Sourcing Shift Creates New Players, Challenges

9/10/2014
With uncertainties in the global economic climate forcing many textile and apparel importers to diversify their sourcing, this shift is empowering new players who will not only coexist but also aggressively compete with the established suppliers that long have dominated the trade.

These vicissitudes were evident at the recent Texworld USA held in New York City in July alongside the Apparel Sourcing Show and the Home Textile Sourcing Expo.

Growing presence of African suppliers
Dennis Smith, president of Messe Frankfurt USA, described a conspicuous presence of "non-traditional supplying countries" — African countries vying for a slice of the sourcing pie against established powerhouses such as China, India, Pakistan, Bangladesh, and Vietnam.

"[The African] presence shows that we will increasingly see new suppliers in the future along with the old traditional ones," Smith added.

Smith's point was illustrated with the presence of companies from Mauritius that have been scouting for global business. The Indian Ocean nation has been showcasing its textile and apparel products in the United States, Europe, and on the African continent where it has set up manufacturing operations on its own and also in collaboration with India, China, and Turkey, whose presence in that part of the world is growing.

Mauritius takes the lead
Mauritius offers the advantage of easy accessibility to markets in Europe, the United States, and Africa, which allow imports of its apparel products free of any import duty.

"Mauritius can ship apparel and textile products duty-free to Europe, United States and also to Africa. This is an attractive advantage for importers of Mauritius apparel and textile products," Oumesh Prithipaul, senior manager at Mauritius' official export promotion agency, Enterprise Mauritius, explained.

But Prithipaul also acknowledged that while Mauritius could not compete against the low-cost products supplied by Vietnam, Bangladesh, and Cambodia, he claimed the country could supply better quality goods. Some major U.S. import firms are already sourcing part of their requirements from Mauritius.  The island state, which Prithipaul claimed was rapidly developing to become a "South African textile hub," exports a large range of textile and apparel products; Europe accounts for some 45 percent of exports, the United States takes 21 percent, and South Africa account for 22 percent.

The Compagnie Mauricienne of Textile Ltee — a Phoenix, Mauritius-based textile company that has been supplying its apparel products to a number of Western markets — is excited about the "Africa supply boom."  "We import cotton from Zambia, Ivory Coast, South Africa, etc. Our company is the country's fifth-largest apparel supplier, and had a production volume of 4 million apparel pieces in Mauritius and another 1.6 million pieces in Bangladesh where we also maintain an operation," said Ruben Munien, the company's merchandising manager.

Munien noted that African manufacturers are paying closer attention to research and development, with many Mauritian firms increasing their investment in this discipline. His company has also purchased the latest textile machinery from Tokyo-based equipment supplier Barudan to upgrade and modernize its production facilities.

"The new machinery will help us become more productive and more competitive in a global market which is characterized by heavy price pressure, particularly in the case of low-end products," Munien added.

Middle East: Turkey competing with the UAE 
Turkey is quietly making a foray into the international apparel and textile markets, competing against Gulf-based companies, particularly in the United Arab Emirates, which have made a mark on the international markets.  Dubai and Abu Dhabi have been successful in attracting manufacturers from a number of countries, particularly the Indian subcontinent, which take advantage of the UAE's free-trade zones and other incentives such as tax holidays, low-cost electricity and water, and subsidized land for their assembly plants.

These companies target not just the traditional markets in the West but also in the Gulf region itself, which holds considerable good business potential, particularly for women's apparel. "The textile and apparel market in the Gulf countries is booming.  The women in these countries are fashion conscious. There is strong demand for upper-end fashion clothing in the Gulf region," said Yasser Al-Beer, partner at Yaser + Mayasa Co. of Dubai, adding that his company is increasing its presence in the Gulf in response to the increase in local demand.

But Turkish suppliers, which already are supplying to Gulf countries, are now looking to enter the U.S. market.

Yasar Karabel, the managing director of Istanbul wool producer Aker Tekstil Mumascieuk of Istanbul, said his company is keen to increase its supplies to the United States.

