Cheaper to Make Textiles in the United States than in China: Reality or Myth?

NY times

A New York Times article back in August 2015 suggests that “yarn production costs in China are now 30 percent higher than in the United States” because of savings in raw and auxiliary material. The article believes the cost difference is why some Chinese textile companies are coming to build factories in the United States, such as Keer Group’s cotton mill in South Carolina.

cost

However, in a recent interview with China Textile News, Chairman of the Cixi Jiangnan Chemical Fiber Co (Cixi) provides a different cost sheet (above). In September 2013, Cixi invested a $45million polyester staple fiber mill in South Carolina. Because nearly 80% of Cixi’s outputs are sold outside of China, and the United States is its single largest export market, the investment intends to help the company maintain its presence in the U.S. market and substantially save transportation cost.

According to Cixi, it is a misunderstanding that making textiles in the United States is cheaper than in China. Although moving factories to the United States may help Chinese companies save money in land, electricity, natural gas, and logistics, it will significantly increase the costs in purchasing manufacturing equipment, building factories and managing daily operation of the company.  Additionally, culture and language barriers, as well as labor policy in the United States, could also become critical challenges facing Chinese investors. Cixi admits that to keep its U.S. factory running smoothly, members of its management team all come from China.

Apparel Industry is Not All about Labor Cost

While most discussions on improving corporate social responsibility practices in the apparel industry still focus on conventional solutions like higher labor standards and more effective monitoring programs, a recent Boston Consulting Group report suggests supply chain innovation also has its role to play.

One key argument of the report is: Although cost still matters in apparel sourcing, lower-cost can be achieved through means other than seeking cheap labor. For example:

1

Engendering end-to-end supply chain efficiency through managing raw materials. Apparel companies may work with their suppliers further down the supply chain to optimize fabric selection, which usually account for as much as 60-70 percent of the total cost of a finished garment (v.s. 30-40 percent of labor cost). Some apparel companies have started to use fewer yarns and weight classes so as to reduce fabric count and lower down sourcing cost. Some other companies are realizing significant cost reduction by timing orders so as to level the load over the course of the year. [Note: looks like Uniqlo’s model]

2

Building an integrated supply chain. As cited in the report, to balance sourcing cost and speed to market, one major apparel retailer builds 15 to 20 percent of the season’s styles and pre-positions about two-thirds of its raw material before the season (both in-house and from production partners). During the season, the company analyzes sales, staying in constant communication with its stores and with the design team. It resupplies items that are selling well through accelerated production and delivery, usually within three to four days. Designers then create new styles by adapting the best sellers using the pre-positioned material. [Note: looks like Zara’s model]

Innovating ways of production. The report suggests that bonding and gluing technologies (i.e. use bonded adhesive films and processes such as ultrasonic heating and high-frequency radiation to fuse together layers of fabric) can produce an entire small garment in 30 to 40 percent less time than conventional cut-and-sew. Digital technologies such as digital prototyping of textile designs can also significantly help apparel makers reduce waste and boost efficiency in pattern making. The potential application of 3D printing may further allow apparel makers to produce smaller batches, and possibly even allow for made-to-order production of individually designed and sized garments. This would not only allow companies to match the market’s growing need for speed, but also reduce the costs of retail inventory surpluses and associated price reductions.

Two additional thinking based on the report:

First, much attention has been given to the changing business environment of the apparel industry, such as rising labor cost in Asia, shifting market growth towards emerging economies and more sophisticated consumers’ demand in the era of omni-channel retailing. But what if the nature of the apparel industry is also changing: if one day labor cost is no longer a key factor in deciding where to produce and apparel production itself is no longer labor-intensive at all? Although automation of apparel production was not achieved in the 20st century, it may not be something totally impossible in the 21st century. We need to have bold thinking here.

Second, while the apparel industry is innovating its business model (i.e. the way to produce, the way to deliver products and the way to serve its customers), T&A educational programs also need to embrace innovative thinking. For example: are traditional course offerings sufficient enough (or still relevant) to prepare students’ job readiness in the 21st century? How to proactively respond to the changing nature of the apparel industry which has started to adopt more and more new technologies? What if we redefine the meaning of “T&A” majors and redesign the model of preparing the workforce for the apparel industry? (just like the question: for wearable technology, shall IT companies make apparel or apparel companies make IT products?)