The rising cost of garment manufacturing in China has seen many factories and buyers turn to Southeast Asian nations over the past decade to take advantage of a cheaper production base in response to the public’s demands for fast — and affordable — fashion.
Yet China still holds the lion’s share of global garment exports today, according to data from the American Apparel & Footwear Association. The manufacturing giant accounted for 42 percent of apparel imported to the U.S. in the first 10 months of 2014, while Vietnam holds 10 percent, Indonesia 4.9 percent and Cambodia 4 percent.
For buyers, it is no longer just about the bottom line. Brands and retailers are increasingly sensitive to reliable delivery, political stability, social compliance and healthy labor relations — especially after a turbulent 2014.
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In Indonesia and Cambodia, continuous labor strikes over wages have plagued their garment sectors, Thailand’s political turmoil sent shock waves through the economy and the resulting military coup in May has not persuaded a return of business confidence.
Meanwhile, Myanmar — which had initially anticipated a rush after the once-authoritarian regime opened up in 2011 — has found that companies are not so eager to take the leap of faith over concerns of an unskilled workforce, an unstable political climate and an underdeveloped infrastructure.
“I think the overarching concern was the social responsibility issue,” said Nate Herman, vice president of international trade at AAFA. “It was the issue of, can we continue our relationship to make this region a long-term supplier, or are we going to continually have issues that we are dealing with on the [corporate social responsibility] front that are going to cause us problems?”
These factors will continue to play a large part in 2015, added Herman, who believes that brands now consider a country’s ability to deliver on time and CSR concerns to be just as much a priority as price and quality.
“Nobody wants to be in the position that they were in with Bangladesh over a year ago,” he said “That’s a top issue now.”
The one consistent bright spot in the region has been Vietnam, which continues to show double-digit growth in exports to the U.S. Regarded as the top choice producer in the region, Vietnam also stands to gain tremendously if Congress passes the Trans-Pacific Partnership free-trade accord next year, which would eliminate tariffs for U.S.-bound clothing. (For related story, see opposite page.)
While Herman cautioned against such optimism as the TPP has not yet been inked — and these agreements typically take three years to be implemented — Cambodia and Myanmar are already feeling threatened by their neighbor.
But Jayant Menon, lead economist with Asian Development Bank’s Southeast Asia economic integration office, believes that if the pact goes through, it might not have the impact many are expecting, as Vietnamese manufacturers would no longer be able to source fabric from China in order to satisfy the agreement’s rules of origin.
“They won’t be sourcing from the cheapest supplier, but they would have very good access to the U.S. market,” Menon said.
A more crucial event to look for before the end of 2015 is the formation of the ASEAN Economic Community, Menon said. In theory, this means that trade barriers between the 10 member countries of the Association of Southeast Asian Nations will fall, and goods will move across borders more freely without trade tariffs or red tape to slow them down.
“The quicker and easier it is for them to get goods in and out, the better it is,” Menon said, adding that the AEC’s formation would attract more foreign investments to less developed countries, such as Cambodia, Myanmar and Vietnam, which would in turn support the regional supply chain.
Despite his optimism, Southeast Asia must improve its productivity in order to dethrone China, he said, especially as countries start increasing wages amidst a growing awareness about a living wage for workers. “If productivity can increase, then you can actually pay higher wages and remain competitive.”
AAFA’s Herman believes that the region — roiled by so many problems in 2014 — can finally start to move forward.
“People are more confident and will start returning,” he said. “If things are done right in Myanmar [and] if Cambodia has found a way forward [in solving wage issues], they can be a really big winner here.”