Karabel, whose company's major export markets include Italy, the United States, Russia, and Canada, maintained that fast fashion is becoming a global trend. Importers not only in the overseas markets but also in Turkey have indicated that consumers were "willing to pay more for quality products, yet they paid great attention to price," he said.

The industry in Bursa, Turkey's textile and apparel hub, is looking in "both directions – East and West," as Karabel put it, to increase its exports to the Gulf and beyond, mainly the United States and Europe.

Pakistan: Textile industry faces challenges
Despite the General System of Preferences (GSP) granted by the European Union at the start of the year, Pakistan apparently hasn't been able to take full advantage of this benefit.

The problem Pakistan faces is the chronic energy shortage that plagues the textile and apparel industry. Indeed, the Pakistan Textile Exporters' Association pointed out that the country's textile exports declined by some 7.89 percent in July compared to the month prior. Sheikh Ilyas Mahmoud, the PTEA chairman, sounded pessimistic, noting that exports would further decline in the coming months as the textile industry in Punjab faced acute fuel shortages.  Indeed, Pakistan's energy crisis had caused the export slump, with productivity in the textile industry down by 50 percent.

"Even the GSP Plus facility has not been able to generate the desired results, and efforts have frittered away as we are unable to produce export surplus due to massive energy constraints," according to the Association.

"The non-availability of energy, high interest rates and blocked liquidity on drawbacks and refunds from the government have played a major role in pulling down the growth and exports of the country's textile industry," said Mahmoud.

Arif Qureshi, the chief executive of Nimra Textile (Private) Limited, a Faisalabad-based manufacturer of home-textile products and apparel, echoed these views, blaming energy shortages for the country's inability to export more and fully reap the GSP benefits. He was "deeply concerned" over the energy crisis, which could affect exports to the United States — a market that absorbs 50 percent of Nimra's exports.

According to the All Pakistan Textile Mills Association (APTMA) chairman Yasin Siddique, textiles account for some 8.5 percent of the country's GDP, raking in some $13.1 billion from global exports valued at $24.6 billion in the fiscal year 2012-13.  Pakistani textile exporters demand "strong government support" in the form of affordable, easily available energy in order to benefit from the GSP-Plus status.

Meanwhile, Lilianne Ploumen, the Dutch minister for foreign trade and development, recently called for better working conditions in the textile industry, referring to reports from Pakistan suggesting "major irregularities" in the textile industry.  "Safety and working conditions are well-regulated in many factories, but there are many others which are unsafe and where workers are paid less than the minimum wage," she said, adding that she is committed to working with textile companies, social partners, the government, NGOs and international donors in Pakistan "to make a difference."  Experts say The Netherlands could use its influence in the EU to make Pakistan comply with the conditions on which the GSP-Plus Status was granted.

Another major concern is that many buyers from the EU and United States stopped visiting Pakistan because of security issues.  Many prefer to source from Bangladesh, China, and Vietnam.

India: Textile industry needs a shot in the arm
Facing financial problems and other constraints, at least 29 cotton and man-made fiber textile mills have closed down in India in the past two years, said the country's junior minister for textiles, Santosh Kumar Gangwar, during a debate in India's Rajya Sabha, the upper house of parliament.  He attributed the closures not only to financial problems but also other factors such as labor issues and strikes that had impaired the productivity of these manufacturing units.

With a large high-spending Indian middle class, the textile industry sees a bright future ahead. Indeed, in order to bolster the country's textile industry, the government is launching various policy initiatives such as the Technology Upgradation Fund Scheme (TUFS), Scheme for Integrated Textile Parks (SITP), Scheme for Development of Technical Textiles, Integrated Skill Development Schme (ISDS), and Schemes for the Development of Powerloom Sector, Gangwar said.

A number of federal states within India have launched various initiatives to encourage investments that bolster the textile and garment sectors. Karnataka state, for example, announced several measures under its new textile policy recently to attract investments in the textile and apparel sectors from 2013 to 2018, according to the state's chief minister Siddaramaiah.

The chief minister recently told news outlets that plans are underway to establish a mega textile park on a 1,000-acre parcel in the next five years in the Yadgir district.

