Post quota regime-wake up call
Order in question is 50,000 pcs of a basic men's pant in cotton twill fabric. Our factory in Bangladesh quoted $7.00 per pc as their best price. Next day you hear from buyer that order placed with a vendor in China at $6.75 per pc. Our factory in Bangladesh agreed to do the same order at 6.70 after they heard the news. Response from buyer- too late! Too bad!! Order already placed in China.
Moral of the story is that in post quota regime, the winners are going to be suppliers like this one in China. They go for big orders with all their might and quote their best price in first shot. Nobody has time to waste in going back and forth on negotiations in the new regime.
The fact that China is poised to be the biggest shareholder in global apparel sourcing market is quite obvious. They have a strong fabric base, high productivity-higher than most other countries, cheap and abundant labor, highly developed infrastructure, vertical set ups and conducive government policies. And they are going for it - all out. They deserve to get the share they are going to get post MFA.
But is China the answer to all sourcing questions?? Apparently not. Take for example a cotton voile women's top with heavy embroidery and hand sequin work, and rest assured that China still can't beat the likes of India in terms of prices/ quality/ output. Its true that to beat the Chinese for basic styles and big quantities is difficult, but not impossible. Global sourcing market is big enough to accommodate China and few more performers.
Second to China, quite interestingly, India is being now deemed as the 'next best' sourcing destination. The reasoning given is something like this. Big retailers like Wal-Mart/ J C Penney or for that matter any buyer with significant sourcing needs, would not like to put all their eggs in the same basket. Diversification of sourcing options is the need of the hour. India traditionally is known to have a rich textile base, has abundant and cheap and skilled labor. Having strong fabric base within the same geographical locations can cut down on fabric transit lead times etc.
However, this reasoning needs to be taken with a pinch of salt. Just to point out a few instances-prices of Indian fabrics are much higher as compared to Chinese fabrics. Even the lead times of Indian mills on fabrics are much longer than Chinese counterparts, even if you include the fabric transit time. Talk to any garment exporter who purchase fabrics from Indian mills as well as Chinese sources and they will tell you the service quality/ reliability/ delivery commitments of Chinese fabric suppliers are rated as much better than Indian counterparts. Majority of Indian fabric sector still remains under unorganized power loom sector with little or no global marketing and servicing skills.
Most of the fabric suppliers in India are still dependent for their business on garment exporters, and are not directly marketing their fabrics to the end customers- American/ European labels/ buyers. Very few mills in the composite mill sector are directly getting fabric nominations from buyers, to supply fabrics to garment makers in turn. On the other hand most of the Chinese fabric mills/ agents-NDP, Winnitex to name a few are directly getting in touch with the end customer and getting into nominated fabric sources.
How this works is that fabric supplier partners with the end customer/ buyer to maintain international required quality levels, keep to committed delivery schedules etc. and are willing to even pay penalty if these are not met for some reasons. This kind of arrangement ensures that fabric suppliers get assured business, and the buyer is in turn assured of quality product and on time delivery.
In a true FOB fabric sourcing, the garment manufacturer is responsible for sourcing fabric. Garment exporters get in touch with their fabric sources, negotiate prices, and the buyer need not know the actual negotiated fabric price b/w the garment factory and the fabric mill. This allows for some buffers to be kept with the garment exporters, so it benefits them. On the other end the buyers also benefit because, they are able to get a much better garment fob price as compared to garment fob based on nominated fabric source.
Without deviating further, lets get back to our original point-How India will emerge as competitive in the new regime based on using indigenous fabrics?? In the light of above, the only way is that fabric manufacturers in India need to rise up to the need of the hour, and gear up to international market conditions. They will end up losing a lot of business if they are unable to offer competitive prices and equally good or better fabric quality than their Chinese brethren. They will need to stick to delivery commitments in a very professional manner.
Maybe the best way would be to take the middle path-an arrangement in b/w the nominated fabric sourcing and true FOB fabric sourcing. The idea is this, fabric suppliers should aggressively market their product to international labels, speed up the development turn around times, and if any of their fabrics are selected by buyers, then they get in touch with the garment maker and supply the fabric on FOB terms I/O going for nomination from buyer. This way all parties concerned will be happy. Garment maker is able to negotiate the fabric price on their own terms, fabric suppliers is assured of business, since already fabric quality has been selected by buyer, and buyer is happy too, as he gets the required quality of fabric and garment factory taking responsibility for timely delivery.
Speed is crucial!!
In the fast paced and highly competitive international retailing scenario, most European/ American buyers are on a look out for suppliers who can do quick turn around. Buyers want to take a read on the fashion trends and quickly supply the trendy/ hot selling merchandise, ride on the crest while it lasts and make their bucks. Nobody wants to make their purchases too much in advance and then run the risk of sitting with unsold merchandise, because in b/w the fashion trends changed!!
