need to react to consumer needs. Several factors go into deciding where merchandise will be produced.
First and foremost is the capability of the factory or country to produce a particular style or group. Second is the location of the piece goods, because Claiborne tries to produce its apparel as close as possible to where the fabric is purchased.
Next come requirements on quality, time, tariffs and quotas, as well as human rights.
Claiborne currently has prominent production in most Asian counties, Zane said. It has “substantially increased” its presence in Central American countries such as Guatemala, El Salvadaor, Costa Rica and Honduras, and in the Caribbean, notable in the Dominican Republic, and does some sourcing in Europe and the U.S. The big advantage with Central American and Caribbean production is time. Zane said average production and shipping time can be reduced as much as seven weeks in those regions, compared with the Orient.
Michael Laskau, vice president of the JL Colebrook division of G-III Apparel Group, overseeing sourcing in wovens, said, “Importing has changed everything about the apparel business and is an integral part of the way we operate every area of the company.
“The industry is in constant search of cheap labor, whether you make T-shirts, pants or jackets,” Laskau said. “In many countries, such as the ‘four tigers’ — Japan, South Korea, Hong Kong and Singapore — the standard of living has risen and those countries have embraced more high tech industries. So apparel makers have been forced to look elsewhere.”
Laskau said the production shift has been to poor countries with emerging economies. One constant is that G-III tries to keep its manufacturing as close as possible to the fabric supplier. Other considerations include quota availability, and the ease of applying for export visas and other import paperwork.
G-III still gets much of its piece goods and 95 percent of its leather skins from South Korea. Five years ago, the company produced most of its apparel there as well, but rising labor costs have forced it to go to China, Indonesia, the Philippines, India., Sri Lanka, Ukraine and Belarus.
Richard Kay, co-president of Herman Kay Coat Co., said since his company opened its own factory in the Dominican Republic four years ago, its production cycle was trimmed to six weeks from six months in the Orient.
The company now produces about 60 percent of its moderate-priced coats in that plant and at other 807 contractors. The balance of its sourcing is mixed between the U.S. and the Far East, with a smattering of goods made in Russia.
“The turn time we get is critical in the coat business today,” Kay said. “We’re able to use domestic fabrics, which gives us both quality and flexibility, and supports U.S. jobs. We have our own quality-control person at the plant, and field inspectors that monitor contractors.”
Murry of Tahari said the company tries to produce as much as it can in the U.S., but is often restricted by the capabilities of domestic factories. For instance, Murry said he has found U.S. plants have difficulty sewing synthetics and wools.
Quality is the top priority in sourcing decisions, Murry said. For many years, Tahari produced at a factory in South Korea that was “the best in the world,” he said. But rising labor prices there began to put the squeeze on margins, so now Tahari is testing production lots in Turkey, where he said “the quality has been beautiful.”
Price is the next key element in the production equation, he said, followed by logistics — the ease with which exporting and shipping from a specific country can be achieved.
Tahari’s current mix is 70 percent imports and 30 percent domestic. Its U.S. production has grown by about 5 percent in the last few years.
This is the third in a series. Part One appeared in WWD March 4. Part Two appeared March 18.