Apparel Sourcing Webinar Final

WEBINAR
CHANGING
DYNAMICS IN
APPAREL SOURCING
22nd November 2018,
Thursday
WEBINAR
CHANGING DYNAMICS IN
APPAREL SOURCING
Topics Covered
01. Introduction
02. Current Apparel Export Scenario
03. Wages & Labor Market Regulations
04. Production Scale
05. Sustainability
06. Duties & Taxes
07. Macro-Economic conditions of Sourcing countries
08. Logistics Factor
09. Industry 4.0
10. E-commerce
11. Conclusion
CHANGING DYNAMICS IN APPAREL SOURCING
• The 1980s brought a significant shift of manufacturing

to China, where labor and raw materials cost less and
were readily available.
• A few years later, quotas, labor practices and

technological advancements spurred a need to find
new low-cost countries, new sourcing partners, and
new ways of designing and producing garments.
• Today, with rise in raw-material costs and wages,

retailers are looking for a smarter approach to apparel
sourcing.
• There is a need to take a portfolio approach not only

for managing manufacturing countries, but also for
Introduction
managing the supplier base.
• Lowest-cost suppliers are important if basics or entry

price point items make up a significant portion of a
brand’s assortment volume, it may make sense to shift
some assortment to lowest-cost countries. Lowest cost
= Lowest total cost (including duties, tariffs and quality
control, etc).
• Low-cost, stable suppliers are important for updated

basics with some level of complexity and maintaining
production with these suppliers season-over-season
may help ensure quality and supply continuity.
• Strategic suppliers are important for complex products

requiring new fabrication or finishing techniques,
these set of suppliers are collaborative, contribute to
the design process, and are open to improving
processes jointly.
3|
Western Europe: Luxury Apparel Vietnam, Myanmar &
Cambodia: High value
items like Jackets &
Overcoats
South Africa: Low value items

like T-Shirts & Bottoms
Example: Sourcing pattern for one of Europe’s top brands

As per their CSR

disclosure in 2018, we see
that brands & retailers
have maintained diversity
in Sourcing. Also, their
second preference after
cost is sourcing closer to
home.
Africa Asia-Pacific Europe Middle East North America South America

VF Corp 28 554 76 19 137 106
Target 1 2258 49 10 1046 35
PVH Corp 31 462 160 9 23 72
Inditex 17 200 186 0 1 0
ASOS 15 549 305 1 0 0
Information Credits : TexPro
5|
What factors do Brands & Retailers consider

before designing their sourcing strategy?
• Wages & Labor Market Regulations (Cost)
• Production scale (Capacity)
• Sustainability (Compliance to Human,
Environmental and Economic Index)
• Duties & Taxes (Tariff rates & Trade
agreements)
• Macro economic conditions of sourcing
countries (Political stability, Government
incentives, FDI etc.)
• Logistics factor (Time to market)
• Industry 4.0 (Automation, Advanced
Machinery use and Software)
• E-Commerce ( Building Parallel Trade
Channels)
6|
CURRENT APPAREL
EXPORT SCENARIO
Top Apparel Exporters (2013-2017) – US$ Bn

