Sourcing Trends of U.S. Fashion Companies: Discussion Questions from FASH455

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The following questions are proposed by students in FASH455 (Spring 2017) based on the 2016 U.S. Fashion Industry Benchmarking Study. Please feel free to join the online discussion (please mention the question # in your comment).

#1 With many bricks and mortar stores closing and profits decreasing in many of these stores, why do you think that 92% of respondents are optimistic or somewhat optimistic about the fashion industry over the next five years? Do you believe that there is a technological advance or a change in organizational structure that is coming in the future that is keeping them hopeful?

#2 U.S. fashion companies today have a very diversified sourcing base. For example, overall 52% of respondents report sourcing from more than ten different countries. However, it seems quite challenging to ensure all the factories they are sourcing from are up to the company’s standards. Do you think with increased pressure to become more sustainable as well as have ethical working conditions across their supply chain, U.S. fashion companies will source from fewer countries in the future?

#3 According to the survey, controlling sourcing and production cost remains one of the top business challenges for U.S. fashion companies. Does it imply that it is unrealistic to expect companies to make commitments to sustainability and social responsibility at the sacrifice of their profit?

#4 U.S. apparel imports from Vietnam has been growing rapidly in recent years. Why do you think Vietnam has been able to expand as a garment exporter so quickly, outperforming most of its Asian competitors?

#5 As optimism continues to create new demand for human talent, more specifically for fashion designers, buyers and merchandisers, sourcing specialists, and social compliance specialists how can the fashion department at the University of Delaware further prepare us to excel at these positions? Any specific suggestions?

#6 What other sourcing and trade topics do you think the benchmarking study could include?

2016 August Sourcing at Magic Debriefing

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New landscape of sourcing

  • Sourcing is turning from regional to global. In the past, U.S. apparel companies/fashion brands set up regional offices to handle sourcing. Nowadays, companies are building a global infrastructure to develop, source and market their products around world. Global rather than regional sourcing also allows companies to improve sourcing efficiency and reduce total product and distribution cost while maintaining quality of their product and services.
  • U.S. apparel companies/fashion brands are going with fewer but more capable vendors (“super vendors”). For example, executive from a leading U.S. apparel brand said their company has shrunk their sourcing base by 40% in the past few years. At the same time, they now expect their vendors to be able to supply on a global scale, including having multiple manufacturing facilities around the world and being able to provide value added services such as design and product development.
  • Related, sourcing is shifting from cut-make-and trim (CMT) to full package. This is consistent with our findings in the latest USFIA benchmarking study which suggests that vendors are highly expected to have the capacity of supplying raw material.
  • U.S. apparel companies/fashion brands are also investing to build a more partnership-based relationship with vendors— help vendors reduce cost, become more innovative and have the same vision looking at the whole picture of the supply chain. At the same time, U.S. apparel companies/fashion brands see vendors as their “ambassadors” and want to know more about them—what they believe, what they can bring to the table and how they treat their workers.
  • Companies are redefining the role of sourcing in their businesses. Sourcing is no longer treated as a technical function, but an integral part of a company’s overall business strategy.  

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Made in USA

  • There is a noticeable interest in sourcing textiles and apparel “Made in USA” at Magic. A dozen U.S.-based apparel companies attended the Magic show and their booths attracted a heavy traffic. According to representatives from these companies, U.S. consumers’ increased demand for apparel “Made in USA” has been a strong support for their business growth in recent years.
  • Nevertheless, apparel “Made in USA” often contain imported inputs today. I specifically asked a few vendors where their fabrics come from. All but one company said fabrics were imported because it was so hard to find domestic suppliers, especially for woven fabrics. Interesting enough, some companies feel OK to label their apparel “Made in USA” even though they use imported fabrics. According to them, apparel can be labeled “Made in USA” as long as “domestic content exceeds 60% of the value of the finished product.”
  • At a seminar, some entrepreneurs which make and sell “Made in USA” apparel and accessories said price and production cost remain one of their top business challenges. I asked the panel whether going high-end is the only option for the future of apparel “Made in USA” given the high labor cost in the country. They disagreed—saying technology advancement and design innovation could help reduce production cost. However, all panelists admit they carry some luxury product lines. Additionally, some companies choose to emphasize concepts other than “Made in USA”, such as “hand-made” and “Pride in Seattle”, in order to make their products look more personal to consumers and allow more flexibility in sourcing raw material.