So the critical factor for most Indian suppliers to come out winners in the new global apparel trade is to respond to this need of 'quick response' and do it quickly, before its too late, and someone else moves the cheese!! Quite often a classic incident is heard in the garment circles, which is the best illustrator of the speed factor. Here goes. A certain American bra label sent out specific elastic to be sourced to two different suppliers. One guy was based in China, and the other guy based in Sri Lanka; here is the recount of buyer's experience verbatim ' it took Sri Lankan supplier two weeks to get back to us-only to tell us that they are still sourcing. It took them another two weeks to actually send their elastic quality for approval. During which time the other supplier in China, not only submitted the elastic for approval, got an approval, took the order and even shipped out the entire bra order!!!
Sounds a bit exaggerated, but nevertheless, illustrates a very imp point. Speed is crucial.
Speed in responding to price quotes/ fabric submits/ color approval submits-the entire gamut that goes at the prototype development stage. If you talk to a regular buying office worker, you will realize that our Indian suppliers are still far away from responding quickly. On an average a supplier takes minimum 5 days to revert on costing and that too after being chased for it. They still go through three-four rounds of hard negotiations before settling at agreeable prices! Now this is funny because, garment industry is not a microchip kind of manufacturing industry. What it takes to make a men's shirt will not vary too much from season to season, and year to year. Still factories will start out be quoting the highest possible prices, as if the buyers don't keep records of what they paid for similar styles last season. Expect to be haggled to death before coming down to reasonable prices!! This kind of mentality may have worked in the past, but not any longer. No one is willing to spend too much time on negotiations and the best bidder gets the deal in one shot.
This type of thinking holds true for Bangladesh factories as well. Coming to countries like Sri Lanka/ Bangladesh etc. So what's in store for them in the post-quota world? Many experts feel that they are in for trouble, primarily because of their dependence on imports for procuring raw materials. There is minimal or no indigenous supply of trims/ fabrics in these countries. This adds to the cost plus to the lead times that these countries have to offer. While Sri Lanka can offer better lead times, as compared to Bangladesh, their costs are still higher in terms of factory overheads/ labor cost.
What is noteworthy though is that even during the quota regime these countries were very much dependent on raw materials procured from outside. They managed fine all these years, in terms of prices/ deliveries/ lead times/ quality. And post quota, their prices are even sharper, as there is no quota cost involved, compared to the Indian factories. This is especially true for basic product categories - like mens pants. So what's the threat to them?? They have built relationships with their customers over the years, and just because of quota phase out, it's unlikely that these customers will stop buying from them. Most of the buyers still continue to source from their supplier base in Bangladesh/ Sri Lanka. Well, these suppliers must be doing something right!
Many of big suppliers in these countries have set up their fabric sourcing offices in Hong Kong/ Shanghai etc; some even own the fabric mills in the Far East. They employ Chinese-speaking locals in these offices for better interaction with the local mills. Few companies have set up fabric processing units in their home country and are only just importing the greige from outside-say Pakistan or China.
Sourcing from Bangladesh, Sri Lanka is not going to vanish so quickly post quota, provided suppliers wake to the need of the hour. Adopt quick response working, quote competitive prices without going much back and forth.
Customer Service orientation-winners strategy!
Last but not the least, the biggest challenge for the supply end of the apparel industry to compete with the looming china threat would be to inculcate the 'customer service orientation'. They have to acquire professionalism in their approach, in terms of sticking to committed deadlines-be it for deliveries or any other development/ production related submits. Thumb rule is-if you commit a date, stick to it, come what may. To satisfy the end customer should be their ultimate focus and this needs to percolate right from the top management levels to the grass root levels. The mindsets need to change... business is not going to come easy any longer. Only the best will survive and will deserve to not only survive but also thrive!
About the Author:
Anjuli Gopalakrishna has spent more than a decade in the apparel industry, having worked with leading companies including J C Penney Purchasing Corporation, Tommy Hilfiger India Limited and Li & Fung. Her experience includes apparel marketing and merchandising, sourcing of home products, apparel, accessories and leather goods. She has extensive experience sourcing for US and Europe from sourcing destinations including India, Bangladesh, Sri Lanka, Vietnam, Madagascar, Pakistan, Taiwan and China.
She is a Post Graduate in Fashion Management Studies from the National Institute of Fashion Technology Delhi (NIFT). She is now an independent consultant and trainer in supply chain merchandising to buying offices and garment exporters and also a guest lecturer at NIFT Bangalore.