A Quota Quandary

6/1/2004

For years, apparel companies have been operating by the Wimpy Principle. That is: I'd gladly pay you Tuesday for a hamburger today.

Like the carnivorous "Popeye" character Wimpy, apparel companies have been borrowing against time, borrowing quota for the current year's U.S. imports against next year's quota allotment.

Despite the costs and aggravation, to this point the system has worked relatively well. But now, suddenly, it is 2004, and things are not as they were.

Come Jan. 1, 2005, a whole lot of hassle will disappear for apparel companies, which will no longer need to secure quota to import merchandise into the United States. The final phase of quota elimination under the WTO agreement finishes at the end of this year.

But that is 2005, and this is still 2004, and therein lies the rub.

Having established a pattern of borrowing quota from the coming year to import merchandise at the end of the current year, the apparel industry again is on a course to run out of quota, as 2004 draws to a close. The quandary for apparel companies is that with no quota system in place for next year, there is no cache from which to borrow, yet quota is still needed through the rest of 2004.

Brigid Foster of Lilly Pulitzer recently expressed her concerns to me about the impact this will have on the industry, as well as curiosity about what other apparel companies are doing to hedge against the potential deleterious consequences of running out of quota. Lilly Pulitzer, for one, has planned ahead, spreading its production out to greater numbers of sourcing facilities in countries including Peru and Colombia.

While other prudent apparel companies are sending production to places such as South America, Central America, Eastern Europe and Africa to ensure that, come holiday season 2004, their product will be on store shelves, it's likely that this diversification represents a short-term, stopgap measure. A common expectation is that once the quota issue is resolved, a large amount of sourcing will be consolidated in China, where that country's full-service environment will allow U.S. apparel firms to better go about the business of doing what they do best GÇö designing, marketing and merchandising.

But these new sourcing ventures don't have to be temporary. In fact, it strikes me that manufacturers in countries other than China GÇö particularly those in Central America, which also have the incredible benefit of proximity to the world's largest consumer market GÇö have been given a unique opportunity to step up and show their mettle.

In this admittedly small window of time, Central America must continue, swiftly, to move forward with plans to improve infrastructure, legal and judicial systems and security. At the same time, the apparel industries in Central American countries must move forward as a unified regional bloc to provide full-package and fast-turn capabilities, including investment in knitting and weaving facilities GÇö with or without CAFTA.

The challenges are many, and time is short, but opportunities do exist. During a trip last month to Guatemala, I met with several companies whose philosophies have embraced the full-package, speed-to-market model. Carlos Arias of Koramsa says the secret to his company's success comes from listening to its customers, and the company's facilities and capabilities are a jaw-dropping example of what it truly means to, as Arias puts it: "mold ourselves into what our customers are looking for." During the past four years, the company has completely revamped its business model to convert its suppliers into full-fledged partners through a cluster strategy that keeps them close at hand, and makes them accountable, not just to the apparel brand, but to Koramsa. The company's "instincts have proven right," Arias says.

Examples of excellence in full-package, quick-turn and high fashion can be found throughout the Americas, but at this pivotal moment in history, the industry has a shot at taking another significant leap forward. The impressions made now will likely have consequences GÇö good or bad GÇö for years to come. 

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