Exporters 2013 2014 2015 2016 2017 CAGR
World 438.69 471.08 438.83 431.17 453.44 1%
China 165.04 173.44 162.23 146.48 145.23 -3%
Bangladesh 19.57 24.49 26.53 32.65 34.38 15%
Viet Nam 16.75 19.7 21.43 22.41 27.21 13%
Italy 21.64 22.94 19.4 19.97 21.33 0%
Germany 18.3 19.46 16.66 17.12 20.75 3%
India 15.7 16.54 17.13 16.96 17.33 2%
Turkey 14.96 16.26 14.85 14.77 14.8 0%
Spain 11.07 12.05 11.87 12.28 13.75 6%
Hong Kong, China 20.72 19.39 17.45 14.92 13.73 -10%
Cambodia 4.81 5.32 5.92 6.63 11.21 24%
France 10.14 10.58 9.77 10.01 10.71 1%
Netherlands 8.21 9.19 7.23 7.87 8.61 1%
Belgium 8.68 8.37 7.78 8.4 8.59 0%
United Kingdom 7.48 8.49 8.28 7.91 8.04 2%
Indonesia 7.38 7.36 7.28 7.17 7.88 2%
8|
Apparel exports from the largest manufacturer-exporter China, have been decreasing since
the last two years while countries like Bangladesh, Viet Nam and Cambodia have shown
tremendous growth in terms of Apparel export.
As per the Trade Development Bureau of China, the outbound investment from China in
Textiles & Clothing sector between 2003-2017 was 8.8 Bn USD with an annual increase of
20%.
The major destinations for China’s investment during this period were ASEAN, SE Asia and
Africa. In particular, Viet Nam, Bangladesh, Cambodia, Myanmar and Ethiopia.
The reason for China’s decreased exports is because the Chinese are changing their export
strategy. Instead of in house production, they are leveraging through manufacturing set
ups in low cost nations cited above.
This strategy has worked well for the Chinese. With rising labor cost and limited trade
preferential agreements, they are creating new supplier bases in these countries. So, even
though on first look it looks like that Sourcing from China is reducing, actually it is not. It is
just shifting to its other set ups, where there are duty advantages, low labor cost, proximity
to major buyers like US-Europe and government support to develop the industry.
9|
Top Emerging Apparel Exporters (2013-17) – US$ Mn

Exporters 2013 2014 2015 2016 2017 CAGR
Africa
Seychelles 0.01 0.02 0 0.01 0.34 164%
Rwanda 0.1 0.48 0.85 1.51 3.23 138%
Ghana 1.42 0 0 0.32 10.35 64%
Cameroon 0.21 0.25 0.26 0.2 1.16 54%
Tanzania 16.7 23.57 21.79 47.68 59.59 37%
Lesotho 128.15 271.84 222.36 0 447.69 37%
Zimbabwe 3.44 3.86 7.27 8.22 11.14 34%
Ethiopia 38.74 46.18 65.01 52.51 68.08 15%
Asia
Armenia 37.87 49.49 67.94 90.89 122.61 34%
Cambodia 4806.44 5319.88 5916.47 6627.2 11212.1 24%
Oman 18.6 6.29 12.45 10.32 43.27 24%
10 |
Top Emerging Apparel Exporters (2013-17) – US$ Mn

Exporters 2013 2014 2015 2016 2017 CAGR
Myanmar 1173.93 1015.47 977.79 1575.29 2429.2 20%
Kuwait 23.31 50.08 48.4 51.86 42.8 16%
Brunei Darussalam 6.17 6.36 7.57 7.95 11.04 16%
Americas
Belize 0.13 4 2.05 1.75 2.23 103%
Anguilla 0.02 0.01 0.09 0.04 0.11 59%
Dominica 0.06 0.33 0.58 0.42 0.34 55%
Antigua and Barbuda 0.32 0.28 0.53 0.61 1.12 37%
Barbados 4.77 5.31 9.43 11.05 13.67 30%
Venezuela 0.12 2.69 1.69 2.11 1.34 82%
Oceania
Tuvalu 0.06 0.05 0.08 0.09 0.34 54%
Tokelau 1.07 2.78 0.76 2.59 3.37 33%
11 |
WAGES &
LABOR MARKET
REGULATIONS
Labor Market Regulation Bangladesh Cambodia Vietnam Myanmar Ethiopia
Fixed-Term Contracts: For Permanent Tasks No No No No Yes
Maximum Length: Single Fixed-Term

No limit 24 36 No limit No limit
Contract (Months)
Standard Workday (Hours) 8 8 8 8 8
Maximum Working Days/Week 5.5 6 6 6 6
Restrictions On Night Work No No No Yes No
Restrictions On Weekly Holiday No No No No No
Average Paid Annual Leave (1, 5 and 10

17 19.3 13 10 18.3
Years of Tenure, Days)
Mandatory Maternity Leave (Paid or

Yes Yes Yes Yes Yes
Unpaid, Days)
Minimum Length (Maternity Leave, Days) 112 90 180 98 90
13 |
Bangladesh
% Change
% Change
% Change
% Change
% Change
Cambodia
Myanmar
Vietnam
Ethiopia
Wages
5300.0 682085.0 3340000.0 144000.0 600.0