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Updates of sourcing destinations

  • Ethiopia: as I observe, Ethiopia is THE star at this year’s Sourcing at Magic. The country was repeatedly mentioned by panelists at various seminars as a promising and emerging sourcing destination. Several events at the show were also exclusively dedicated to promoting apparel and footwear “Made in Ethiopia”. A couple of reasons why Ethiopia is so “hot”: 1) the ten year extension of AGOA creates a stable market environment encouraging sourcing from Africa and investing in the region (and for sure the duty free access both to the US and EU market).  2) Located in the middle of Africa, Ethiopia is regarded as a hub that has the potential to take a leadership role in integrating the apparel supply chain in the region. 3) It is said that Ethiopian government is very supportive to the development of the local textile industry.  4) Many U.S. fashion companies feel sourcing from Ethiopia involves less risks of trade compliance than sourcing from some Asian countries such as Bangladesh.  
  • China: China unarguably remains the No.1 textile and apparel supplier to the U.S. market—in terms of numbers, around 60% vendors at the Magic show came from China. But I notice that booths of Chinese vendors didn’t have much traffic this time, an interesting signal for sourcing trend in the upcoming season. Nevertheless, while U.S. apparel companies/fashion brands are placing more emphasis on supply chain efficiency, quality of products, speed to market and added value in sourcing, “Made in China” will continue to enjoy many unique advantages over other suppliers. Plus, Chinse factories are actively investing overseas, from Southeast Asian countries to Africa. This makes Chinese factories likely to grow into “super vendors” that western fashion brands/retailers are looking for. To certain extent, macro trade statistics alone may not be able to fully reveal what is going on in apparel sourcing and trade.   
  • Vietnam: Regarding the future of Vietnam as a sourcing destination for U.S. apparel companies/fashion brands, somehow I hear more concerns than excitements at Magic. The uncertainty surrounding the ratification of TPP by the U.S. Congress definitely has made some companies hold back their investment and sourcing plan in Vietnam. Another big concern is Vietnam’s labor shortage and limited manufacturing capacity: apparel factories in Vietnam are already competing with electronic industry for young skilled workers. US companies also have to compete with their EU counterparts for orders in Vietnam. The newly reached EU-Vietnam Free Trade Agreement (EVFTA), which is very likely to be implemented earlier than TPP, provides Vietnam duty free access also to the EU market. And EVFTA adopts a much more flexible rule of origin than TPP, making it easier for Vietnam factories to actually use the agreement.

Sustainability

The awareness of social responsibility and sustainability has much improved: everyone in the industry is talking about them and have a view on them. On a voluntary basis, some companies are making efforts to improve traceability of their products, i.e. to help consumers know exactly where their clothing comes from and what is happening at the upstream of the supply chain. Yet, how to encourage factories to share their information and control tier 2 and tier 3 suppliers remain a challenge. 

by Sheng Lu

Note: Sourcing at Magic is one of the largest and most influential annual textile and apparel sourcing events hosted in the United States. Special thanks to the Center for Global and Areas Studies at the University of Delaware for funding the trip.

Vietnam’s Apparel Exports Slow in First Half of 2016

Growth rate of Vietnam

According to Thanh Nien News, Vietnam’s textile and apparel (T&A) exports only increased 5.1 percent to $10.7 billion in the first half of 2016. This was the lowest growth rate since 2010. Data from the General Statistics Office of Vietnam shows that Vietnam’s T&A exports totaled $22.63 million in 2015, up 8.2 percent from a year earlier.

In the U.S. market, apparel imports from Vietnam also see a much slower growth in the first five months of 2016: 4.1% by value (compared with 13.1% on average between 2010 and 2015) and 5.0% by quantity (compared with 11.8% on average between 2010 and 2015).

Vietnam

The new trade data echos the findings in the latest 2016 US Fashion Industry Benchmarking Study. Although Vietnam remains one of the top sourcing destinations, respondents seem to be more conservative about Vietnam’s growth potential in the next two years. Only 4 percent of respondents expect a strong increase of sourcing value or volume from the country, which is a substantial drop from 21.4 percent in the 2015 study.

2016 U.S. Fashion Industry Benchmarking Study Released

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The report can be downloaded from HERE

Key Findings of the study:

I. Business environment and outlook in the U.S. Fashion Industry

  • Overall, respondents remain optimistic about the five-year outlook for the U.S. fashion industry. “Market competition in the United States” is ranked the top business challenge this year, which, for the first time since 2014, exceeds the concerns about “increasing production or sourcing cost.”

