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Mexico, Turkey emerge new manufacturing destinations

"As per a new McKinsey study, western brands are finding it easier to produce in low-cost countries due to the rising costs in China. For brands selling in the US, Mexico has emerged as the most suitable option while for labels selling in Europe, Turkey is a prime manufacturing destination. According to McKinsey, labor costs in China in 2005, which were about one-tenth of the US, are now about one-third. This rise has resulted in labor in some “nearshore” countries being cheaper—than in China. For instance, making a pair of jeans in Mexico and importing it into the US costs about 12 per cent lesser. For a company looking to import its jeans into Germany, Turkey is 3 per cent cheaper than China."

 

Mexico Turkey emerge new manufacturing destinations 002As per a new McKinsey study, western brands are finding it easier to produce in low-cost countries due to the rising costs in China. For brands selling in the US, Mexico has emerged as the most suitable option while for labels selling in Europe, Turkey is a prime manufacturing destination.

Benefits of nearshoring

According to McKinsey, labor costs in China in 2005, which were about one-tenth of the US, are now about one-third. This rise has resulted in labor in some “nearshore” countries being cheaper—than in China. For instance, making a pair of jeans in Mexico and importing it into the US costs about 12 per cent lesser. For a company looking to import its jeans into Germany, Turkey is 3 per cent cheaper than China.

Although producing the same pair of jeans cost 20 per cent less in Bangladesh; Turkey and Mexico are preferred due to their shorter delivery times from those countries. The shorter lead times yield a number of benefits, creating an added economic bonus.

New technologies to speed up deliveries

Fashion companies are embracing new technologies to speed up deliveries. McKinsey assumed a hypothetical scenario whereMexico Turkey emerge new manufacturing destinations 001 all major technologies currently in development were implemented, and worked with a university in Aachen, Germany, and the Digital Capability Center Aachen to calculate the cost savings in time and labor for producing a pair of jeans.

Based on their calculations, to produce the jeans in China with automation and import them into the US, the final cost ends up being around $11.40. But to produce them in Mexico with automation and import them into the US, the cost would be about $10, plus the assorted benefits of the shorter lead time, too.

Slow pace of growth

Experts agree these changes are happening but are likely to take a long time. China has built up a manufacturing infrastructure and capacity that other countries just can’t match. Some brands are already moving a share of production to nearby countries, but a large-scale shift might not be possible until those countries are able to build up factories to handle the workload.

The vast majority of this work currently happens in Asia, particularly in China, especially in the case of any specialised fabrics. Companies may assemble finished garments in Mexico or Turkey, but they buy and import all their materials from much further overseas. With shipping costs and duties rising, many Western brands are likely to keep their production in Asia.

A shift from China

Clothing and footwear brands are being pushed to look outside China and nearer to home for manufacturing. In a highly competitive market that’s splitting ever more into winners and losers, a fast, flexible supply chain is increasingly an advantage. It allows brands to respond better to the needs and wants of today’s demanding, internet-enabled shoppers, and that’s why brands including Nike, Adidas, Levi’s are changing the way they make their products—and investing in things like automation and moving production nearshore.

Ultimately, it’s not so much a question of whether garment production will move away from China and closer to Western markets, rather it will be how much of the supply chain will be rerouted, and when.

 

 
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