The global textile and apparel industry is shaped by geopolitical changes, radically growing demands, pressure to cut costs, maintaining quality and staying ahead of the competition curve. There is extra pressure on textile companies to create, maintain and fulfill demand. Outsourcing production is one of many solutions to cut manufacturing costs. Labourers in China, Bangladesh, India, and Vietnam have eagerly spun and sewn for international textile and apparel brands at marginal costs. Nevertheless, the scene in the United States of America is changing gradually, with some of the textile companies moving back to their own shores. Rising labour costs, labour safety concerns, and environmental issues in the developing world have become a huge challenge for these brands that find manufacturing within America not as costly as it was a few decades back.

The beginning

In the 1970s high-paying production jobs in the textile sector were handed out to Latin American countries. Outsourcing shifted to the east part of Asia. Textile production outsourcing comes from supply chain-logistics analysis, which means low supply and transport cost. The 1990s was a golden period in America's textile outsourcing. The idea was to improve profit margins by cutting down on manufacturing costs. The competitive environment pushed several textile and apparel brands to reduce manufacturing costs and the textile sector in the country found its savior in outsourcing manufacturing to the developing world.

There were several factors that discouraged textile manufacturing within the United States of America. Firstly, developing nations began to catch up with technology and had a cost advantage. Then, with the lifting of restrictions on the import of foreign textiles and apparel, consumers realized that the products made in the United States of America were too costly. That led to textile and apparel jobs being outsourced to foreign countries. The past few years have seen some major American designers and retailers as well as some smaller companies shifting production from foreign lands back home. This has created approximately a thousand jobs in the country. However, the thousand figures are extremely small in comparison to 8 lakh jobs lost to foreign clothing factories since 1990.

The big change

The scenario today is a little different as companies are focusing on shifting manufacturing to their own shores. A 2014 report of the global strategy and management consulting firm AT Kearney has objectively studied the rate and pace at which manufacturing operations are returning to the United States of America. Apparel manufacturing has secured a safe spot among the top three reshoring industries with a 12 percent rise in American production.

AT Kearney principal and study co-author Pramod Gupta said, "While the so-called reshoring trend has helped improve the mood of US manufacturing since the Recession, the reality is that the import value of manufactured goods into the US from 14 low-cost Asian countries has grown at an average of 8 percent per year in the last five years. The 2014 Reshoring Index is not only an indicator of US manufacturing capital flows but also how the US stacks up in terms of attractiveness as a source of manufactured products versus countries like China, Bangladesh, and Cambodia."

According to economist Bill Conerly's United States of America Manufacturing Forecast for 2015-2016, which was published in Forbes, reshoring is likely to rise in the apparel sector. The apparel brands in the country are now questioning the idea of outsourcing manufacturing, as labour costs in developing nations like China surge further. According to chair of Global Fashion Management at the Fashion Institute of Technology, Pamela Ellsworth, "Apparel production in the US is once again becoming financially sustainable as wages increase in China and factory suppliers are demanding a higher volume of product. Domestic production makes it possible to customise, meeting the preferences of large segments of consumers who [favour] 'niche' brands, such as denim jeans made in North Carolina or men's suits made in Massachusetts."


John Martynec, senior vice president of manufacturing of apparel brand Brooks Brothers believes, "Cheaper isn't always better. To get those low production costs in the Far East, you're forced to produce big runs; you end up with a lower sell-through rate, and leftover pieces unloaded at cut prices." Domestic manufacturing has unparalleled benefits like maintaining control of manufacturing and accomplishing timely order fulfilment.


Winners and losers

With rising labour wages in Asian countries, deteriorating quality of apparel in the developing nations and growing awareness among home consumers regarding Made in America products, there is a willingness among Americans to pay a little more for products made in their own country. Wages in China that were once a sixth of those in the United States of America are now between a third and a fifth of the same.


With brands and designers focusing on manufacturing apparel in the United States of America, the delivery gap has also been reduced significantly. Orders from overseas plants take around seven weeks to enter the markets whereas orders are filled within a fortnight by plants in the United States of America. This is tremendously effective when a design or style is popular for a short period of time and stores want to sell as many products of the style as possible before it becomes outdated. Textile products made in the country are also considered a luxury item in other parts of the world, thus it can help in increasing the export of 'Made in America' apparel to other countries.


CEO of American Apparel, Dov Charney said, "(The company) has added about 100 employees at its Los Angeles plant since last year as designers and retailers bring back some production from overseas."


An industry consultant and adjunct professor at the Fashion Institute of Technology Margaret Bishop estimates that around two lakh apparel manufacturing jobs could be created in the United States of America over the next decade, as retailers and clothing brands are looking forward to reshoring business.


Small labels are making the most of this opportunity. These labels tend to give small to medium orders to overseas factories. The overseas manufacturers give priority to large- scale orders and holding up the orders made by small labels. School House that designs and sells university licensed clothing, gave manufacturing orders to a Sri Lankan factory. But the label was in for a shock, as orders were routinely delayed by one to three months. CEO of the company said, "Since School House placed small orders, we were getting put on the back burner. That kind of thing can put you out of business." School House moved its manufacturing to the United States of America and Weeks says that apart from getting timely delivery, the company is saving US$ 5,000 per month on staff to oversee production in Sri Lanka.

 

Though not everyone agrees that reshoring is a viable option as raw material costs and labour costs are still cheaper in countries like Bangladesh, the country that stands to lose most is China. The overstretched labour market in China is making it difficult for brands to find quality labour and hiring people with lesser qualification means compromising on quality. With China's one-child policy, the new generation of labourers are not keen on working for companies producing goods for export, as quality standards are extremely high and thus, the job becomes demanding. Consequently, the textile sector, which is highly labour intensive, is finding it difficult to maintain the cost benefit.


According to the National Bureau of Statistics of China, the average manufacturing wage in China increased at an annual rate of 14.6 per cent between 2009 and 2014. When comparing this with the average manufacturing wage for private sector workers in the United States of America, the wages increased at an annual rate of 2.4 per cent over the five years ended 2013, according to the latest data available from the Bureau of Labor Statistics.


The Indian story is likely to be different to China's. Though labour in India is not as cheap as it is in countries like Bangladesh or Vietnam, India still has high quality workforce. If not a manufacturing hub, India can still continue to be a service provider for the textile and apparel sector in United States of America.


Reshoring isn't easy

One of the problems with reshoring is that high-end brands cannot find permanent labourers within the country. Also, the statistics on reshoring do not suggest any significant change in the economy of the United States of America.


According to IBISWorld, the trade-weighted index, which measures the US dollar with currencies of its trade partners, will increase at 4 per cent annually in the next five years through 2020. This will make exports from the United States of America costlier and could reverse the current trend by making low-cost imports more attractive.


Moreover, finding trained workers for apparel manufacturing jobs requires expertise since operating a computerised machine etc is also difficult. The corporate taxes in the country are also high. The apparel companies are now making balanced choices, assessing the pros and cons of reshoring and Asia is not a default choice any more.



References:

1. Media.ibisworld.com

2. Thebrokeronline.eu

3. Nytimes.com

4. Dailyprogress.com

5. Cit.com

6. Atkearney.com

7. Usatoday.com

8. Apparelbusiness.com

9. Economist.com

10. Washingtonpost.com