II. Sourcing practices in the U.S. fashion industry

  • U.S. fashion companies are more actively seeking alternatives to “Made in China” in 2016, but China’s position as the No.1 sourcing destination seems unlikely to change anytime soon. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a slower pace.
  • U.S. fashion companies continue to expand their global reach and maintain truly global supply chains. Respondents’ sourcing bases continue to expand, and more countries are considered potential sourcing destinations. However, some companies plan to consolidate their sourcing bases in the next two years to strengthen key supplier relationships and improve efficiency.
  • Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

III. Trade policy and the U.S. fashion industry

  • Overall, U.S. fashion companies are very excited about the conclusion of the Trans-Pacific Partnership (TPP) negotiations and they look forward to exploring the benefits after TPP’s implementation.
  • Thanks to the 10-year extension of the African Growth and Opportunity Act (AGOA), U.S. fashion companies have shown more interest in sourcing from the region. In particular, most respondents see the “third-country fabric” provision a critical necessity for their company to source in the AGOA region.
  • Free trade agreements (FTAs) and trade preference programs remain underutilized in 2016 and several FTAs, including NAFTA and CAFTA-DR, are utilized even less than in previous years. U.S. fashion companies also call for further removal of trade barriers, including restrictive rules of origin and remaining high tariffs.

The benchmarking study was conducted between March 2016 and April 2016 based on a survey of 30 executives from leading U.S. fashion and apparel brands, retailers, importers, and wholesalers. In terms of business size, 92 percent of respondents report having more than 500 employees in their companies, while 84 percent of respondents report having more than 1,000 employees, suggesting that the findings well reflect the views of the most influential players in the U.S. fashion industry.

For the benchmarking studies in 2014 and 2015, please visit: https://www.usfashionindustry.com/resources/industry-benchmarking-study

FASH455 Exclusive Interview with Herb Cochran, Executive Director of Amcham Vietnam

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 (photo courtesy: Amcham Vietnam)

Herb Cochran is the Executive Director at the American Chambers of Commerce (AmCham) Vietnam. He has helped transform AmCham Vietnam into an influential organization that promotes trade and investment between Vietnam and the United States, with a focus on developing networking, information-sharing, and advocacy activities to improve the business environment.

Herb mobilized AmCham Vietnam members’ substantial efforts to conclude negotiations on the Vietnam-U.S. Bilateral Trade Agreement and Vietnam’s WTO Accession, and to have these two agreements approved by the U.S. Congress. As a result, trade between Vietnam and the U.S. increased from $1.2 billion in 2000 to about $36 billion in 2014. And Herb expects that total Vietnam-U.S. trade will reach $ 72 billion in 2020.

With Herb’s leadership and support, AmCham Vietnam’s committees and industry sector experts have helped improve mutual understanding on key issues in U.S.-Vietnam trade and investment, including implementation of trade agreements, preserving Vietnam-U.S. apparel trade, strengthening governance and anti-corruption efforts, improved industrial relations, Project 30 (simplification of Vietnam’s administrative procedures), work force development for modern manufacturing, promoting trade and investment between the U.S. and Vietnam’s Southern Key Economic Region, and the Asia Development Bank’s strategy for the economic and social development of Vietnam and the Greater Mekong Subregion.

Prior to joining AmCham, Herb was Commercial Attaché at the U.S. Embassy in Hanoi and Principal Commercial Officer at the U.S. Consulate General in Ho Chi Minh City. He helped establish the commercial office of the U.S. Embassy in Hanoi, hiring staff and establishing trade and finance programs, including the U.S. Export-Import Bank, Overseas Private Investment Corporation (OPIC), and U.S. Trade and Development Agency (USTDA). In 1998-99 he established the commercial office of the U.S. Consulate General in Ho Chi Minh City.

Herb also served as Regional Director, East Asia and Pacific, U.S. Commercial Service, based in Washington DC. His responsibilities included program, personnel, and budget support for the commercial departments of 15 United States Embassies in the Asia/Pacific region, from Tokyo, Seoul, and Beijing in Northeast Asia, to all the countries of Southeast Asia, and down to Australia and New Zealand. Other international working experiences of Herb include: Commercial Counselor at the U.S. Embassy in Bangkok, Thailand, Commercial Attaché at the U.S. Embassy in Tokyo, Japan, U.S. Consulate General in Osaka, Japan, and Action Officer at the State Department’s Office of Japanese Affairs.

Born in North Carolina, Herb earned a B.A. from the University of North Carolina at Chapel Hill (History), and a Certificat from the Institut d’Études Politiques (Sciences Po) in Paris. He is also a graduate of the Industrial College of the Armed Forces in Washington DC (National Defense Strategy).

Interview Part

Sheng Lu: Can you provide us an overview about the US-Vietnam business ties?

Herb Cochran: Vietnam has succeeded at attracting foreign direct investment (FDI) and increasing trade. U.S. – Vietnam trade in 2015 will likely reach over $45 billion, another annual increase of over 20%. Vietnam accounts for 25% of all U.S. imports of goods from the Association of Southeast Asian Nations (ASEAN). The numbers are likely to reach $80 billion and a 33% market share by 2020.

