[THE ECONOMIST]
“FASHION is a form of ugliness so intolerable that we have to alter
it every six months.” Oscar Wilde’s quip now sounds hopelessly out of
date. Fashions change far more often than twice a year. And the rag
trade is as footloose as its customers are fickle. It goes wherever
clothes can be made cheaply and reliably. Until recently, that meant
China. But as Chinese wages soar, buyers are looking elsewhere.
South-East Asia could be the next big thing.
China still dominates the business. It supplies nearly half of the
European Union’s garment imports and 41% of America’s. But more orders
are shifting to lower-wage economies such as Cambodia and Vietnam, where
garment factories are mushrooming. Vietnam is already the
second-largest supplier of clothes to America.
The new tigers are still cubs. They often have to import fabrics from
China to stitch into clothes, so their transport costs are high. For
buyers in a hurry, it is hard to beat China’s mix of scale, speed and
flexibility. Suppliers in South-East Asia “are all clearly behind
[China],” says Pablo Isla, the chief executive of Spain’s Inditex, which
owns Zara, a retailer of “fast fashion” (the rag trade’s equivalent of
fast food).
One way to catch up would be to knit together textile and garment
producers in the Association of Southeast Asian Nations (ASEAN) to
create a regional supply chain. Vietnam does not produce denim, but
Indonesia does, and its denim can be exported tariff-free within ASEAN
to sew into jeans. This sort of partnership, promoted by USAID,
America’s aid agency, is attractive to fashion buyers who prefer an
integrated, one-stop service. It is also a step towards the single
market that ASEAN is supposed to turn into by 2015.
The idea has been knocking around for a while, but has been given a
jolt by China’s rising wages. Since mid-2010 the price of American
garment imports has risen by around 10%, says Peter Brown of Kurt
Salmon, a consultancy, partly because of high cotton and oil prices but
also because of Chinese wage inflation.
Last year Guess, an American fashion retailer, vowed to cut the share
of Asian goods it sourced from China from half to one-third, within 18
months. Other global brands are following suit. “Every company is
pointed down this path,” says Jeffrey Streader, a former executive at
Guess.
ASEAN manufacturers are forming alliances. For example, Phongsak
Assakul, who owns a textile mill in Bangkok, ships his pre-dyed fabrics
by road to neighbouring Cambodia, where another factory cuts and sews
them into summer blouses for Benetton, an Italian brand.
To compete with China, ASEAN needs to make it easier to move goods
around. New roads and railways, plus faster customs clearance, all help.
But infrastructure bottlenecks can delay shipments. This is a no-no for
fast fashion. Winter frocks delivered in the spring are worthless.
China still has plenty of cheap labour in northern and inland cities,
far from the overheated coastal boomtowns. But as it grows richer,
wages will rise in the hinterland, too. Its factories will continue to
churn out clothes, but they will increasingly shun simple items, such as
polo shirts.
Even Chinese firms are starting to outsource low-end clothes
manufacturing to Vietnam and Cambodia, observes Peter Hevicon, a Hong
Kong-based buyer for Debenhams, a British retailer. And when wages rise
in South-East Asia, the rag trade will move again.
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