When global textile and apparel quotas were lifted on January 1, 2005, hardly anyone in the retail clothing industry thought the impact on global sourcing and manufacturing would be less than monumental, and they were right, says Paula Rosenblum, director of retail research for Aberdeen Group, “It’s been everything it was predicted to be. The trade volume in some categories has jumped by as much as 1000 percent or more.”

In turn, the flood of Chinese textile and apparel exports into Western markets has caused a backlash from the U.S. and EU, both of whom have renegotiated measures with China that puts limits on certain categories through 2008.

American clothing manufacturers and retailers have poured into China by the droves to take advantage of low-cost production and the removal of quotas, but there have been numerous growing pains.

For one, “China is becoming more expensive as a manufacturing destination,” explains Rosenblum, “and shippers are experiencing delays at U.S. West Coast ports.”

In a major development last September, New York-based Liz Claiborne said it would scale back its ambitious plans for China, which among other things called for slashing by half its roster of global suppliers to focus mainly on Chinese production. Instead, CEO Paul Charron said it would keep its sourcing levels for China at roughly 30 percent, given the tensions that had materialized between the U.S. and China over the textile and apparel trade. “The uncertainty has caused us to take a most conservative attitude to China,” remarked Charron. “We have to plan to go to the left and to the right, and that’s a physical impossibility.”

Other companies, particularly in the textile and apparel sector, have had similar experiences. Though some wisely anticipated the scenario that is playing out.

Diversifying the supply chain

“There’s a lot of value in diversifying your supply chain,” advises Rosenblum, who has seen what can happen when manufacturers put all their eggs in the ‘China’ basket.

That wisdom was not lost on The Children’s Place, who prior to the lifting of quotas had already sought out alternative markets for sourcing and manufacturing, including Africa. The company is one of a handful of children’s specialty retailing chains that has a reputation for trendy, well-priced clothing with style and durability.

“They really look at Africa as a way to differentiate themselves,” says Sue Welch, CEO of TradeStone Software, which has worked with The Children’s Place over the years to provide global supply chain solutions. “Africa has terrific fabrics and colors and their apparel production is really improving dramatically. I think that’s clearly reflected in The Children’s Place stores.” And, while Africa may not have as sophisticated an infrastructure as China, “don’t forget that China wasn’t all that sophisticated 10 or 15 years ago either,” remarks Welch, who shared several of her observations about Africa, having traveled to South Africa recently.

“I was struck with how service-oriented the economy and population was,” she says. “There’s a willingness to learn, a willingness to change. If you look at where they are today as opposed to where they were even just a few years ago, it’s amazing. They certainly have the drive to become more advanced in order to work with American and European companies.”

Dealing with Africa’s challenges

Admittedly, Africa poses a number of challenges for companies, and obviously some countries are better candidates for conducting business than other. A joint survey by the South African government and the World Bank uncovered some of the areas that are lacking.

A shortage of worker skills combined with high labor costs are some of the biggest obstacles to foreign investment in the country, the survey revealed. Rigid labor laws, exchange rate instability, and crime were also identified as key constraints by the 800 companies polled. “Wages for managers, professionals, and skilled workers are high by international standards, eroding South Africa’s competitiveness. Exchange rate volatility makes exporting difficult—yet for a high growth rate exports are critical,” noted the World Bank’s country director for South Africa.

Notwithstanding steep labor costs, the survey found that South African firms were more productive than those in other countries where World Bank investment surveys were carried out, including high-growth China, the report stated. “Productivity is…over three times higher than in China, although it is slightly lower than in the most productive cities in that country,” the report concluded. wt

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The Children's Place

Africa’s Working Well for The Children’s Place

Clothing retailer The Children’s Place is frequently praised by industry experts who consider the company tops at getting the best garments made at the best prices. Part of the company’s success lies in its willingness to stray from the beaten path when it comes to sourcing destinations.

World Trade asked Mark L. Rose, senior vice president, chief supply chain officer, why Africa works so well for The Children’s Place.

WT: What are some of the main reasons The Children’s Place began sourcing in Africa as opposed to other countries or regions, such as China and elsewhere in Asia, Eastern Europe, or Central America and the Caribbean?

Rose: The Children’s Place is an aggressive sourcing organization that constantly evaluates opportunities around the globe for sourcing our products. The African market really opened up with the signing of the African Growth and Opportunities Act (AGOA) and the establishment of the Lesser Developed Countries (LDCs) within the trade group.

The large quantitative trade levels together with the duty preference elements of the agreement provided a competitive sourcing option to Asian countries...particularly prior to the removal of apparel quotas under the WTO. The main benefits of the region are in the competitive cost opportunities and the diversification of sourcing bases.

With the trade status of the LDC countries within the AGOA, we are able to procure globally competitive textiles and trim materials from Asia and assemble products in modern, large-scale, efficient production facilities in the LDC countries, which then qualify for duty-free entry into the U.S. market.

There are few places in the world allowing the combination of globally competitive textiles, efficient production facilities and a duty-free preference program. For many types of products we source, that is a very powerful competitive combination.

It’s no surprise to see that the vast majority of the trade growth between the U.S. and the AGOA countries has come from these LDC countries supported by materials from other areas of the world. Within our global sourcing strategy, we also value the geographic, political and financial diversification, which the AGOA markets offer.

WT: What are some of the primary challenges to doing business in Africa, such as corruption, infrastructure, communication, and transportation?

Rose: The biggest challenges of doing business in Africa surround logistics. These countries are far from the dominant material sources in Asia and far from the destination ports in the U.S. The local transportation infrastructures vary greatly by country, but generally are under-developed compared to the major Asian markets.

Companies have to be prepared to adjust their supply chains to accommodate the transportation time and recognize the additional transportation costs in evaluating the economics of doing business there. There are, of course, always additional challenges around the local customs laws, labor compliance, local financial institutions, et cetera, that must be solved prior to determining whom to do business with.

WT: Has the African Growth and Opportunity Act (AGOA) been helpful to advancing trade between the U.S. and Africa?

Rose: For sure. The AGOA agreement is the foundation of the export apparel manufacturing industry in the African countries. Without a trade preference package, the additional cycle time and transportation costs would greatly reduce the viability of the industry there.

WT: Any other comments that would be helpful to businesses who are considering Africa as a sourcing or manufacturing destination?

Rose: Like anywhere, know your demand, control your decision timing and know your suppliers. Success will come from a realistic assessment of what needs to be done and diligent execution of buyers together with suppliers and vendors.