More details can be found from a few recent AmCham statements to government officials and to press inquiries:

Note: Vietnam Business Forum a “structured dialogue” of about three hours 2 times a year, in June and in December, where the business associations present their views of the business ties and business environment and suggest areas for improvement.

Sheng Lu: What are the main reasons that U.S. companies come to invest in Vietnam? Are most U.S. business operations in Vietnam profitable?

Herb Cochran: Foreign Direct Investment into Vietnam has been increasing recently, as companies prepare for ASEAN integration, for the Trans-Pacific Partnership (TPP), and for the expectation that 59% of global middle class consumer spending will be in the Asia – Pacific region by 2030, up from 23% in 2009. For example:

These are all world-class factories, by global companies, for export to ASEAN, TPP, and Asia-Pacific markets. Not to mention the high-tech investments by Intel, Samsung, Apple, and others in the microelectronics and consumer electronics sector.

Main reasons that U.S. companies come to invest in Vietnam include:

  • Availability of low cost labor
  • Availability of trained personnel
  • Stable government and political system

Regarding Vietnam’s business and investment environment, please also see the summary below from ASEAN AmChams’ Business Outlook Survey 2016.

ASEAN survey

Sheng Lu: Given the increasing labor cost in China, many people see Vietnam as an alternative sourcing destination for labor-intensive products such as apparel and footwear. What’s your view on this trend?

Herb Cochran: I agree. In Aug 2013, we had a delegation visit AmCham HCMC from AmCham Hong Kong, Footwear and Apparel Committee. They said, “We represent 80% of the apparel and footwear sourcing in the world. We are in Hong Kong because most of our sourcing is in China. But we are leaving China, for various reasons. Vietnam’s participation in TPP is certainly an attraction, but we are leaving China with or without TPP. We want to know if Vietnam will welcome us.”

It should be particularly noted that between 2013 – 2015, about $3 billion was announced in FDI in textiles to meet the yarn-forward rules of origin requirements of TPP. One estimate projects Vietnam’s apparel exports to the U.S. under TPP “… would be as high as US$ 22 billion” by 2020. Another projects that Vietnam’s apparel and footwear exports would increase by 45.9% over the baseline by 2025. A third expert said she expects the TPP will “change the sourcing landscape drastically;” and Vietnam’s share of the U.S. apparel import market could go from 10% to 35% very quickly.” [Note: 35% of the U.S. apparel imports market is $35 billion. I think this is the most interesting estimate, a microeconomic estimate from an industry expert and not a “macroeconomic model estimate.”]  And Mr. Le Tien Truong, Deputy Director of VINATEX, expects that Vietnam’s exports of textiles and apparel could reach $50 billion by 2025. [I think this estimate is overoptimistic.]

Below is a historical comparison of U.S. imports of apparel from China, “2nd Tier Countries,” and “Other.” from 2005 to 2025. The actual trade statistics from 2005 to 2015 show that U.S. Imports of Apparel from China doubled from 2005 (when quotas on WTO members were lifted) to 2010, but they have been “flat” since then. Value of imports from 2016 to 2025 are forecasted numbers.

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Sheng Lu: In your view, what commercial opportunities does the Trans-Pacific Partnership (TPP) present to U.S. companies in Vietnam, especially in the textile and apparel industry?

Herb Cochran: The most authoritative study was done by Professor Peter Petri of Brandeis University and the Peterson Institute. According to the findings:

The TPP would increase Vietnam’s exports from the expected “baseline” in 2025 without TPP of $239.0 billion (of which apparel and footwear exports would total $113 billion) by $67.9 billion to $307 billion (of which apparel and footwear exports would increase by $51.9 billion to $165 billion). In percentage terms, total exports would increase by 28.4% over the baseline, and apparel and footwear exports would increase by 45.9% over the baseline. Total Net Exports increase: 67.9 / 239.0 = 28.4%.

In addition, the expected Gross Domestic Product (GDP) growth benefits are substantial, Vietnam’s GDP in 2025 with TPP, would be 10.5% higher than the baseline estimate. This is particularly important now that Vietnam is in a “structural growth decline” period, according to the World Bank. Those are economic projections that give a general idea.

Sheng Lu: How is TPP discussed in Vietnam such as its local media?

Herb Cochran: Very positively. For example, see the below link: “89% of public in Vietnam thinks the TPP is “ … a good thing.” http://www.amchamvietnam.com/30448353/89-of-public-in-vietnam-supports-tpp-pew-research/

Part of the reason for this positive viewpoint is the series of seminars that we in AmCham HCMC organized in 2013 to explain about the TPP, create better understanding of and support for the TPP especially in the Vietnam business community.

