The 2013 Name The New China Contest

Once again garment sourcing professionals are gathering for their annual contest, “Name the New China.”

This year we have more entries than ever before; although, I regret to say that absent from the 2013 list of potential new-Chinas are both Svalsbard and Spizbergen.

I am also disappointed that yet again Atlantis has been omitted from the list.  Once again, I have complained to the committee and once again I have been rebuffed, with the excuse that only WTO members can be nominated to be the 2013 new- China. I am concerned that the failure to include Atlantis may prejudice development of their nascent garment export industry. I am reliably informed that Li & Fung has already delayed opening their Atlantis office and is now concentrating their efforts at the new frontier — the plant Neptune ­— where an unusually high cost of logistics can be offset by low labour rates, which they tell me compares favorably with planet Bangladesh, to say nothing of Neptune’s more salubrious environment.

Having made my complaints public, it is time for me to cast my vote for the 2013 Name the New China contest. I vote for China.  Yes, I believe than once again, China will be the new China.  To paraphrase Mark Twain, rumors of China’s death have been greatly exaggerated.

The above notwithstanding, Bangladesh is clearly everybody’s 2013 favorite.  There is something to be said for this.  In 2012 Greater China’s (China+Hong Kong+Macao) U.S. market share decreased while at the same time Bangladesh’s U.S. market share increased (-0.1% compared with +0.2%).  Should this trend continue uninterrupted, Bangladesh is scheduled to over overtake Greater China as the U.S. leading garment supplier at precisely 8:26AM, 23 June 2568.  However, given our industry’s many complexities, I would not hold my breath.

To be serious.  Garment sourcing is a lot more than finding the place with lowest labor rates. If all that counted was wage rates than Bangladesh with its $60 per month would be number 1, while China with its $450-$600 per month would be out of business.

We at Third Horizon are in the process of completing a detailed Benchmark Study, for the government of India, comparing garment-exporting industries in Bangladesh, Cambodia, China, India, Indonesia, Turkey and Vietnam.  It may well be the most detailed research effort of its type in the history of the global garment industry.  We have collected an enormous amount of data; and our teams have visited over 150 factories in 7 countries.  However, the most interesting and probably most relevant part are our confidential interviews with a large number of the most senior sourcing specialists in the industry.  If you want to learn customers’ sourcing preferences, ask the customers.

Each sourcing specialist was asked to rate each of the seven countries in 15 areas that professionals normally consider when making their selections:

High = 4 points

Medium = 2 points

Low =  -2 points

Why China and why not Bangladesh? Take a look at the following score-card.

Benchmark Study – Customer Survey

Group Sourcing Areas

China

Bangladesh

   

Points

Rank

Points

Rank

Social Responsibility Compliance

55

4th

5

7th

  Sustainability

50

3rd

-15

7th

  Pollution

41

3rd

3

7th

Reducing Costs Productivity

89

1st

21

7th

  Service

86

2nd

-5

7th

Product Development Material Sourcing

100

1st

4

6th

  Salesman Sample Fabric

100

1st

34

7th

  Original Garment Design

96

1st

-19

7th

  Design Assists

93

2nd

16

6th

Production Lead Times

84

1st

-2

6th

  FOB Price

61

3rd

76

1st

  Quality

88

1st

47

6th

Business Culture Ease of Doing Business

93

2nd

8

6th

  Reliability

87

1st

13

6th

Shipping Terms Open Account / Credit

91

1st

38

7th

 

FOB is still important, although even here we should be talking of FOB value, which is a great deal more than FOB price.

I have never joined in the name-the-new-China contest; however, we at Third Horizon have been retained on several occasions to examine the question.

When we looked at the competing-with-China question more analytically and brought to bear a wide range of data, we reached two immediate conclusions:

  1. This is a an extremely complex problem
  2.  Fast answers are almost invariably silly answers

For example, Vietnam appears to have come the closest with a 2012 9.2% U.S. market share.  However, this conclusion reflects only the U.S. point of view.  From the EU point of view Vietnam is at best a good second level supplier with 2.7% market share.

This leads to yet a more serious problem.  The contestants in the name-the-new-China contest are for the most part U.S. based, with a U.S. perspective and most importantly a U.S. bias. The current world is different than they imagine.

  • U.S. garment imports total 21.5% of world total, compared with 45.8% for the EU.
  • The U.S. market is quickly becoming a secondary market for U.S. brand labels and retailers.
  • The U.S. has virtually no domestic garment industry, while fully 46.6% of EU imports come from other EU countries

When picking the new China, we would do well not to jump in blindly, but rather to consider the whole garment industry world.

The serious question is not who will be the new China? But rather, Who can possibly become the new  China?  And, more importantly, what steps must they take to  become the new China?

My conclusion is that no single country can become the new China.  The answer to the new China question is not country but rather a region, such as NAFTA/CAFTA, South Asia, ASEAN

In 2009, Third Horizon was retained by ASEAN to try bring the countries together to better compete with China.  2009 was not a good year for ASEAN.  Vietnam, which previously enjoyed double digit market share increases, had been reduced to only marginal increases.  The other two major exporters, Indonesia and Cambodia, were moving towards outright declines, while Philippines and Thailand were in rapid decline.

We asked ourselves, what steps must they take to become the new China?

We concluded that the China’s advantage was not primarily as a product maker, but rather as a service supplier.  To compete with China ASEAN suppliers would have to learn to provide the same services as China.  And so was created the Source-ASEAN-Full-Service-Alliance.

The SAFSA strategy was:

  1. To bring textile mills and garment factories together as virtual vertical factories (VVF) capable of providing the required services
  2. Publish a Service Manual, outlining each service
  3. Retain SGS to audit each VVF for services
  4. To provide the detailed results of the audits to the brand importers and retailers.

It is hard to measure the success of the SAFSA project. The good news is that today ASEAN is the most successful garment major exporting region in terms of growth rate.

For single countries, efforts to become the new China is a waste of time.  However, many countries have the potential required to compete successfully with China. How to accomplish the goal is quite simple.

  • Develop the national advantages
  • Remove the obstacles restraining that development
  • Enroll the government, the industry, and the customers

Of course, implementing the solution might prove difficult

This is the goal of THL’s current India project.  India is the world’s third largest garment exporting country and is quite capable of competing effectively with China. We just have to bring potential to reality.

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2 Responses to The 2013 Name The New China Contest

  1. Indigain says:

    I am just visit your blog by Google ,it is very most effective for me.I am so happy visiting this blog on puja offer in kolkata

  2. Renee says:

    Excellent reads and point of view. As a new generation sourcing manager, I am sure your books and blog will be a great source of mentorship for me. Many Thanks!

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