The impact of the recession is a major focus for the world’s garment producers, but other factors will determine global sourcing by 2015. Mike Flanagan of sourcing information firm Clothesource reports for WGSN
There’s increasing evidence that the worst effects of the global recession are easing. In the first three months of 2010, for example, the US imported 11.6% more garments than in 2009 - slightly fewer than in 2008 but rather more than in 2007.
Many businesses in the developing world that export garments to the US and EU think this means their business will start recovering. But many are deluding themselves.
The days of rapid growth in exporting to rich countries - caused by the massive switch of production to Asia between 2005 and 2008 as quotas on most countries were withdrawn - are over.
By 2008, the rich world more or less ran out of domestic garment production to outsource, and in 2009 all the remaining clothing trade barriers for China and Vietnam were removed - which meant that prices from China dropped like a stone.
Most garment-exporting countries simply couldn’t compete with the newly aggressive China and Vietnam: 80% of the income decline most other garment-exporting countries suffered in 2009 came from losing market share, and only 20% came from depressed Western demand.
So, for most garment manufacturers, the important question isn’t how quickly Western markets are recovering; it’s how competitive they themselves are in the post-post-quota world, with their unrestricted Chinese and Vietnamese rivals. Over the next year or so, we’ll see.
By 2012, as the effects of the recent global recession start wearing off, other factors will start to emerge more clearly. Recession aside, there are fundamental changes in the world of sourcing that will impact supplier businesses.
Of these changes, it is undoubtable that China’s workforce will begin to shrink. How China then manages its garment exports is likely to affect the world clothing industry as dramatically as the dismantling of trade restrictions against it over the past 10 years.
The other changes are less certain. There will certainly be discussions of free trade areas, for example, but at this stage it’s unclear what will be agreed and whether deals will be honoured until duty-free garments actually start crossing borders.
We can predict with certainty that the world of sourcing will change as dramatically between now and 2015 as it has since quotas were abolished in 2005.
We can be equally certain that anyone predicting precisely what will change will be 100% wrong.
Some of the factors that will affect global sourcing
Retailers’ inventory management
- Retailers have been investing in inventory-management software for the past decade. Between December 2008 and January 2010, the inventories of US clothing retailers fell faster than ever. In January of this year they were at the lowest January figure on record.
- Despite the growing attraction of fast fashion, retailers in the US and EU have been buying fewer clothes from neighbouring low-income countries.
- Retailers are now able to manage with less money tied up in stocks. Asian manufacturers have cut delivery times and minimum-order quantities.
The exploded myth: a limitless pool of Chinese workers
- Wage rates in China are growing. This is partly in response to demand rebounding but mainly because China’s working-age population will start falling in 2016. For a decade, the number of jobs available has grown faster than the number of workers.
- China’s policymakers are likely to be increasingly preoccupied with having enough workers. Expect a rethink of China’s policy of subsidising the textile industry, which lets it compete with lower-cost production markets.
The next myth? There’s a market in emerging markets
- Many in manufacturing countries believe there is more mileage in targeting garment markets among the 85% of the world’s population that doesn’t live in Europe, North America, Japan or Australasia. But there is no evidence countries such as the UAE, Brazil or South Africa will be easier to sell to in 2012 than they were in 2005.
New free trade agreements?
- By 2015 there may be many more free trade areas between rich countries and Asia. The EU is negotiating free trade with India, South Korea and Vietnam. Japan, Australia and New Zealand already have agreements with most of Southeast Asia, and the US is starting talks about one with Vietnam.
- A number of US concessions allowing favoured nations duty-free access to US markets - such as the African Growth and Opportunity Act (AGOA) programme for most of Africa - are due to expire by 2015.
Overland transport links
- There is the extraordinary prospect of viable overland freight links between Europe and East Asia within a year or two, which could cut China-Germany transit times to less than two weeks.