Nicaragua positioned to excel in apparel production

05 Jul '11

4 min read

Official Investment Promotion Agency of Nicaragua (PRONicaragua) says that Nicaragua is once again attracting the attention of international apparel producers as a key factor has caught their eye: the country's cost competitiveness. Nicaragua was found to be the single most competitive option for sourcing numerous apparel products, not just in this hemisphere, but also compared to China, Vietnam and Bangladesh, according to the study titled “Benchmarking the Competitiveness of Nicaragua's Apparel Industry”, conducted by the prestigious consulting firm O'Rourke Group Partners. Here are the main reasons underlying the country's success in the industry:

Free trade agreements (FTA) such as the DR-CAFTA and its complementary trade benefits, in force since 2006, have allowed Nicaragua duty-free access to the U.S. market and therefore helped position the country as a major global cost competitor in several product categories. It is due to this advantage that by 2010, Nicaragua ranked as the 12th largest worldwide apparel supplier to the U.S. in volume, thus becoming an important player in the global textile and apparel industry.

Furthermore, cost competitiveness on a global basis has shifted significantly since 2010, due to unprecedented increases in the price of raw cotton fiber, which in turn have narrowed price gaps between Asia and countries in the Western Hemisphere. When comparing basic denim jeans production costs (LDP), China experienced a 27 percent increase between June 2010 and February 2011, while Nicaragua increased only by 15 percent during the same period. Although China's production costs for basic denim jeans in June 2010 were 3 percent lower than production costs in Nicaragua, by February 2011 Nicaragua's costs were 6 percent lower than China.

In turn, Nicaragua's government recently announced the beginning of a cotton production pilot project in the second semester of 2011, which will significantly foster the sustainable development of Nicaragua's textile sector by supplying local raw materials. The project will also contribute to the vertical integration of the industry and the strengthening of the country's value chain.

Particularly, having the most competitive labor costs in Central America constitutes a key decision factor for companies looking to establish labor-intensive operations. The country's 2.8 million labor force is known to be flexible, with excellent working habits, a fast learning curve and low absenteeism and attrition rates. Also, Asian competitors such as Vietnam and Bangladesh, have not only increased labor costs but still present low labor productivity, which in turn “negates or narrows the gap in overall apparel competitiveness compared to Nicaragua”, according to the study. On the other hand, Chinese labor costs increases ranged from 18 percent to 24 percent during 2010.

Nicaragua also has an excellent track record in providing speed-to-market garment sampling and production supply, which is a determinant in decreasing overall production costs. Nicaragua's lead time, including regional fabric acquisition, averages from 52 to 60 days, but can be as short as 42 days or even two weeks when fabric is on-site.

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