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US apparel sourcing strategy moves away from China

"For many US apparel companies, China has long been the only sourcing destination for raw materials. But not anymore as per the fifth annual benchmarking study released by the US Fashion Industry Association, Vietnam and other countries are fast replacing China as major sourcing hubs for the US. The prospect of a looming trade war is compelling US apparel companies to shift production away from China. Though, China still remains the top sourcing destination for the US apparel industry, the country now accounts for only 11- 30 per cent of companies’ total sourcing volume, compared to 30 per cent–50 per cent in the past."

 

US apparel sourcing strategy moves away from China 002For many US apparel companies, China has long been the only sourcing destination for raw materials. But not anymore as per the fifth annual benchmarking study released by the US Fashion Industry Association, Vietnam and other countries are fast replacing China as major sourcing hubs for the US. The prospect of a looming trade war is compelling US apparel companies to shift production away from China. Though, China still remains the top sourcing destination for the US apparel industry, the country now accounts for only 11- 30 per cent of companies’ total sourcing volume, compared to 30 per cent–50 per cent in the past.

Hurdles along the path

A major reason for this is the US’s protectionist trade policy, the industry’s top business challenge along with e-commerce competition and increasing production and sourcing costs. Compared to 2017, the challenges of rising costs and the need for alternative sourcing destinations have become much more immediate. Almost 54 per cent respondents in the US Fashion Industry Association believe increasing production or sourcing cost to be one of their top five business challenges this year, compared to only 34 per cent in 2017.

This is however not the case for larger companies who are more likely to have a diversified sourcing base. Over two thirds respondents reported theyUS apparel sourcing strategy moves away from China 001 source from at least 11 different countries, and 26 per cent source from 20 different countries. In contrast, only half companies with fewer than 1,000 employees source from more than 10 different countries.

As for sourcing destinations, China, Vietnam, Indonesia, India, Bangladesh, Cambodia, Thailand, Philippines, Mexico and the US dominate the list of top 10 countries. Each of these sourcing destinations has its own strength and weaknesses. Geographical proximity of sourcing domestically or from Mexico is a major factor for US companies. Bangladesh and Vietnam, however, offer the most competitive pricing, even though this cost competitiveness is eroding. Furthermore, higher compliance risks associated with sourcing from South Asia give the US another competitive edge.

An overwhelming majority of this year’s respondents expect labor costs and raw material costs to increase. In the 2017 benchmarking study, only 73 per cent expected labor costs to increase. According to the report, wage levels started increasing in the later part of 2017 in almost all major sourcing destinations for US fashion companies, including Asia, Central America and Africa.

A change in approach

This year’s respondents also voiced concerns about social and environmental compliance, political unrest and insufficient resources for managing supply chain risks. Almost 85 per cent plan to devote more resources to manage sustainability and social compliance over the next couple years. Majority of these companies can map their supply chains down to Tier-II suppliers. Nevertheless, increased attention to supply chain sustainability suggests the apparel industry is continuously adjusting its sourcing strategy in response to social and business demands. The overall sourcing strategy for the US apparel industry is thus moving away from China, with more production shifted to Vietnam and Bangladesh. Cambodia and sub-Saharan Africa are also expected to play a bigger role.

 

 
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