Sheng Lu: What is the outlook for TPP ratification in Vietnam?

Herb Cochran: Very good. At the closing ceremony of the 14th Plenum of the 11th Party Central Committee, the Party General Secretary, Nguyen Phu Trong, said members of the Party Central Committee reached consensus on the signing and ratification of the Trans-pacific Partnership Agreement in conformity to laws on signing and joining international treaties. Mr. Trong said: “The TPP will bring great benefits but also opportunities and challenges to Vietnam. These challenges have been identified during Vietnam’s 30 years of renewal and international integration. With efforts, creativity, and determination of the Party, army, people, and the business community, we are confident that we will overcome all challenges and grasp opportunities created by the TPP to achieve rapid, sustainable growth.”

Sheng Lu: While living in Vietnam, have you encountered any culture shock? Can you share some stories with our students?

Herb Cochran: No culture shock. During my career as a U.S. Foreign Service Officer, I lived in Vietnam, Japan, and Thailand for about 22 years, so I am used to living abroad. And I have lived in Vietnam since Jan 1997. I guess rather than “culture shock,” you might say that I have “culture insights” from time to time. The most common insight here in Vietnam is how polite, warm and gracious most people are. It is still a traditional society, very family oriented. One cultural insight is how they celebrate “death anniversaries” for many years, with special celebrations on certain multi-year anniversaries, to keep family ancestors in their memories, called lễ giỗ.

Sheng Lu: Last but not least, for our students interested in working/interning in Vietnam, do you have any suggestions?

Herb Cochran: It’s very tough to get started. Click the below link for some comments that I have put together in response to many questions: http://www.amchamvietnam.com/faqs/faq-how-do-i-find-employment-opportunities-with-amcham-member-companies/. A short commentary is that I think it is probably better to start in the U.S. with a large organization that has global operations, e.g. Walmart, Nike, etc., and learn about that organization’s international operations and get started that way. Especially when your students are younger, maybe not yet married, no children, etc. One real problem for American citizens is that they are taxed in the U.S. and in the country of employment, so that they are generally 25% to 50% more expensive than U.S. non-citizens.

–The End–

FASH455 Exclusive Interview with Julia K. Hughes, President of the United States Fashion Industry Association

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Julia K. Hughes is President of the United States Fashion Industry Association (USFIA), which represents textile and apparel brands, retailers, importers, and wholesalers based in the United States and doing business globally. Founded in 1989 as the United States Association of Importers of Textiles & Apparel with the goal of eliminating the global apparel quota system, USFIA now works to eliminate tariff and non-tariff barriers that impede the industry’s ability to trade freely and create economic opportunities in the United States and abroad. Ms. Hughes represents the fashion industry in front of the U.S. government and international governments and stakeholders.

Ms. Hughes has testified before Congress and the Executive Branch on textile trade issues. She is recognized as an expert in textile and apparel issues and frequently speaks at international conferences including the Apparel Sourcing Show, MAGIC, Foreign Service Institute, National Association of Manufacturers, Cotton Sourcing Summit, International Textiles and Clothing Bureau, Young Presidents’ Organization, World Trade Organization Beijing International Forum, and others.

Ms. Hughes served as the first President of the Organization of Women in International Trade (OWIT) and is one of the founders of the Washington Chapter of Women in International Trade (WIIT) and WIIT Charitable Trust. In 1992, she received the Outstanding Woman in International Trade award and in 2008, the WIIT Lifetime Achievement Award.

Ms. Hughes has an M.A. in International Studies from the Johns Hopkins School of Advanced International Studies and a B.S. in Foreign Service from Georgetown University.

Special thanks to Samantha Sault, Vice President of Communication for the U.S. Fashion Industry Association for facilitating and supporting this exclusive interview. Ms. Sault is responsible for the development and execution of the association’s communications strategy, including public relations, policy research and messaging, and social media. Prior to joining the association, Ms. Sault honed her communications expertise at DCI Group, a global public affairs communications firm headquartered in Washington, D.C. Previously, she worked in media as a web editor and fact checker at The Weekly Standard and an editorial assistant at Policy Review, the journal of the Hoover Institution. She began her career in the apparel industry at 17 at abercrombie kids in Bethesda, Maryland.

Interview Part

Sheng Lu: Our students are interested in knowing who the members of the U.S. Fashion Industry Association (USFIA) are. Can you name a few of your member companies?