Wages YTD 10.20% 6.50% 33.30%
(BDT) (KHR) (VND) (MMK) (ETB)
5300.0 619243.0 3137500.0 108000.0 600.0

Wages LTD
(BDT) (KHR) (VND) (MMK) (ETB)
Wages YTD
53 -9.40% 140.9 3.40% 122.3 -0.90% 85.6 20.90% 18.3 -20.50%
2018 (EUR)
Wages LTD
58.6 136.3 123.4 70.8 23
2017 (EUR)
Wages YTD
63 -4.30% 167.3 9.20% 145.2 4.80% 101.7 27.80% 21.7 -16.00%
2018 (USD)
Wages LTD
65.8 153.1 138.6 79.5 25.9
2017 (USD)
14 |
PRODUCTION
SCALE
Bangladesh
• Technology and quality compliance parameters have seeped in
Bangladesh’s apparel manufacturing systems.
• Moreover, Bangladeshi manufacturers and exporters have built excellent

vertical capacities, which only China could offer before, which help
global brands to ensure more transparency and coordination in their
supply chains.
• The country has henceforth adopted the most sophisticated apparel

manufacturing and management technologies to cater to their
international customers.
• This has resulted in a substantially high rate of quality achievement and

technical compliance in Bangladesh’s RMG sector.
16 |
Vietnam
• There are around 6000 textile and garment manufacturing firms operating in
Vietnam, 84% of which are privately owned, 15% FDI, and remaining 1% are state-
owned.
• Vietnamese apparel industry is attracting a lot of global attention lately. It is

partly due to the various free trade agreements it has signed and partly due to the
lower cost advantage it can offer to the buyers.
• Since the labor cost advantages with China and India are diminishing, Vietnam
is gaining the business they are losing. To overcome the high cost of raw material (as
90% of it is imported), the government has already started investing heavily in the development of support
industries in Vietnam.
• In the 2006-15 period, Vietnam was the second biggest investor in the development of shuttle less
looms and the biggest investor in ring spindles and open-end rotors, amongst the ASEAN countries. The
country has also shown a marked expansion in its knitting sector. Government is also giving the apparel
manufacturers in the country opportunities to enhance their value-adding capabilities, develop their own
brands, become original design manufacturers (ODMs) rather than function only as subcontractors, etc.
The production capacity of the industry is predicted to rise by 12-14% p.a. from 2016-2020. The export
potential is also forecasted to rise by 15% p.a. during this period, and the Vietnamese textile and apparel
industry will reach US$50 billion by 2020.
17 |
Myanmar
• Myanmar has high-quality workmanship due to many years of experience
in manufacturing for high-quality markets including Japan and Korea;
favorable labor costs; new investment law in force which strongly
promotes foreign investment; high level of international support from
different governments to provide technical assistance, training and
market access support; dynamic and involved sector association with
strong membership; substantial experience in outerwear manufacturing.
• There are 9 Stated Owned Enterprises, 34 companies having Joint

Ventures with private companies, 224 companies are 100% Foreign
Companies, and 161 Local Private Companies.
18 |
Cambodia
• There are about 540 garment factories in Cambodia. It has an open and
liberal foreign-investment regime with a fairly pro investor legal and
policy framework, with the government providing incentives to entice
foreign investors.
• Not surprisingly, the bulk of garment-manufacturing firms in the country

are foreign-owned, mostly by companies from the Chinese mainland,
Taiwan, Hong Kong and Korea. These export-oriented factories mainly
operate under the Cut-Make-Pack (CMP) business model, engaging in
the production of low value-added basic garment wear.
• Due to a lack of local supporting industries in Cambodia, most

