The endless quest for the next sourcing hotspot

We were asked it again the other day. “Where’s the next apparel sourcing hotspot?” said a potential new client.

And, as always, she just refused to believe the answer. Which for some time now has been either “there isn’t one” or “China”.

Somehow the myth got about in the late 1990s that textile and clothing buyers were in a perpetual quest to find The Next New Big Place. Actually, a lot of places started presenting them as new in the 1990s, as all sorts of obstacles to trade were removed, especially from countries that had had Communist regimes or been subject to civil wars during the 1980s.

Since then, though, a lot of countries have simply fallen out of most buyers’ candidate list. Exotic locations like the Maldives, Fiji and Nepal sold to US or European customers because they had quotas during as period when quotas were good things to have. Now quotas have gone, they’ve lost their edge – though in fairness, Fiji remains the nearest low-wage garment manufacturing centre for Australia and New Zealand. Other countries that had an advantage for being cheapish and near major market – like Jamaica or Malta – have just seen their clothing sales wither away, mainly because they simply never developed a real niche with their customers, though workers in those countries sometimes believe the foreign companies that invested there just cut loose for no obvious reason. Others have been difficult to work in: Madagascar and Haiti have gone through periods of extreme civil unrest, discouraging buyers, Ukraine was never that popular and some of the African countries that got a toehold through America’s AGOA system– like Uganda and Namibia – never recovered from early allegations of bad working conditions. Slowly, the number of countries with a credible apparel exporting infrastructure has declined since the beginning of this decade.

There have still been some successful hopefuls. Above all, Vietnam – which has now overtaken India in the volume and value of the clothes it sells to Europe and the US. Some countries get a rush of excitement that rarely seems to lead anywhere: some Nigerian journalists are currently excited because a few fashion journalists liked a show at New York Fashion Week. But at the same time, Nigeria’s domestic garment industry is mired in a complicated downward spiral of mass closures that no-one can fully explain. A similar downward spiral has also been seen recently in Mozambique (though there are attempts to re-open facilities there) and Zambia. Uzbekistan, notoriously, is forever announcing substantial new textile and clothing factories – but European and US buyers keep on moving away from it, both because of its seedy ethical reputation and because, as the furthest country from a seaport, it is simply a difficult place to service the world’s fashion industry.

So it’s surprising, as the major importing countries release year-end data, to see that there still are countries, as shown by this report on our web site, whose clothing exports are growing from a tiny base.

Laos leads the list, with exports to the US and Japan more than doubling in 2008. Ethiopia’s sales to the US and Europe surged last year, though from the tiniest of starts, while The Gambia also finally started to develop some sales to the US.

Europeans began to exploit areas with duty free access to Europe that the US had discovered before, with substantial increases in imports from Jordan, Guatemala, Honduras, Nicaragua and Costa Rica (though we only have data for the first ten months of 2008 from Europe). Europe’s imports from Serbia are also growing fast (though Serbia was the great hotspot of the mid-1980s – a status it lost after Yugoslavia fell into civil war.

Japan – long almost totally dependent on China, which accounts for 93% of its clothing imports – has been developing free trade areas with its other Asian neighbours, so it was unsurprising to see Thailand’s share of Japan’s imports growing quickly. More surprising was Japan’s cultivation of sales from Burma and Uzbekistan – clearly not the pariah for Japanese buyers it is for their rivals in Europe and the US.

None of this, of course, means there’s a location on the horizon which will change buyers’ perceptions of the fundamentals of sourcing. Each of the countries currently showing fast growth, though, has some specific tiny edge – often an edge based on one or two good factories (as in Ethiopia), a slight outsourcing movement from a bigger neighbour (as Laos picks up investments from manufacturers worried Vietnam or Cambodia might be getting pricier), or the discovery (as in Jordan and Egypt for European buyers) that buyers far away are making the most of a resource practically on a buyer’s doorstep.

Useful opportunities for buyers to exploit. In total, though, all these sources supply fewer garments than the annual growth or decline in garments from China or Bangladesh. For the right buyer, though, these may all represent opportunities it would be foolish to throw away

Japanese government subsidies for Burmese clothes factories?

In the West, Japan’s offer of subsidies to Burmese clothing factories would be shocking.

Few Japanese, of course, see things quite the same way. Few see this as support to a brutal military dictatorship – and most Japanese businesses assume as a matter of course they need to diversify away from their dependence on China, which accounts for around 92% of Japanese clothing imports. Other countries in East Asia are either expensive already (like Taiwan), are getting expensive (like Thailand or Malaysia) or, like Vietnam (see this story or this story) are getting trickier to work in. Or, like Laos, simply don’t have much capacity anyway.

Ethically, of course, the situation is a great deal more complicated than many single-issue campaigners think. South Africa emerged from apartheid in reasonable shape partly because businesses like Shell and BP kept trading there. They developed able black managers and made sure the country’s white population stayed in touch with the climate of opinion outside. Complete isolation of a country – as happens in North Korea, inevitably makes its re-absorption into the world more difficult. And a slightly more affluent Burmese population might well put up a stronger opposition than a totally repressed, impoverished one.

But the case certainly puts the occasional discovery of a retailer’s sub-contract going to a factory with child workers into perspective. Not, of course, that these assertions from Japanese officials need to be taken that seriously. The same official who’s promising subsidies now was telling us at the beginning of the year that “The cost of production and labour is getting higher and higher in China, so Japanese investors are trying to shift their factories into other countries in Asia that will be more cost effective, such as Bangladesh, Myanmar, Cambodia and Vietnam,”

In fact, Japan’s imports of apparel from Burma fell 23% in 2007