HONG KONG — As producers and apparel brands continue to struggle with rising production costs in China, manufacturers have been emphasizing service and technology as well as quality over price competitiveness.
Adding value was a major theme at the latest Prime Source Forum here. Unlike in past years, when the focus was on finding the next cheapest manufacturing destination, there was more of a consensus this year among participants that rising production costs were an inescapable fact and signaled a changing paradigm for the industry.
“We’re typically the first ones into a country and then the first ones out of a country,” said Steven DiBlasi, vice president of global sourcing at Lanier Clothes. “We go in when there’s unemployment, low wages — wages go up, we move. We can’t continue to do that going forward. We’re going to run out of countries that we can afford from a compliance standpoint.”
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To be sure, there was still discussion of newer, cheaper markets. Adan Mohamed, cabinet secretary at the Ministry of Industrialization and Enterprise Development for the Republic of Kenya, was at the conference making a case for his country as a low-cost sourcing alternative. But more of the discussion centered around what manufacturers and brand owners can do in the face of rising costs.
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“Isn’t it time for the apparel industry to look at other areas of cost saving? I don’t know how many of us are actually aware that the cost of wages is less than 1 percent of actual retail price in the U.S. or Europe,” said Rahul Mehta, president of the Clothing Manufacturers Association of India. “We are focusing all our energies on this 1 percent, when 60 percent of the retail price is in the price of service.”
Duncan Scott, vice president of external products at New Balance, said he sees a trend toward more value added, particularly through customization.
“Mass manufacturing in lower production cost countries is going to be critical, but I also think there will be an increasing element in producing local-to-local,” he said, citing the increasing talk of onshoring to countries such as the U.S.
“I don’t necessarily think the higher cost in Asia means we will be doing more of that, but I think there will be more customized and responsive models in Asia for mass manufacturing as the Asian markets continue to grow,” he said.
Scott added although customization programs have been around for a while, New Balance has found that it’s particularly popular among Millennials.
“It’s kind of a paradox,” he said. “They want to be connected with the familiar, but they want to differentiate themselves.”
Industry participants noted a trend merging sportswear or performance fabrics with fashion. Nicholas Smith, vice president and global head of textiles, coatings, adhesives and specialties business unit at Bayer MaterialScience, said there’s been a growing movement of manufacturers or suppliers going directly to brand owners. He noted how Bayer MaterialScience, which created a new, environmentally friendly method for making PU leather without solvents, started working more with fashion brands, getting direct feedback to create functional fabrics for shoes, accessories or apparel.
Yet others at the conference emphasized how the industry still has room for improvement in efficiency, notably in the areas of factory processes, wasteful cutting and outdated technology.
“When I walk through factories I’m amazed that some of the things that they don’t do in Asia,” DiBlasi said. “I see them not using the most advanced technology and equipment in the world when they should be. Just because you have a low-cost labor [model] doesn’t mean you shouldn’t be using the most efficient and advanced technology that you can. Their work in progress is incredible. Work in process costs money and time.”
Yet even with the cost pressures facing the industry, there was also consensus that China would continue to be an important manufacturing country.
Fred Lemoine, vice president of Weave Services Ltd., a subsidiary of TAL Group, pointed out China remains more attractive than many other markets when considering important factors such as compliance, infrastructure, speed to market and currency stability. He also noted China will have the largest apparel and footwear market by 2018 “so don’t go too far.”
There was also a focus on environmental practices.
“People now tend to care more about the impact on the planet,” said Christophe Degoix, senior vice president of supply chain management at TAL Apparel. “One analogy is what’s happened in the food industry. Ten years ago, the transparency was very poor. We didn’t know the composition of the product. Today, the food supply chain is totally transparent. I think that is what we are going to get definitely in our industry.”
Other countries, such as in Southeast Asia, may be cheaper, but compliance is a considerable problem.
Maren Barthel, manager of corporate responsibility and buying markets at Otto Group, said despite progress, there’s been a lack of law enforcement in some of those countries, and the lack of governance and corruption continue to impact sourcing, she said.
“The caravan is moving on as soon as a country gets too expensive,” Barthel said. “This has impact on working conditions and the situation in Bangladesh.”
Despite remarkable changes in the country — Bangladesh is the only country in the world to have agreements such as the Bangladesh Accord on Fire and Building Safety and Alliance for Bangladesh Worker Safety — big compliance risks continue to fester. Among the big risks are that many of the large factories that have been inspected often work with smaller, unchecked subcontractors. Thomas Nelson, vice president of supply chain and global product supply at VF Corp, said he was doubtful that the national action plan to inspect factories would be finished by April 30, as planned.