manufacturers have to import the majority of their raw materials – such
as fabrics, threads and accessories – under the CMP arrangements from
places including the Chinese mainland, Hong Kong, Taiwan, Japan,
Vietnam and Korea.
19 |
Ethiopia
• Ethiopia’s textile and apparel industry has grown at an average of 51%
and more than 65 international textile investment projects have been
licensed for foreign investors. The Ethiopian textiles and apparel industry
consists of approximately 188 medium and large-scale factories, 112 of
which are foreign-owned.
• The total industrial sector in the country equals about 17% of the country’s
GDP, with textiles and leather dominating the exports. Based on the
Growth and Transformation Plan I and II, the government intends to
construct 15 export-geared, state-of-the-art and eco-friendly industrial
parks in different regional states’ main cities.
• All parks have an international standard building with high infrastructure,

safety facilities and low carbon footprint. They also boast a wide range of
government facilities on site under the Ethiopian Investment Commission’s
one-stop service from banking to visa and immigration facilities, import
and export licenses, work permits and customs clearance, etc.
20 |
SUSTAINABILITY
22 |
23 |
24 |
25 |
Sustainability Ranking
Index HWR EWR EcWR Final Rank
Cambodia 3 2 3 1
Vietnam 1 4 2 2
Bangladesh 2 3 4 3
Ethiopia 5 1 5 4
Myanmar 4 5 1 5
26 |
DUTIES & TAXES
Does PTA impact Sourcing Pattern?

Exporters 2013 2014 2015 2016 2017 CAGR US PTA (64%) EU PTA (73%)
Africa
Seychelles 0.01 0.02 0 0.01 0.34 164% Yes
Rwanda 0.1 0.48 0.85 1.51 3.23 138% Yes Yes
Ghana 1.42 0 0 0.32 10.35 64% Yes Yes
Cameroon 0.21 0.25 0.26 0.2 1.16 54% Yes Yes
Tanzania 16.7 23.57 21.79 47.68 59.59 37% Yes Yes
Lesotho 128.15 271.84 222.36 0 447.69 37% Yes Yes
Zimbabwe 3.44 3.86 7.27 8.22 11.14 34% Yes
Ethiopia 38.74 46.18 65.01 52.51 68.08 15% Yes Yes
Asia
Armenia 37.87 49.49 67.94 90.89 122.61 34%
Cambodia 4806.44 5319.88 5916.47 6627.2 11212.1 24% Yes Yes
Oman 18.6 6.29 12.45 10.32 43.27 24% Yes
Myanmar 1173.93 1015.47 977.79 1575.29 2429.2 20% Yes Yes
28 |
Does PTA impact Sourcing Pattern?

Exporters 2013 2014 2015 2016 2017 CAGR US PTA (64%) EU PTA (73%)
Kuwait 23.31 50.08 48.4 51.86 42.8 16%
Brunei Darussalam 6.17 6.36 7.57 7.95 11.04 16%
Americas
Belize 0.13 4 2.05 1.75 2.23 103% Yes Yes
Anguilla 0.02 0.01 0.09 0.04 0.11 59% Yes
Dominica 0.06 0.33 0.58 0.42 0.34 55% Yes Yes
Antigua and Barbuda 0.32 0.28 0.53 0.61 1.12 37% Yes Yes
Barbados 4.77 5.31 9.43 11.05 13.67 30% Yes Yes
Venezuela 0.12 2.69 1.69 2.11 1.34 82%
Then there are other emerging nations like Lesotho, Tanzania, Barbados etc. which are being favored
by few brands & retailers for its PTA’s with US/EU, duty free access, low labor cost and closer to home
sourcing model.
29 |
MACRO-ECONOMIC
CONDITIONS OF
SOURCING COUNTRIES
Country Comparison Chart

Business Index Bangladesh Cambodia Vietnam Myanmar Ethiopia
Ease of Doing Business Rank 176 138 69 171 159
Getting Electricity Rank 179 141 27 144 131
Getting Credit Rank 161 22 32 178 175
Protecting Minority Investors Rank 89 110 89 185 178
Paying Taxes Rank 151 137 131 126 130
Total Tax and Contribution Rate (% of Profit) 33.4 21.7 38.1 31.2 38.6
Resolving Insolvency Rank 153 79 133 164 148
31 |
LOGISTICS FACTOR
Logistics Index Bangladesh Cambodia Vietnam Myanmar Ethiopia
LPI Rank 87 73 64 113 126

