Opportunities and Challenges in Asia's Apparel and Textile Sector

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Opportunities and Challenges in Asia's Apparel and Textile Sector

02/12/2014
On behalf of CBX Software, I recently attended the China and Asia Textile Forum in Beijing, which brings together retailers, brands, factories and service providers to the industry. The event served as a good update on the state of the apparel and textile industry in Asia, shedding light on the future competitiveness of China and other sourcing options in the region.

Despite rising labour costs, RMB appreciation and lower demand from export markets, China's textile industry is still growing at a healthy pace and looks to dominate the global apparel sector, both as a producer and a consumer for years to come.

According to Jiang Hui, chairman of the China Chamber of Commerce for the Import and Export of Textile and Apparel, by November 2013 China's textile and apparel exports reached $258.07 billion, an increase of 11.8 percent year-on-year. China's fastest growing export market is now the ASEAN region, which increased by 30.15 percent, making the region China's third largest apparel export market.

Exports to Europe, the U.S. and Japan — China's largest exports markets in that order — have increased moderately, except for Japan, which saw a decrease of 0.63 percent. Chinese apparel enterprises are also relatively profitable, seeing a year-on year profit growth of 17.06 percent.

China's apparel sector is not without challenges, however. As various speakers observed, China faces sluggish internal demand and a decrease in export orders along with rising labor costs and labor shortage in coastal provinces and the appreciation of the RMB. This has led to the growth of textile and apparel exports in other Asian countries, especially Bangladesh, Vietnam, India and Cambodia. The direction of exports has also shifted to the ASEAN region, Brazil and India.

Attempts at government intervention are not always successful — take, for example, China' policy on cotton purchasing to support the local cotton industry. The policy led to a stockpile of 11 million tons by late 2013 and a cotton price about RMB 5,700 per ton higher than the international market price.



Table 1: Textile and Apparel Exports by Country


Rank


Country

2010

2011

2012

     
   

Export ($ mln)

percent

Export ($ mln)

percent

Export ($ mln)

percent

Worldwide

605,313

100

711,474

100

708,354

100

 

1

China

242,047

40.0

283,973

39.9

288,183

40.7

2

E.U.

168,058

27.8

193,763

27.2

178,262

25.2

3

India

24,062

4.0

30,012

4.2

29,107

4.1

4

Turkey

21,724

3.6

24,720

3.5

25,344

3.6

5

Bangladesh

16,118

2.7

20,803

2.9

21,582

3.0

6

U.S.

16,863 2.8

2.8

19,024

2.7

19,099

2.7

7

Vietnam

13,451 2.2

2.2

16,919

2.4

18,185

2.6

8

Korea

12,578 2.1

2.1

14,209

2.0

13,880

2.0

9

Pakistan

11,778 1.9

1.9

13,632

1.9

12,919

1.8

10

Indonesia

10,964 1.8

1.8

12,836 1.8

1.8

12,065

1.7

Source: WTO International Trade Statistics (Hong Kong is included with China)


Other Asian textile and apparel players

ASEAN
The biggest competitor to China now is probably the ASEAN region, which is growing both as an export destination and as a low-cost manufacturing center. The trade volume of the ASEAN region is almost the same as the U.S. or E.U. and is one of China's fastest growing trading partners.

Korea
At one time a player in the international textile trade, Korea's fortunes shifted with the elimination of EU textile quotas in 2005. This resulted in a plummet of textile exports from $18.8 billion in 2000 to $11.6 billion in 2009.  According to Soo-Young Yun, executive vice-chairman of the Korea Federation of Textile Industries, Korea has since made a comeback by growing the number of free trade agreements (FTA's) with their trading partners. Korea's textile exports are now back up to around $15.9 billion and it has also led to diversion of their trade, replacing exports to U.S. with imports from China.

India 
India is another major player in the global textile industry, with textile exports providing about 27 percent of the country's total foreign exchange and 3 percent of the country's GDP. According to D.R. Mehta, president of the Textile Association of India, the country expects its textile and apparel exports to reach $80 billion by 2020. The Indian government has included substantial investment in textile and apparel sector in their 11th five-year plan. This includes investments in new textile parks and various investment incentives and training programs. A number of apparel retail brands such as Italian luxury brand Canali, British brand Superdry and American brand Tommy Hilfiger have invested in long-term growth in India.

Vietnam
Despite inflation, rising labor costs and a limited value chain for textiles, Vietnam is still one of the fastest growing textile and apparel producers with growth from 2005-2012 of 28.1 percent for textile exports and 17 percent for apparel.  As with other ASEAN countries, Vietnam has benefited from free trade agreements.  By 2025, the Vietnam Textile and Garment Industry is expected to produce $35 billion worth of apparel exports, double the current production.

One of the big challenges is that unlike China, Vietnam has a limited value chain, according to Nguyen Van Tuan, deputy general secretary of the Vietnam Textile and Apparel Association. Of around 5,000 factories in the sector, almost 4,500 are garment producers. Going forward, Vietnam is expected to see increased investment in the entire value chain, from labor to material, spinning and weaving/knitting.

Cambodia
Although its textile and apparel sector is significantly smaller than Vietnam, Cambodia — with more than $4 billion in exports — faces similar issues. Cambodia has almost no upstream suppliers in fabrics, threads, accessories and trims, having to import primarily from China and Taiwan.  According to Van Sou Leng, chairman of the Garment Manufacturer's Association in Cambodia, this is one of the biggest challenges to the growth of Cambodia's garment sector.

With close to 500 factories, Cambodia has roughly 500,000 textile and apparel workers.  Labour costs are significantly higher than Bangladesh with a monthly minimum wage of approximately $100 and the average monthly income of a garment worker around $150. With more than 1,500 active unions and ongoing strikes, the Cambodian garment sector faces significant challenges.

Forecast for the Asian textile and apparel sector
Given the current climate in Asia's textile and garment sector, the view shared by many executives in the industry is that for the foreseeable future, China will remain the leading textile and apparel sourcing country.

According to Kutluhan Samataci, senior vice president, Li & Fung Sourcing, there is no other country or region that will be able to match China in terms of scale, infrastructure, efficiency, expertise and stability. China has a long history and culture of textile development and despite government initiatives to reduce the focus on low-end manufacturing, China's textile and garment industry still produces more than 40 percent of global textile and apparel exports. This figure is still growing despite high material costs and RMB appreciation.

In apparel, speed to market will continue to grow in importance as companies seek sources close to markets, with responsive supply, sustainable production and appropriate vendor compliance. This is likely to open the door wider for garment production markets closer to Europe or the U.S., but is unlikely to impact China's hold on the global apparel sector.

Other countries can be competitive but they require significant investment to raise productivity and meet more stringent demands on quality. Table 2 illustrates a few other fast growing apparel producing countries that likely will play a larger global role in the coming years. In the meantime, China is already shifting to more value-added products and will continue to improve in expertise.

Table 2: Fastest Growing Top 25 Apparel Producing Countries  (by quantity for year ending October 2013)

Country

Rank

percent Growth

Kenya

22

22.76

Sri Lanka

12

21.40

Haiti

16

19.85

Vietnam

2

13.94

Lesotho

23

13.46

Bangladesh

3

13.43

Malaysia

21

11.25

Source: United States Fashion Industry Association



Russel Beron is a director at CBX Softwarea technology provider that has simplified the business of global sourcing, transforming traditional methodologies into fast, friction-free supply chains through our real-time cloud based Total Sourcing Management Platform.

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