PARIS — As European retailers and manufacturers anticipate the abolition of quota safeguards against China next year, they share one predominant preoccupation: limiting risk.
After all, in the politically volatile European Union, old memories die hard.
Companies vividly remember the snafu two years ago when authorities slapped surprise quotas on products from China entering the EU. Thousands of bras, trousers and shirts were seized at the borders and held hostage in European customs warehouses while retailers’ fretted stocks would run dry.
After heated political wrangling, the situation blew over, with few lasting reverberations. While firms don’t expect a repeat scenario soon, the incident taught companies the potential pitfalls of relying too heavily on a narrow list of producing partners.
Many spread their sourcing mix away from an overdependence on China to a larger cross-section of Asia-Pacific countries that included South Korea, Vietnam, India and Sri Lanka.
Others ramped up proximity sourcing in Europe, which, in today’s competitive fast-fashion environment, has the advantage of bringing fashion-forward product to market faster, somewhat offsetting the greater expense.
“Speed is increasingly important today as cycles have sped up so much, with a new collection coming out every month,” said a spokesman for KarstadtQuelle, the German department store and mail-order group that sources 60 percent in Asia and 40 percent in Europe. “Europe is quicker.”
But even as speed and quality are important, most companies said predictability tops their agenda.
“What we need today is a environment of no negative surprises,” said Ralph Kamphoener, senior advisor for international trade at EuroCommerce, a Brussels-based association that represents the retail, wholesale and international trade sectors in Europe.
“New surprise quotas would be a disaster,” continued Kamphoener. “Companies need time to plan. We believe the [European] Commission that there will be no quotas in ’08.”
Kamphoener said most European companies had “spread” their options around over the last three years to ease dependence on any one country.
“Our strategy is a balanced strategy in which we strive for a minimum-risk approach,” agreed Glenda Wee, senior vice president apparel sourcing in Asia for French cataloguer Redcats. “Hence we developed China as a sourcing option as we developed other locations. We will not put all our eggs into one basket.”
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Redcats is also monitoring how the U.S. will react to lifting quotas on China and the repercussions for global trade.
“Most [Europeans] doubt that the U.S. will lift the safeguards for China,” said Wee. “There will be other types of barriers — antidumping, higher duties for China imports into the U.S., etc. One current example is what the U.S. is planning for Vietnam less than six months after lifting quotas on that country. For the EU, the probability of safeguards on China being lifted is higher, as the EU pushed for more trade liberalization to increase its own competitiveness, especially with countries that can offer more economic potential.”
At Mexx, the Amsterdam-based fashion chain owned by Liz Claiborne Inc., a spokeswoman said that while quotas are scheduled to end, “many vendors and buyers expect restraint in some form or another to continue. Appreciation of the yuan, discontinuation of incentives and substantial wage and energy hikes will make exports more expensive.”
Mexx also believes that many Chinese vendors will offer multi-origin production to compete as buyers continue to mitigate risks by spreading sourcing to other countries.
The high value of the euro against other currencies is likewise affecting sourcing for European firms. Most sourcing is based in dollars, so the current situation is advantageous for most European companies in terms of value.
“The strong euro will continue to help brands deliver better value to consumers and superior returns to shareholders,” said the Mexx spokeswoman.
Meanwhile, environmental concerns are factoring into sourcing strategies in Europe as never before. Many European retail giants, such as the U.K.’s Marks & Spencer and Tesco, have made ambitious pledges to go green by cutting carbon emissions and nonrenewable energy consumption.
“Tracking carbon footprints and reducing emissions is becoming an important issue to take on board,” said Mexx’s spokeswoman.
Many firms have turned socially and environmentally responsible sourcing practices into a consumer selling point.
Puma, for instance, trumpets environmentally friendly products free of PVC materials. The company also provides the U.S.-based Fair Labor Association with a list of its suppliers worldwide that are then monitored for fair working conditions and social standards.
Puma has published a comprehensive 46-page report on working conditions and responsible production practices as part of its S.A.F.E. initiative, aimed to increase transparency and social responsibility in sourcing.
German jeans label Mustang also wants to resonate with customers keen to trade with environmentally aware firms and it recently launched products made out of pesticide-free cotton.
“The use of organic cotton is an important statement on our part,” said Mustang chief executive officer Heiner Sefranek. “We welcome the increased interest in environmental issues and the new awareness of values shown by buyers.”
The company said it introduced a code of conduct for suppliers and subsuppliers that enforces minimum standards, such as no child labor and a minimum wage.