Trading Across Borders Rank 173 108 94 163 167
Lead Time To Export (Days) 4 3 3 1 14
Time To Export: Border Compliance (Hours) 99.7 48 55 142 51
Cost To Export: Border Compliance ($) 408.2 375 290 432 172
Time To Export: Documentary Compliance (Hours) 147 132 50 144 76
Cost To Export: Documentary Compliance ($) 225 100 139 140 175
Time To Import: Border Compliance (Hours) 183 8 56 230 166
Cost To Import: Border Compliance ($) 1293.8 240 373 457 738
Time To Import: Documentary Compliance (Hours) 144 132 76 48 194
Cost To Import: Documentary Compliance ($) 370 120 183 210 750
Proximity sourcing, re-shoring and on-shoring are the latest strategies followed by apparel brands. When
balancing cost through manufacturing in East Asian regions, they are also focusing on speed to market
through other alternatives. There is a strong trend toward proximity sourcing from North Africa and Turkey
for Europe, and Mexico and Latin America for the US. However, proximity sourcing is mainly relevant for
selected product categories and short lead time applications.
33 |
INDUSTRY 4.0
Sourcing revolution in Apparel?

Digitization:
Will link software patterns in a streamlined fashion and will digitally house all information,
allowing cost analysis to be done at faster speed and digital samples of products to reduce
the need for expensive prototypes. The Micro-Factory concept that follows the model “Create
Digital Prototype – Get it Approved from Brand – Start Production” is going to be the future.
Automation:
This will replace humans on the factory floor with robots and therefore allows the manufacturing
model to move away from low-cost labor countries towards those that are geographically
closer to the end market. It will allows the industry to restructure its data and operations, move
factories closer to market, reduce transportation costs and emissions, build up a more skilled
labor force that is potentially treated more fairly, and focus more closely on individual customer
needs. However, the biggest threat automation poses is putting a staggering 231 million jobs
at risk across 50 countries for manufacturing as a whole, according to the McKinsey Global
Institute.
35 |
Increased demand for Fulfilled by labor

clothing intensive developing
countries as cheap
labor avoids high
initial investment
in technology.
Apparel
production back Global Demand
to base for high quality
destinations like and
US. sustainability
factors makes
Automation
necessary
Boosting efficiencies and

new technologies make
consumer prices low
36 |
E-COMMERCE
37 |
38 |
E Commerce
39 |
• The fashion and apparel industry is expected to be marked by double-digit sales growth driven by an
expanding global market, over the next decade.
• Worldwide, experts predict that the ecommerce segment of fashion and apparel will increase at a
compound annual rate of 10.6% from $408 billion in 2017 to more than $706 billion by 2022.
• China is already the top consumer of fashion as measured by revenue, in addition , there will be
additional growth in Asia and emerging markets as smartphone penetration goes up as well as the by
the unprecedented expansion of the global middle class.
• In developed markets, merchants will increasingly drive growth with machine learning, artificial intelligence,
and ecommerce automation tools that offer highly relevant and personalized customer experiences.
Innovative brands will likely take share as fit technology, virtual fitting rooms, and AI-powered virtual
shopping assistants help consumers tailor or select the size and look most closely aligned with their
tastes and preferences. Voice-powered shopping, visual search, and smart speakers will be offered by
brands as intimate touchpoints with their customers.
• Brands have an increased risk of holding an inventory position, especially in an age characterized by near
instant changes in consumer taste and preference. Also, heightened customer expectations regarding
ethically sourced materials and green manufacturing practices will put brands in increased margin
pressure.
40 |
Conclusion
• Sourcing has never been easy and more so difficult now. With continuously evolving
market dynamics and varied advantages offered by various sourcing destinations, the
choice is tough. However, if the strategy is clear and the focus in place, sourcing can
be planned in the most effective manner both for short term and long term.
• All that is needed is the right information mix for taking appropriate decisions from
time to time.
• Unlike the past, sourcing strategy needs to be revisited at a regular frequency to take
advantages of changes occurring in the market.
• Stagnant and fixed sourcing contracts are disadvantageous both for the supplier as
well as the brand/retailer.
• Of course, the sourcing model of China+VietNam+Many might still hold true but does
the advantages offered by it remain the same? Is proximity sourcing going to be the
game changer for brands?
41 |
Designed to assist you for a strategic & informed decision making process in your business, TexPro
is a one-of-a-kind user interface service. Serving as the go-to authority for market updates and
trends, TexPro brings you with well-rounded information on raw material prices, export-import data,
existing tariff rates of various countries, non-tariff barriers in place, trade agreements and government
policies, amongst others.
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WEBINAR

