REPORT OF THE SOURCING CONFERENCE BY IFM
THE NEW PANORAMA OF GLOBAL SOURCING: HOW THE EURO IS RESHUFFLING THE CARDS.
At the latest edition of Premiere Vision Paris (16-18 Feb. 2016 / Parc des Expositions Paris Nord – Villepinte), and in the framework of the Chair launched jointly with the IFM (French Institute of Fashion) dedicated to ‘The economics of creative materials for fashion’, Première Vision organized a conference presenting the new panorama of global sourcing last February 16 and 18.
Based on a study conducted by the IFM, and moderated by Gildas Minvielle, Director of the Economic Observatory of the IFM, the conference proposed a roundup and analysis of the mapping of global sourcing.
Nothing will be the same as before: China remains, of course, the leading supplier of the EU and the USA in clothing, but it is now strongly challenged by other Asian countries (Bangladesh, Viet Nam, Cambodia), which are growing in strength and tracing new routes for textile industry supply. The map of global apparel sourcing is evolving, as indicated by the survey conducted by the French Institute of Fashion and presented at Premiere Vision Paris.
While changes in the prices of raw materials (upward pressure on cotton prices and a decline in synthetic fibres following the fall of the price of oil) and an increase in wage costs (multiplied by 3.5 over the past 10 years in China according to the Werner cabinet) may explain these recent changes in the sourcing map, it is especially the 20 per cent rise of the dollar against the euro which weighs particularly heavily, because its impact affects the entire production chain and not simply one of its components.
China remains the main supplier worldwide, with 39% of market share, but this percentage has capped in recent years, while we are witnessing the rise of other nearby countries, like Bangladesh and Viet Nam. In the EU, where clothing imports rose by 10.2% (80.9 billion €), those from China showed positive growth (+ 6.9%), but lower volume (-12.2%). This is as opposed to Bangladesh (+24% in value, +3.6% in volume), Cambodia (+ 32.4% in value, + 13.4% in volume) and Viet Nam (+ 24.3% in value, + 2.4% in volume).
This trend should continue to be confirmed, according to the results of the survey conducted by the IFM of 100 brands and labels. Some 49% of those replying to the survey believe that supplies from China will decrease in 2016 in favour of the Bangladesh-Cambodia-Viet Nam trio (the latter having become the second leading supplier to the USA). This change will maximize the margin between the cost and sales price. The three countries have very highly equipped factories and a high quality labour force, often due to Chinese investment.
In addition, some countries, such as Bangladesh, have benefited from the System of Generalized Preferences* which has favoured exports to the EU. At play in their favour are moderate wage costs ($68 is the monthly minimum wage in Bangladesh, between $105 and $156 for Viet Nam, and $140 in Cambodia, as opposed to $155 to $321 in China). In the region, an outsider, Myanmar, is emerging in the market, but there will be a need to wait another 5 to 6 years (the time to train the workforce and create infrastructure) before it becomes truly operational.
2016 should also mark a rise in supplies from Turkey (65% of those interviewed were convinced of this), and from Morocco, while Tunisia, already stalled in 2015 (-5.4% in value and 6.5% in volume) is expected to show a further decline.
Also showing increases are manufacturers from Eastern Europe – Moldova, Macedonia, Albania, and Serbia (the latter jumped 176 places in 10 years) – which have the advantage of proximity with Turkey, facilitating the delivery of fabrics. All these countries lend themselves very well to short and medium term sourcing.
In the USA, which is not affected by fluctuations in the exchange rate, there has been a 3.5% rise in imports and a decline in prices of 2.9%. There is no equivalent to the System of Generalized Preferences for textiles as there is in Europe. A greater number of countries are therefore solicited, especially in Asia, but also in sub-Saharan Africa (thanks to the benefits of the African Growth and Opportunity Act) and, more nearby, in the Caribbean and Central America.
What will be the impact of this increase in cost of production on the sale prices? ‘Partial’, according to 54% of respondents. «It will not happen,» according to 36%. But the answer is total for 10% of those surveyed, though none of them wants to be the first to initiate an increase. The idea appears rather to play on extended ranges, with prices higher for the higher-quality segments and competitive prices for low-priced goods, so the average remains unchanged.
To enable companies to cope, there are a few solutions: reduce the sales periods representing reduced margins; favour added value in order to sell the most expensive products; concentrate the purchases of raw materials and reduce the number of suppliers to obtain the most attractive prices.
Focus on Turkey
The third leading clothing supplier to the EU (9 billion €), and second in terms of textiles despite a small drop in volume in 2015 (-3.7%), Turkey represents 3.5% of world clothing exports (by value). In particular, Turks have demonstrated a real know-how in terms of innovation in denim, for which they have become one of the leading suppliers to the EU in the womenswear sector, and third for menswear. Turkey is also the second largest supplier of t-shirts for the EU. Its leading European client is Germany (18%), while France accounts for only 5% of exports. The domestic market is developing with the same dynamism. This year, the number of malls should exceed 400, located throughout the country.
*The Generalized System of Preferences (GSP) in the EU proposed reductions of customs duties (20%) or duty-free access to the Community market for exports from 178 developing countries and territories. The Community scheme gives special benefits to the 49 least developed countries and countries implementing certain standards in the areas of labour and the environment. The EU has granted these preferences without requiring consideration from the recipient countries.