Julia Hughes: Our members range from major global brands and fast-fashion retailers, to small importers and wholesalers. While all of our members must be doing business in the United States, our membership roster also includes some international companies with a retail presence in the United States. Some of our most actively engaged members include iconic brands and retailers like Ralph Lauren, Macy’s, Levi Strauss & Co., JCPenney, Urban Outfitters, PVH Corp., and American Eagle Outfitters. We also represent small and medium-size importers, wholesalers, and manufacturers that you might not know by name, but supply to many of your favorite brands and retailers—companies like Michar, MGF Sourcing, and Golden Touch Imports, to name a few.

Sheng Lu: The USFIA is an advocate for trade liberalization and removal of trade barriers. Can you talk with us about the benefits of free trade, especially for the fashion industry both in the United States and globally?

Julia Hughes: As you know, USFIA was originally founded in 1989 (then known as the United States Association of Importers of Textiles and Apparel) with the mission to eliminate the global quota system. We were successful! But of course, as you also know, that work is not over. The quotas may have gone away, but there still are import barriers that are unique to the apparel industry. USFIA member companies continue to face some of the United States’ highest tariffs. Textiles and apparel, combined with footwear, still account for some of the highest peaks in the U.S. tariff schedule, with many double-digit tariffs and a high of 32 percent.

Not only are these tariffs higher than on other products, but these tariffs also are a regressive tax. We believe it is simply wrong for a single mom to pay a 32 percent import tax for her baby’s onesies and a 16 percent tariff for her baby’s booties, while the wealthy pay a 1.2 percent tariff for their silk scarves. In total, apparel tariffs take more than $10 billion out of the pockets of hard-working Americans annually. So eliminating these tariffs would be an immediate benefit to American consumers and to American families.

But even removing these tariffs would not mean that there is “free trade.” For example, the fact that the United States maintains these peak textile and apparel tariffs creates problems for new policy initiatives to expand export markets for U.S. products. Market access for American brands and exports is hindered by prohibitively high tariffs in attractive third country markets such as India and Brazil. Our own peak tariffs only encourage other governments to maintain their own high apparel and textile tariffs to “protect” their domestic industries. American brands such as Levi’s and Polo are among the most recognized brands in the world. American yarn spinners and fabric makers operate highly efficient operations that make them among the world’s most competitive producers. For all of these companies, we need every opportunity to remove barriers to trade.

There is a great opportunity to create high-paying jobs here in the United States, too. Fashion brands and retailers offer quality design, product development, logistics, sourcing, and service jobs in the United States, along with manufacturing jobs. These jobs are supported by global value chains, and will be on track to grow IF free trade agreements contain rules of origin and market access provisions that will decrease the cost of those fashion products. This would not only help the brands and retailers grow and create more jobs, but also help consumers by providing access to affordable, high quality apparel.

Finally, free trade isn’t just about tariffs – but also non-tariff barriers like regulations, certifications, and testing requirements all represent non-tariff barriers to trade. And since today’s global brands are selling everywhere from the United States to the UK to Japan to Dubai, we are working to eliminate these barriers, too.

Sheng Lu: The Trans-Pacific Partnership (TPP) is a buzzword for the fashion industry, with Vietnam and China at the core of the discussion. Many people see Vietnam as an alternative sourcing destination to China for labor-intensive apparel and footwear products. You’ve visited both Vietnam and China recently. What’s your first-hand observation? How competitive is “Made in Vietnam” compared with “Made in China”?

Julia Hughes: The TPP is a top priority for USFIA and for our member companies. But unlike some, we do not see the TPP as creating an either/or scenario for sourcing apparel and footwear. China remains the top supplier to the U.S. market, and we do not see that changing any time soon. The breadth of manufacturing operations in China, combined with the state-of-the-art infrastructure and logistics operations, mean that sourcing executives are comfortable with placing orders and knowing that they will get the quality product that they want delivered on time.

However, you are correct that Vietnam is seen as an alternative sourcing destination.—not just by U.S. sourcing executives, but also for Chinese companies. Both the TPP and the EU-Vietnam Free Trade Agreement make Vietnam an especially attractive destination for making apparel and for investments in manufacturing yarns and fabrics. But Vietnam is not necessarily the destination for companies searching for lower prices.

Sheng Lu: In the 2015 USFIA Benchmarking Study, around one-third of respondents report sourcing from 6-10 different countries and another one-third report sourcing from 11-20 different countries. What are some of the reasons that U.S. fashion companies today would choose to have such a diversified sourcing base?

