NEW YORK — The surge in China’s apparel and textile exports is a sign that U.S. retailers and vendors find it attractive for production, but industry executives warn that importers seeking to take advantage of China’s low wages and growing number of skilled factories need to quickly adjust to the country’s cultural and legal standards and growing logistical challenges.
Chinese apparel and textile exporters shipped $12 billion worth of products to the U.S. for the year ended in March, according to U.S. government data. That was a 22.8 percent increase from the previous year, a growth rate that outstripped an overall 3.9 percent rise in industry imports and gave China a 15.4 percent share of the U.S. apparel import market.
“We recommend, if someone is inexperienced in doing business in China, they find an agent,” said Andrew Jassin, managing director of the Jassin-O’Rourke Group, a Manhattan fashion consultancy with offices in Shanghai and Hong Kong. .
Most companies exploring China also should start off with a factory that offers full-package production services, which means it handles all aspects of raw materials purchasing and delivers finished garments, to ease the process, Jassin said.
U.S. companies also have to be prepared to cope with language barriers, time differences and the great distances between the two countries.
China’s share of the world apparel and textile market is projected to increase dramatically after the quota system that has regulated trade in those goods between countries in the World Trade Organization expires at the end of this year. In industries that are not regulated by quotas — such as shoes and toys — Chinese producers hold more than 90 percent of the U.S. market.
However, China’s growth rate may pose its own challenge to U.S. importers, particularly as new factories are built farther inland.
“There has been some concern about the ports and overload in the ports,” said Joe McConnell, vice president of strategic sourcing at Kellwood Co.
As the country develops, more companies will begin to source in China and larger players such as Kellwood will expand, pushing manufacturing farther west and north and into less developed regions. This will lengthen shipping times, as goods need to be hauled by truck from factories to ports. Cargo ships can make the run from major ports near Hong Kong to Los Angeles in as little as 11 days. From other ports, the trip may extend to as much as three weeks.
“Another issue that’s come on the table recently is the fact of electrical shortages in China,” said McConnell, noting they have forced some textile suppliers to cut back production.
A vital discipline that must be learned by any company entering the market is how to choose factories that can not only produce a given product, but do so reliably and ethically, as well.
Kellwood has a three-tiered process for evaluating potential partners. First, the facility has to fill out a vendor profile, which McConnell said was “an A to Z list of everything about them.” After that there are two audits, one by an outside firm and one by Kellwood.
Robert Rosen, chief executive officer of Bob Mackie Studio, said, “It is about having the right people who handle the proper departments. You can’t go in naïve, you have to be knowledgeable. We’ve developed very strong relationships with several factories in different categories, whether it’s cotton or silks, or linen or sweaters.”
Given the many conditions that need to be met, Ira Kalish, a global director at Deloitte Research, said it often makes sense for apparel companies to work with Hong Kong-based firms with operations in China.
“They’re more reliable and they also bring to the table the kind of expertise that you’re looking for,” he said. “Hong Kong, because of its British traditions, has a greater respect for the rule of law.”
He pointed to currency as a big question mark for apparel firms considering sourcing in the region. The yuan, China’s currency, is pegged to the U.S. dollar at a rate many U.S. manufacturers believe is too low. At the current rate, $1 is equal to 8.28 yuan.
The next year might see a revaluation of the currency to a higher rate, making labor in China more expensive, Kalish said.
“The best way to be prepared for that is to be capable of diversified sourcing,” he said. “In some cases, it will become more economical to switch sourcing from China to other low-wage countries.”
Keys to Entering China
- Find an experienced guide or adviser to cut through language, cultural and legal barriers.
- Be prepared for the impending end of apparel quotas at the end of this year and take into account the possibility that temporary restraints may be placed on China through 2008.
- Infrastructure, including port capacity, roads to inland factories and the power supply, may be a trouble area.
- Carefully screen factories to ensure efficiency, quality and ethical treatment of workers.
- Watch the currency: The Chinese yuan is pegged to the U.S. dollar at an exchange rate that some economists claim undervalues the yuan by as much as 40 percent. Be prepared for a possible slight revaluation of the exchange rate, which would make Chinese goods more expensive.