BUYERS’ UNENDING QUEST FINDS NEW DESTINATION – ETHIOPIA
The apparel industry, having a volatile nature, experiences an array of trends which are of critical importance for the functioning of the industry. They improve the potential across the industry with reduction in lead times, boosting innovation and collaboration, aptly serving customers’ needs and helping in better understanding. This article analyses the report by McKinsey & Company which highlights the apparel sourcing hubs that will be buyers’ preference over the next few years.
Apparel companies are not ‘loyal’ as they have always been known to be running behind ‘low pricing’. Their favourite destination keeps on altering with the shifting requirements. Their quest for lowcost countries is always on active mode. While some countries slip down the list of favourites over time time, some new entrants gain everyone’s attraction. The newcomer in this list are Myanmar and Ethiopia. McKinsey & Co., in its latest report, has mentioned this shifting approach of apparel companies as ‘ the next stop of the sourcing caravan’. As underlined in the McKinsey report, the most recent stops of the sourcing caravan – Myanmar and Ethiopia – are enjoying keen interest from international sourcing executives. The countries have been receiving tremendous support from their Governments aiding them to become the upcoming alternatives for apparel companies. Compared to the CPO survey 2017, Ethiopia has stepped up to the second place, overtaking Myanmar and Vietnam. On the other hand, Bangladesh still enjoys the top position as the preferred sourcing hub over the next 5 years. Manufacturers showing interest in Ethiopia hope to build a sustainable apparel industry in the country and do not want to repeat the mistakes made in garment industries in other low- cost countries in the past. The country’s Government is also focused towards its growth and has rolled out many policies to support the garment industry. One such initiative is Hawassa Industrial Park, which is already home to many apparel factories. Phase 1 of the park, which opened in 2017, contains 37 modern production facilities covering 100 hectares. Hawassa is targeting US $ 1 billion in exports and 60,000 employees by the end of 2018. Spearheading the global apparel exports, China has long been out of the race of low- cost sourcing countries, reasons being increased local demand and reduction in size of available workforce (higher wages of workforce). Though China’s dominant position will remain indispensable in the coming years, the talk of the town will be countries like Bangladesh, Vietnam and India. China’s exports have declined from US $ 207 billion in 2014 to US $ 177 billion in 2016, according to WTO. The slowdown depicts an 8 per cent year- on-year reduction in sourcing value. Both Bangladesh and Vietnam have experienced rapid growth during this period, Vietnam’s apparel exports nearly doubled in value between 2012 and 2016. But China does not seem to be losing its importance in the coming years as the apparel sourcing hub. Though Bangladesh and Vietnam have been increasing their share in global apparel exports, they have not been able to match China’s share. Bangladesh, Vietnam and India together accounted for just 71 per cent of China’s apparel export value in 2016. Further, the ‘One Belt, One Road’ initiative taken by
Foreign investments worth US $ 1.2 billion were done in Ethiopia in the first six months of the financial year 2016-17, of which most of them were Chinese companies and half of which are licensed in textile and garment manufacturing.
the Government is opening the infrastructure investments worth US $ 2 trillion which will support China’s apparel industry. For example, new rail links will significantly shorten transport times to Europe and the initiative will increase China’s access to Africa’s growing consumer market. Even if the manufacturing in China loses its momentum, China will mark its presence in global apparel sourcing through its outbound investments. Chinese apparel manufacturers have been investing in low- cost countries and setting up their factories to enjoy the advantage of low- cost labour. With apparel companies under pressure to step up their agility, there is also fresh focus on proximity sourcing. Meanwhile, factors other than price – including strategic collaboration with suppliers and end-to- end process management – are becoming increasingly important considerations for sourcing executives. The report reads, “Even if interest in proximity sourcing is keen, it does not outweigh companies’ focus on low- cost countries such as Vietnam, Myanmar and Ethiopia.” Another trend emerging is reshoring driven by the need for shorter lead times and more flexible production to respond to customer demand for variety and customization.
But the McKinsey report underlines the differences between the approach of America and Europe. Americans are likely to increase reshoring in future, supported by Government initiatives such as ‘Made in America’. Some prominent US firms are even investing in their own manufacturing facilities, such as Under Armour’s UA Lighthouse in Baltimore. European executives, on the other hand, are more hesitant about reshoring, may be because companies in the EU benefit from the existing production capacity within the single market.
According to World Trade Organization, Ethiopia’s apparel exports accounted for US $ 78 million in the fiscal year 2015.