Julia Hughes: There are a couple reasons why companies have such diversified sourcing bases. First, it is a holdover from the quota era, because companies were pretty much forced to diversify their sourcing since they couldn’t import everything from China. Following the elimination of the quotas in 2005, companies had cultivated trusted suppliers all over the world in countries as diverse as Vietnam, Sri Lanka, Mexico, and Colombia, so there was no reason to leave these good suppliers after they had spent the time and resources developing their supply chain. Second, diversification is a method of risk management. There are lots of risks that could impact your supply chain—from natural disasters to labor strife to terrorist attacks. The last thing a company wants is to have all of their production in one place—because when disaster strikes, you won’t be able to get your product to your customers. By keeping a diverse supply chain, you can ensure that you’ll always have products moving to the shelves. Finally, different countries have different specialties—and truthfully, no one country can do it all. Companies don’t necessarily prefer to source fabric, yarn, zippers, and buttons from four different countries and ship to a fifth for cutting and sewing, but sometimes, that’s the way it must be done in order to produce the best product at the best price for your target customer.

Sheng Lu: We know that the African Growth and Opportunity Act (AGOA) has been extended for another 10 years. How has the U.S. fashion industry reacted to the AGOA extension? Are U.S. consumers going to see more “Made in Africa” apparel in the retail stores?

Julia Hughes: USFIA member companies are definitely looking at sourcing opportunities in Africa after the extension of AGOA. Today a little more than 1 percent of U.S. apparel imports come from Sub-Saharan Africa—and there are only a few countries that ship apparel to the U.S. market. Kenya, Lesotho, Mauritius, and Madagascar are the major producers of apparel today – representing 87% of the U.S. imports. The ten-year extension of AGOA is allowing companies to take a fresh look at what is available to source in Africa today, as well as to plan to long-term growth. Both PVH and VF, for example, have been very public about their commitment to develop a vertically integrated industry in Ethiopia.

What is exciting is that new sourcing supply chains are opening up in Africa. While the level of U.S. imports remains low there are some growing suppliers. For example, during March 2016–a month when the overall U.S. apparel imports plunged by -21 percent compared to March 2015—there were a few Sub-Saharan African suppliers that bucked the trend. U.S. imports from Madagascar jumped by 160 percent, from Ethiopia by 83 percent, and from Ghana by 371 percent!

Sheng Lu: Textile and apparel trade policy is always one of the most challenging topics for students in FASH455. Many students wonder why the rules governing the global textile and apparel trade are always far more complicated than most other sectors. For example, in the past, students had to learn about the quota system, from the Short-term Arrangement (STA) to the Multi-Fiber Arrangement (MFA). The quota system is gone, but it seems students now have to know even more “terms”: the yarn-forward rules of origin, short supply list, third country fabric provision, trade preference level (TPL) and earned import allowance… What makes the textile and apparel trade so unique in terms of trade regulations?

Julia Hughes: This is a great question–and one that does not have an easy answer. Absolutely, when I first started working with the industry, it was a revelation to understand about quotas and labeling requirements classification issues. Today, the industry is even more complicated. I think that a lot of the complexity today is due to protectionism. Negotiators looked for ways to limit the market opening impact of trade agreements, and to try to protect their domestic industry. This isn’t just an issue for the United States.  Starting with NAFTA in the 1990’s, the rules are more complicated in every free trade agreement—and none of the free trade agreements exactly matches the others. But the complexity isn’t just for FTAs, of course. Today, we also face more regulations, different labeling requirements for different countries (and unfortunately sometimes even different labels are required in different states!), and more testing and certification requirements.

Sheng Lu: Looking ahead in 2016, what important sourcing trends and trade patterns shall we expect in the U.S. fashion industry? What are the policy priorities for the USFIA this year?

Julia Hughes: The implementation of the Trans-Pacific Partnership (TPP) remains at the top of our list of policy priorities. But implementation is still a long way off, especially since the U.S. Congress is unlikely to vote on the agreement before the November elections. We don’t expect to see a huge shift to sourcing in Vietnam, Malaysia, and the other TPP partners in 2016-2017, since duty-free treatment is a long way off, but we do expect to see companies taking a closer look at opportunities there—and it helps that Vietnam is already the #2 supplier to the United States, so many companies are already sourcing there. We’re also prioritizing completion of the Transatlantic Trade & Investment Partnership (T-TIP) between the United States and European Union. The EU is a great source for luxury brands and companies manufacturing leather goods, but this agreement has an even greater potential in terms of regulatory harmonization, making it easier for many of our members to break into the retail markets in Europe. We’re also focused on enhancing the African Growth & Opportunity Act (AGOA), cumulation of free trade agreements, and customs and ethical sourcing issues, too. As far as future trends, we’re looking forward to seeing the results of our third-annual Fashion Industry Benchmarking Study, which will give us a lot of insight into what brands are thinking about sourcing and expansion!