The meeting in Karnataka was attended by the federal textiles minister Baburao Chinchansur, additional chief secretary to Commerce and Industries Department K Ratna Prabha, and Secretary Tushar Girinath.

Indian sources claim that M K Enterprises, a Middle East textile company, is investing  more than $25 million to create a textile cluster near T Narasipur in Mysore.

India also is trying to diversify its export markets — the EU and United States currently account for 50 percent — hoping to intensify its output to Japan, China, Brazil, and Russia.

The industry has been demanding flexibility in India's labor laws, which would drive further growth and also build up its export trade.

ASEAN: industry cheers a single ASEAN Economic Community 2015
The Association of South East Asian Nations (ASEAN) is moving to further integrate into the ASEAN Economic Community (AEC) in 2015. The decision promises opportunities for the region's textile industry with a consumer population of nearly 600 million, dismantling tariffs and other trade barriers.

Not surprisingly, foreign textile companies are showing interest in setting up plants in some of the ASEAN member states, which include Brunei, Indonesia, Malaysia, Singapore, Thailand, the Philippines, Vietnam, Cambodia, Laos, and Myanmar.

China's D&Y Group, for example, is setting up a textile factory in Malaysia's Sedenak Industrial Park in Johor through its subsidiary D&Y Textile (Malaysia) Sdn. Bhd.

Malaysian sources say that D&Y Group, one of China's top-20 textile companies, will invest about $210 million in the new plant in Malaysia, which is the group's first factory in the ASEAN region.

The new facility will be equipped with 200,000 spindles and also feature advanced textile production technologies; the entire production will be exported, with earnings expected to reach $350 million.

The AEC's significance has not gone unnoticed in other countries. Turkey recently signed a bilateral free trade agreement (FTA) with Malaysia aimed at reducing and eventually eliminating tariffs. The agreement was recently signed by the trade ministers of both countries in the presence of Malaysian Prime Minister Najib Tun Razak and his Turkish counterpart Recept Tayyip Erdogan in Ankara.

The FTA eliminates duties in trade between the two for nearly 70 percent of tariff lines. The textiles and apparel sector, Malaysia's largest export industry to Turkey, stands to benefit, according to Malaysian sources. Turkey will remove all duties on textiles and apparel that currently attract between 20 percent and 30 percent duties.  The FTA negotiations, started in May 2010, took four years to complete.

Thailand's apparel brands are also going to benefit from the AEC's creation, as it would lead to a much bigger market with room for all competitors.

Indeed, Reno (Thailand) Co. which manufactures the fashion brand AIIZ, believes it will benefit and not heighten competition.  Reno maintains that all participating nations would have leverage to establish their production base in any member states.

Thai fashion firms are enjoying a surge in popularity and have been aggressively building their brands and pushing their marketing compared to other ASEAN suppliers.  Thai apparel suppliers said that they were not "unduly bothered" over the future of their brands in ASEAN countries because they were accepted and well established.

Another very promising agreement that could boost Malaysia's textile exports will be the Trans-Pacific Partnership Agreement (TPP), which President Obama is pushing with a number of countries in the Asia-Pacific region, including Malaysia. The TPP could boost Malaysia's exports by 20 percent, according to the Malaysian Textile Manufacturers' Association (MTMA).

The TPP agreement would eliminate duties on Malaysian textiles and garments, and consumers in the negotiating countries would find Malaysian products more competitive, according to MTMA.

In 2012, Malaysian textile and clothing exports to TPP negotiating countries amounted to about $1 billion; with the agreement's enforcement, the member countries would lower their import duties for Malaysian products.

Bangladesh overcomes disaster, but other problems arise
Following last year's disaster at the Rana Plaza textile manufacturing center in capital city Dhaka that sent foreign buyers scrambling for alternative sources, Bangladesh faces fresh problems now. With a sharp decline in global prices of cotton, the country has a glut of raw material that was purchased at a much higher price. Critics say that the industry could have avoided this loss but failed to do so because of the country's outdated banking regulations that preclude using modern financial instruments that would protect commodity importers against price fluctuations.

