China is changing its role as the go-to place for clothing sourcing

China is changing its role as the go-to place for clothing sourcing

According to John McClure, head of procurement for M&S Far East, driven by a perfect storm of labor costs, exchange rates, raw material costs, and uncontrollable factors in the domestic market, China, as the majority of the garment industry, has The role of the go-to place for purchasing is about to change.

McClure recently stated at a technical seminar on garment costs hosted by the Association of British Clothing Industry Suppliers (ASBCI): From a procurement perspective, in the past 20 years , we have been working directly with purchasing offices and manufacturers to build production capabilities in various regions, so that consumers can benefit a lot from buying cheap clothing. So consumers have never been treated so well.

But now something unstable and very difficult is about to happen.

Based on the current situation, it is unknown whether the price of raw materials will fall in terms of greater sustainability.

(1) Raw materials:McClure said that brands, retailers and manufacturers should not expect raw material prices to rise in the next ten years will fall. We’re kind of marginalized at the moment, but we can’t rely on raw materials as a source of increased profits. Raw material prices fluctuate depending on the supply and demand of materials such as wool, cashmere, cotton or synthetic fibers. Judging from the current situation, it is unknown whether raw material prices will fall in terms of greater sustainability.

(2) Labor costs: Whether in Bangladesh, Cambodia, Myanmar or anywhere else, low-cost countries are keen to develop their economies , and labor costs will rise accordingly. The textile industry is the world’s second largest employer. We have to develop these countries, but overall their cost base is going to go up based on development, so they are trying to increase productivity and automation. If you think about it, before China, Taiwan was the world’s factory, but now Taiwan is one of the top ten economies in the world for manufacturing electronics.

(3) Exchange rate:Exchange rate trends make it difficult for everyone to manage costs and maintain healthy profits.

Choose the right purchasing hot spots

With rising labor costs and With more attention being paid to brands and retailers to ensure they are sourcing from suppliers and countries that consider the welfare of workers, people and the environment, the market has never been more challenging.

For a long time, when it came to sourcing, China became the most obvious choice based solely on economies of scale and lower labor costs. But that changed quickly. McClure noted that among Southeast Asian countries, China is at the higher end of the spectrum when considering production costs for garments. For countries like Bangladesh, which has tariff-free access to the EU under the “Everything but Arms” (EBA) program, when it comes to procurement, China’s production costs may be 40-50% higher.

But China is not worried about production costs becoming more expensive, especially since its domestic market is so uncontrollable. China’s middle class now has 200 million people. It’s incredible how consumer-driven the prosperity of big cities is. Disposable income is driving massive consumption.

Then there is the technical aspect.

China is working hard to develop technology. It has now entered 5G (fifth generation mobile communication technology). Some cities no longer use banknotes. China is currently a world leader in eco-credentials and work.

In the next ten years, China will be very different. It certainly won’t be a source of cheap clothing or labor

So China will look very different in the next decade. It certainly won’t be a source of cheap ready-made clothing or labor.

He said: However, choosing the right country is very important. We cannot manufacture everything in one country. Many of my colleagues want to produce all their goods in Bangladesh because it is a no-brainer. But we all know this is unwise. Cost is only one part of procurement, but it always seems to dominate it.

There are some things to consider when thinking about which market to source from, McClure said. Brands or retailers need to consider the verticality and proximity of raw material supply. Whether the product is fast fashion or staple, and whether it is tax-free in the country. Inflation and investment are another factor to consider.

If we look at Cambodia, a Southeast Asian country, there is not so much investment, but things are becoming more and more expensive. It’s just a small country with a population of 16 million. In fact, people have been investing there for a long time. Now we are working hard to maintain the current asset size and have no plans to add more investments. Cambodia provides us with great services and is a good friend. But considering that there is no more investment, I will use Cambodia as a supply base in the next 5 to 10 years.

AnotherOn the one hand, Vietnam currently has the largest investment volume among Southeast Asian countries. He believes this is thanks to the current U.S.-China trade dispute.

According to ATKearney’s sixth reshoring index (ReshoringIndex), manufacturers are diversifying away from China and investing in lower-cost countries (such as Vietnam), such as Vietnam has gained an additional US$36 billion in trade imports, which is exactly half of China’s loss of US$72 billion. According to the report, sportswear brands Nike and Adidas, for example, have increased the proportion of production in Vietnam from about 30% to about 45% in the past 10 years, sacrificing production in China.

During the five-year period from 2013 to 2018, Vietnam’s exports to the United States doubled from US$21.7 billion to US$47.7 billion. This growth (a compound annual growth rate (CAGR) of 17% from 2013 to 2018) far exceeds that of all other Asian low-cost countries, which average a CAGR of just 5%.

Between the first quarter of 2018 and the first quarter of 2019, Vietnam’s exports to the United States grew by 36%, while China’s exports to the United States decreased by 13% during the same period. This growth is attributed to Vietnam’s lower labor costs than China, its proximity to Southeast Asian supply chains, and the Vietnamese government’s policy to attract foreign investment, which is very conducive to foreign direct investment (FDI). Vietnam’s mature investment strategy in infrastructure has also contributed to the recent surge in imports.

Given that it doesn’t make business sense to have everything in one place, brands and retailers must “be less transactional” and work more closely with those partners who can go the long way Local cooperation

McClure pointed out: Vietnam has a population of about 100 million, has an excellent demographic dividend, and will soon sign a free trade agreement (FTA) with the United States. It’s in the north, close to China, so it also has high seniority costs.

We know that labor costs in Vietnam are in the middle. It’s not the cheapest nor the most expensive. But it’s complicated. So, in my opinion, it’s really an important country to watch.

He believes that by 2024, Vietnam is expected to export products worth US$50 billion to the United States, which is larger than Bangladesh. But he said that the transition of the supply chain from China to Vietnam is still gradual and not a sudden change.

In a transaction-reducing climate

When it comes to weighing where to buy and which suppliers to buy with When cooperating with suppliers, there is no simple choice, especially when brands require maximizing profits. Given that it doesn’t make business sense to have everything in one place, brands and retailers must “reduce transactions” and work more closely with partners who can develop long-term relationships.

McClure said: I think developing long-term partnerships is more important now. In the past 20 years, we have always made do and focused on transactions. I think the main factor in controlling costs is: making the right choices over the next 10 years, not trading.

Resolving the U.S.-China trade dispute, he believes, will only accelerate China’s agenda to reduce its dependence on the United States.

I think the United States is involved in some way. China is building stronger relationships with the rest of the world and accelerating investment in Southeast Asia. As the pressure on everyone to get out of China increases, we are told that if you do not reduce your capacity requirements, your orders will not be fulfilled. This is definitely not the time to become a major player in trading.

Making the right choices early in the process is key to managing costs.

It is very important to choose the supplier and how you need them to cooperate. But whether it’s about countries, suppliers or your internal choices, it’s all about making the right choices that impact costs. And I think we don’t have enough time to spend on it like retailers and brands.

AAA fabric network SVSGHRUTO

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