Textile sourcing is global.

As we mentioned in the last three articles, we are now experiencing a situation of adjustment in the textile sector because of the hike in costs in China and its new socioeconomic context that is making other countries in Southeast Asia, as well as Bangladesh and India, become the “new Mecca” of textile production.

Nevertheless, this process is not going smoothly, and nothing is as final as it seems.

These neighboring countries still have a long way to go in order to compete against the logistics, the services and infrastructure that gave China the title of “Factory of the world”. Certainly, we are talking about a process where a lot of factors are involved in order to definitely “turn the tables” of textile sourcing.

China continues to be the main source of clothing items, shoes and fashion accessories sold around the world. However, the trend suggests a progressive reduction of its production to the benefit of neighboring countries.

According to a recent and comprehensive report by DHL-International Supply Chain—that reached my hands through Leonardo Stella, Commercial Desk SSA DHL Global Forwarding China Office, the countries that are growing in this aspect are:

#1 Bangladesh and Vietnam
#2 India, Myanmar and Cambodia
#3 Indonesia, Pakistan and Thailand”

Raw materials, accessories and production times

Another relevant point highlighted by the DHL-International Supply Chain report, a vital element to our sourcing needs, is to determine which countries can host the whole chain of production for a product, from the provision of the raw materials necessary for its manufacture, up to the final production of the clothing item.

According to DHL, only two countries fit into that category: China and India. Bangladesh, Thailand, Cambodia, Vietnam and Indonesia have to import textile materials, knitted fabrics and accessories, while in Pakistan, manufacturing faces some considerable limitations.

Of course, in addition to the fact that DHL has reliably analyzed and verified this, I can guarantee, thanks to my every day experience producing in Asia, that this is the current reality in that aspect. Personally, I believe this issue is absolutely relevant and I will explain why through the above-mentioned report.

In order to understand the impact that the selection of a location has on production, the report presents a breakdown of the costs involved in a basic clothing item, in this case, a piqué polo-shirt, Lacoste-style.

You can check out the infographics here.

Materials account for 40% – 65% of the total cost of the product.

It is clear that the location of the manufacturing country and its capacity to produce, within the same market, the raw materials (fabrics) and accessories (buttons, zippers, tags, etc.) are of vital importance.

These aspects are relevant not only because of the direct costs of such materials, but also because of the increase in production time if they need to be imported.

Efficiency in the use of production materials is also very important, just as we analyzed in this previous article, where it was clear that reducing the complexity of the range and materials engineering will allow us to greatly reduce costs.

Logistics costs and tariffs represent 10% to 20% of the final cost.

Governments in manufacturing countries must provide them with the necessary infrastructure to optimize transport, relax and clarify policies and reduce logistics expenses.

The agent’s margin or profit accounts for 7% to 15% and labor costs represent 5% to 10%.

Regarding the first piece of data, it shows that we must have the capacity to improve the negotiation with our providers working “hand in hand” with them and collaborating significantly with them, for instance, in “optimizing materials”. The second piece of data shows us, once again, that salaries are not the most relevant variable in order to be competitive in the textile industry. There is a lot to be improved in the entire value chain, and if we do it, we will get substantial competitive advantages.

Bottom line.

Clearly, we are facing a changing scenario where many factors come into play and the measures adopted by each country, in the face of this new context, will define in the short term the strategies for accessories, footwear and textile sourcing in Asia, just like the DHL report shows.

On our part, we must understand, once and for all, that textile sourcing is global. Now more than ever, it is completely global and this means, in our day-to-day activities, that when it’s time to make an estimate for the production of a model, there are plenty of options and we must assess each one of them. I consider this a wonderful thing!

In the next article we will discuss the current situation of transport in the previously mentioned countries from the perspective of DHL-International Supply Chain.

Article published in Directors & Managers