Bangladesh, one of the world's biggest suppliers of garments, requires a large volume of cotton – according to some estimates, 4 million bales of cotton – each year for its domestic and export consumption. The country produces some 25,000 bales while the remainder is imported from the United States, Africa, the Commonwealth of Independent States (CIS), India, and Pakistan.

Bangladesh's textile industry has been calling for hedging facility as it faces disadvantages compared to suppliers in India and Vietnam where a hedging is routinely allowed.

Nevertheless, garment exporters are optimistic due not only to the growing demand in traditional markets but also because of their "unbeatable competitive prices," suppliers said.

Experts have been saying that Bangladesh should perform very well in the ongoing fiscal year because demand remains high. The country has set a target of $26.9 billion in garment exports in the fiscal 2014/15.  Bangladesh's garment exports were worth $24.5 billion in fiscal years 2013-14, up 13.86 percent from the prior fiscal year, despite a prolonged political crisis and two major industrial disasters including the Tazreen Fashions fire and Rana Plaza collapse.

Although the Rana Plaza disaster seems to be receding slowly into distant memory, U.S. buyers are still hesitant not only because of the collapse but also because of a sense of caution amongst American consumers who are still rebounding from the devastating recession.

Meanwhile, Bangladesh must move quickly to relocate factories and comply with the requirements specifically requested by global retailers after the Rana Plaza disaster.

Germany: Moving toward an industry "seal of approval"
Many of the traditional suppliers in India, Bangladesh, China, Vietnam, and elsewhere are closely monitoring the much-debated "seal of approval" that German authorities are trying to introduce for their textile and apparel industry as proof of their social responsibility when sourcing in developing countries.

Olaf Schmidt, vice president, textiles and textile technologies, at Messe Frankfurt, described this requirement as a "good move" to reassure consumers for whom it is important to know that the product they are buying has a seal of approval. 

There already had been criticism in Germany, mainly from some NGOs protesting manufacturers that subcontract in developing countries, subjecting millions of foreign workers, including children, to dangerous and exploitative conditions.

While some German textile and apparel companies acted swiftly in response to such criticism, complaints persisted that the interests of the large majority of textile and garment workers in the developing countries were neglected.

The Rana Plaza disaster, which killed 1,133 and injured more than 2,000 workers, sent shock waves through many German importers, consumers, NGOs, and politicians.  In Germany, the Bangladesh disaster prompted many politicians to urge the textile and apparel industry to adopt a "seal of approval" guaranteeing that products were manufactured in safe and environmentally friendly conditions.  

Germany‘s development minister Gerd Mueller has supported the seal's introduction, though the industry is not particularly enthusiastic about the idea.

Mueller, who said that Germany should have taken a leading role on this issue long ago, recently invited some 30 representatives of companies, textile associations, trade unions and, NGOs for a round-table discussion on the introduction of the seal of approval."

"Germany is one of the most important markets for apparel," Mueller said.  Indeed, the "signal effect" would be all the more remarkable if Germany assumed a leadership position on this issue and improved the working conditions in the textile industry.   Mueller even proposed the introduction of the seal requirement in an incremental manner, calling for a voluntary arrangement initially that later could  be made into a legally binding obligation. The textile seal would cover the "entire spectrum of supply chain from cotton to the ironing," Mueller added.

But the industry has expressed "deep doubts" over the minister's initiative, noting that a textile seal which guarantees acceptable social compliance standards throughout the entire supply chain, "can simply not be enforced," as Jan Eggert, the executive director of the Foreign Trade Association of the German Retail Trade, put it.

In fact, Eggert would like to see the main responsibility for keeping the minimum ethical standards shifted to the respective supplying countries whose governments ought to enforce laws ensuring safety standards at construction sites or labor protection.  He also supported the German government's action to use pressure on countries such as Bangladesh to end dismal working conditions.

Meanwhile, some German and European textile chains have been sending inspectors to Bangladesh to evaluate safety and other working conditions, including payment of "reasonable wages" to the workers.

German consumers, amongst the most conscious in the West about environment-friendly manufacturing and sustainability, have been questioning the sourcing practices of not only importers of low-end products but also big labels that have operations in several developing countries. The debate on the seal will continue in the months ahead.
 
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