02. Current Apparel Export Scenario

03. Wages & Labor Market Regulations

04. Production Scale

06. Duties & Taxes

07. Macro-Economic conditions of Sourcing countries

08. Logistics Factor

09. Industry 4.0

• The 1980s brought a significant shift of manufacturing

• A few years later, quotas, labor practices and

• Today, with rise in raw-material costs and wages,

• There is a need to take a portfolio approach not only

• Lowest-cost suppliers are important if basics or entry

• Low-cost, stable suppliers are important for updated

• Strategic suppliers are important for complex products

South Africa: Low value items

Example: Sourcing pattern for one of Europe’s top brands

As per their CSR

Africa Asia-Pacific Europe Middle East North America South America

What factors do Brands & Retailers consider

Top Apparel Exporters (2013-2017) – US$ Bn

Information Credits : TexPro

Top Emerging Apparel Exporters (2013-17) – US$ Mn

Seychelles 0.01 0.02 0 0.01 0.34 164%

Rwanda 0.1 0.48 0.85 1.51 3.23 138%

Ghana 1.42 0 0 0.32 10.35 64%

Cameroon 0.21 0.25 0.26 0.2 1.16 54%

Tanzania 16.7 23.57 21.79 47.68 59.59 37%

Lesotho 128.15 271.84 222.36 0 447.69 37%

Zimbabwe 3.44 3.86 7.27 8.22 11.14 34%

Ethiopia 38.74 46.18 65.01 52.51 68.08 15%

Armenia 37.87 49.49 67.94 90.89 122.61 34%

Cambodia 4806.44 5319.88 5916.47 6627.2 11212.1 24%

Oman 18.6 6.29 12.45 10.32 43.27 24%

Information Credits : TexPro

Top Emerging Apparel Exporters (2013-17) – US$ Mn

Myanmar 1173.93 1015.47 977.79 1575.29 2429.2 20%

Kuwait 23.31 50.08 48.4 51.86 42.8 16%

Brunei Darussalam 6.17 6.36 7.57 7.95 11.04 16%

Belize 0.13 4 2.05 1.75 2.23 103%

Anguilla 0.02 0.01 0.09 0.04 0.11 59%

Dominica 0.06 0.33 0.58 0.42 0.34 55%

Antigua and Barbuda 0.32 0.28 0.53 0.61 1.12 37%

Barbados 4.77 5.31 9.43 11.05 13.67 30%

Venezuela 0.12 2.69 1.69 2.11 1.34 82%

Tuvalu 0.06 0.05 0.08 0.09 0.34 54%

Tokelau 1.07 2.78 0.76 2.59 3.37 33%

Information Credits : TexPro

Labor Market Regulation Bangladesh Cambodia Vietnam Myanmar Ethiopia

Fixed-Term Contracts: For Permanent Tasks No No No No Yes

Maximum Length: Single Fixed-Term

Standard Workday (Hours) 8 8 8 8 8

Maximum Working Days/Week 5.5 6 6 6 6

Restrictions On Night Work No No No Yes No

Restrictions On Weekly Holiday No No No No No

Average Paid Annual Leave (1, 5 and 10

Mandatory Maternity Leave (Paid or

Minimum Length (Maternity Leave, Days) 112 90 180 98 90

5300.0 682085.0 3340000.0 144000.0 600.0

5300.0 619243.0 3137500.0 108000.0 600.0

Information Credits : TexPro

• Moreover, Bangladeshi manufacturers and exporters have built excellent

• The country has henceforth adopted the most sophisticated apparel

• This has resulted in a substantially high rate of quality achievement and