HONG KONG — Outward processing arrangements have become an integral part of the garment manufacturing business in Asia, given past uncertainty over textile and apparel quotas and the current import restraint agreements between China and the U.S. and the European Union.
The issue of quota focuses on a “Made in China” stamp. Outward processing arrangements, known as OPAs, allow companies to do part of the work in China and part of it in Hong Kong or Macau, which are special administrative districts of China, but have their exports treated autonomously.
In order to have the country of origin as Hong Kong or Macau, effectively skirting the quota issue, companies subcontract outside these two territories “the subsidiary or minor finishing processes,” according to the Hong Kong Trade & Industry Department.
To qualify, garments that are produced with this arrangement must have principal manufacturing processes completed in Hong Kong or Macau. For example, principal processes that are required for a garment made from knitted fabrics include sewing, linking and the stitching of parts into a garment.
The flexibility that comes with working with OPAs becomes important when there is only so much quota to be had from China, whether the garments are bound for the U.S. or the EU.
Figures detailing how many garments have been shipped out of Hong Kong or Macau through OPAs weren’t available.
Global apparel supply chain service provider Luen Thai began preparing OPAs in late 2004 in Hong Kong and Macau. The two facilities accounted for 2.9 percent of Luen Thai’s first-half shipments in 2005. Luen Thai’s first-half 2005 sales were $267.5 million.
The company’s Hong Kong OPA was renovated last year for expansion. The target is 400,000 units a month, said chief operating officer Henry Tan during the company’s first-half financial announcement in September. At that time, the facility was turning out about 75,000 units a month.
The OPAs relieve some of the pressure, Tan said, but it’s been difficult for companies who don’t have that alternative. In addition, OPAs aren’t considered as efficient as vertical manufacturing in one facility.
While Luen Thai is a major contender in the manufacturing world, smaller sourcing firms based in Hong Kong also are taking advantage of OPAs.
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Last year, William E. Connor & Associates put a China country of origin stamp on less than half of its products; about 50 percent was completed at an OPA in Hong Kong or Macau. Another privately held firm, Lark Apparel Holdings Ltd., was using OPAs in southern China.
Working with an OPA is beneficial, but it does require more paperwork, time and freight costs.
Not any factory in Hong Kong or Macau can switch gears and become an OPA overnight. To qualify as an OPA facility in Hong Kong, the factory needs to have a valid factory registration, as well as be registered as an OPA with the Trade & Industry Department.