Sheng Lu: Last but not least, our students wonder what makes you and your staff personally interested in the fashion industry. Particularly, through your daily work, how do you see the impact of the fashion industry in the 21st century global economy?

Julia Hughes: My path to the world of fashion is from the policy side. I was always interested in international policy and after graduating from Georgetown University and SAIS, I was fortunate to hear about an opportunity to be the Washington Representative for Associated Merchandising Corporation (AMC). It was a terrific opportunity to be engaged in policy discussions, but also to spend time with the buyers, with the sourcing teams, and also with the overseas offices and vendors to understand the impact on trade policy on the clothes we wear. Let’s face it, it is a shock to realize the way that Congressional actions, and negotiations, can determine whether a jacket is made with down, or synthetic fibers, or cotton–or maybe it is manufactured to qualify as a shirt instead of a jacket. It also is inspiring to work with industry executives who are committed to fashion as well as doing good for the global economy. Textiles and apparel has always been an industry that can be a gateway for economic development–and I have seen the positive impact by creating jobs where there were none before–as well as expanding U.S. jobs in design, product development and compliance.

Samantha Sault: I have always loved fashion—in fact, my very first job in high school was folding clothes and working the register at abercrombie kids at the mall in my hometown!—but I never thought about fashion as a career until I had been working for a few years after college. I started my career in political media in D.C., and eventually started covering the intersection of fashion and politics for various publications, including exciting events like New York Fashion Week and President Obama’s first inauguration (and the First Lady’s fabulous dresses). After five years in media and public affairs, I found my way to USFIA and the business and policy side of the fashion industry. The most inspiring part about working in fashion has been getting to know our contacts at our member companies, and seeing how committed they are not only to their brands, but also to ethical sourcing and compliance. These are not just buzzwords—I’ve learned firsthand that many of the individuals at our member companies are deeply committed to ensuring that they are doing the right thing in their supply chains from the factory floor (especially for women) to the retail store, and it has made me appreciate these brands even more than I already did.

–The End–

Sourcing Practices and Free Trade Agreements: Discussion Questions Proposed by FASH455

trans-pacific-partnership

Sourcing Practices

#1 Many US fashion companies choose to continue to diversify their sourcing base and they are actively seeking supplementary sourcing destinations. How to explain this phenomenon?

#2 U.S. apparel imports from Vietnam has been growing rapidly in recent years. Why do you think Vietnam has been able to expand as a garment exporter so quickly, outperforming most of its Asian competitors?

#3 Why would, after everything that happened at Rana Plaza, U.S. apparel companies still outsource to Bangladesh?

#4 Why would U.S. fashion companies want to become more diversified with the countries and factories that they are currently sourcing from? Is there still room for expansion for larger corporations who are already quite diverse with their sourcing base? Why or Why not?

#5 Why does the U.S. fashion industry still hold a positive view on the future of the industry despite the reported rising pressures of increasing production or sourcing costs? If China is a major factor causing the pressure of rising production and sourcing cost, why didn’t U.S. fashion companies just move out of China and switch to source from elsewhere?

Free Trade Agreement and Rules of Origin

#6 America most often applies the “yarn forward” standard for textiles and apparel. This states that the fibers can be produced in any country, but the spinning into yarn must take place in free trade area. Do you think this is the most beneficial method the U.S. can use? Would the United States be able to, in reality, employ a “fiber forward” standard instead and use the land in the U.S. Midwest to use domestically grown cotton or wool?

#7 Two debates over free trade agreements (FTAs) include: 1) FTAs act as a “stumbling block” to global trade liberalization, and 2) FTAs act as a “building block” to multilateral trade liberalization. What is your view, especially based on our analysis on the impact of NAFTA, CAFTA-DR and TPP?

#8 In class we discussed the special relationship between NAFTA & CAFTA-DR and the US  textile industry. Will the Trans-Pacific Partnership (TPP) help the U.S. textile industry further expand export opportunities in the Asia-Pacific region? On the other hand, how will TPP potentially affect the U.S. textile and apparel trade with the NAFTA and CAFTA-DR regions?

#9 Do you think that Rules of Origin (RoO)  are having a negative impact on the larger picture of global trade? Since RoO intends to limit preferential treatments to FTA member countries only, is this simultaneously hindering outside countries from maximizing their opportunities with countries they are not in an FTA with?

#10 If the “Yarn-Forward” rule were to be implemented by the TPP, what types of effects do you think we would see on US apparel consumers? What benefits would the US textile manufacturers have if this were to happen and would the benefits outweigh the cost to US consumers and the limits that would be placed on countries such as Vietnam?

[Please feel free to join our online discussion. For the purpose of convenience, please mention the question # in your reply/comment.]