Global textile and apparel sourcing is currently in a state of change. In China, the textile industry is not a major focus for industrial development, and lower value added manufacturing is progressively moving into South East Asian countries. For this reason, textile and apparel sourcing has to become more diversified. Yet this does not mean that China is no longer one of the leading players in this field, but emerging countries in South East Asia are increasingly challenging China's dominance.
China still has a lot going for it. It has well-established supply chains, as well as good infrastructure and expertise in making apparel and textile products; no single emerging country in South East Asia can yet hope to match China in all of these capabilities. Hence China will likely remain the leading textile and apparel sourcing country in the region over the near to medium-term. But the basic point here is that sourcing can (and should) now utilise the increased number of sourcing options in the region, and not focus solely on China.
Old and emerging players: The global landscape
The World Bank
has identified four basic types of apparel exporting countries in the world, with the largest share of production occurring in Asia:
- Steady Growth Suppliers: China, Bangladesh, India, Vietnam, and Cambodia (Pakistan and Egypt can also be included on this list, but with smaller market shares)
- Split Market Suppliers: Indonesia (which is increasing its market share in the US and Japan, and decreasing its share in the EU), Sri Lanka (which is increasing its market share in the EU and decreasing in the US)
- MFA-era Suppliers*: Canada, Mexico, the Central America Free Trade Agreement, (commonly known as DR-CAFTA, a free trade agreement including the US and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Dominican Republic and Nicaragua), EU-12, Tunisia, Morocco and Thailand (all of which have all registered sharp declines in textile and apparel exports after the MFA quotas were abolished in 2005)
- Past-prime Suppliers: Hong Kong, South Korea, Malaysia and other countries with decreasing market shares since the 1990s such as the Philippines and Singapore
The map below illustrates the new challengers to China's dominance for textile and apparel sourcing, highlighting the emerging sourcing potential of South and South East Asia:
New opportunities in the Asian landscape
China is no longer the only option for textile and apparel sourcing, and it certainly is no longer the cheapest option. So taking advantage of this new landscape means being able to exercise a range of sourcing options focusing on a number of emerging Asian countries. Some of these opportunities are outlined very briefly below:
- With low cost domestic supply of cotton and low labour costs, Pakistan has a good track record for pure cotton apparel production for items such as male T-shirts and cotton jerseys
- Bangladesh still has an underdeveloped apparel and fabric manufacturing industry, although it also has very low labour costs and cotton prices. Thus Bangladesh can be targeted for sourcing of cotton garments of basic design and standard quality
- Sri Lanka has similar cost advantages as Pakistan and Bangladesh (although the cotton price and labour costs are slightly higher), but operating and capital costs are higher, and a lot more machinery needs to be imported. As a result, Sri Lanka could potentially only be a sourcing target for certain niche products such as women's underwear
- Cambodia's textile industry is still highly underdeveloped, but low costs and government support for the industry makes it attractive likewise for niche products such as basic design T-shirts
- Indonesia's cotton price is the lowest in the region, but operating costs are higher than most countries in the region and much of the machinery in the industry is largely outdated. Indonesia does, however, have substantial installed capacity across a range of textile segments, and hence can be targeted for a number of products such as synthetic fabrics, synthetic apparel, and high-end cotton shirts
- Vietnam has a lower cost base than China and India, although higher than Bangladesh and Pakistan. The textiles and apparel industry is actively supported by the government, and relatively significant currency depreciation makes the country's exports competitive. The local workforce is still largely of a low-end skill base, however, meaning that Vietnam's best sourcing opportunities are still in basic designs and standard types such as woven garments and children's products
- India has a diverse and integrated fabric and apparel industry, and it now has lower labour costs and cheaper cotton prices than China. These and other trends mean that India will likely gain a comprehensive competitive edge over China in the future. India can be targeted for sourcing fabrics and textiles across virtually all product categories
This very brief outline illustrates that China is no longer the only game in town for textile and apparel sourcing. It is still the dominant player, and will likely still account for the largest share of global textile and apparel sourcing for some time to come, but other countries in South and South East Asia are now attractive for specific products, and China's position will be further assailed in the years to come by these emerging Asian countries. The trick is to exercise the right sourcing options.
* The Multi Fiber Arrangement (MFB), implemented as a short term measure to allow developed countries to adjust to imports from the developing world, governed world trade in textiles from 1974 to 2004 and imposed quotas on exports from developing countries to developed ones.