What do the brands say about changes in sourcing post-MFA? Based on MSN interviews with 10 major North American companies MFA+3: Labour rights in a changing garment industry San Pedro Sula, Honduras September 30th, 2008
What changes in countries? Shift from higher cost to lower cost countries globally and within regions Most companies left some higher cost countries entirely Most companies began placing orders in new lower cost countries Overall number of countries didn’t change Less dramatic shifts than anticipated
Increase/decrease in orders Overall shift from Americas to Asia Less increase to China than anticipated Increases to low-cost countries near China
Winners & Losers Countries losing orders: Mexico, Canada, Guatemala, El Salvador, Sri Lanka, Philippines Countries gaining orders: China, Vietnam, Cambodia, Bangladesh, India, Egypt, Nicaragua, Haiti
Surprises? China & Nicaragua didn’t grow as quickly as expected Rapid increase in orders to Vietnam Growth of domestic market in China Some companies returning to Africa
Changes in suppliers Consolidation: using fewer, larger suppliers Deeper, longer-term relationships Not necessarily using fewer factories Suppliers are multi-nationals themselves, producing in many factories in many countries
Key factors in sourcing decisions: #1 Issue: Price of production State of US economy & exchange rates affect price Other factors: speed, quality, proximity to market, full- package capacity, lean, flexibility re styles and fabric, reliability
Issues re sourcing decisions Oil costs/carbon footprint making proximity to market more important Proximity loses advantage without local/regional access to fabric, etc. Ability to meet order deadlines and transparency when unable to do so
Trade Agreements DR-CAFTA important, but not sufficient Regional agreements (Mercosur) also important, not just for US market New agreements can undercut established ones (CAFTA/NAFTA) Bilateral agreements between US and countries in other regions increasing competition
Labour and Environment Oil/energy cost linked to carbon footprint issue more important than labour rights However, labour rights most important when considering entering new country General agreement: government must improve labour regulation/enforcement
Looking Ahead… Mexico & Dominican Republic could face further declines Central America uncertain (disagreement on countries) China less growth than other Asian countries (Vietnam) Africa could rebound
Key factors for suppliers Invest in fabric supplier relationships Offer multiple services Flexibility: multiple styles, variety of fabric Transport costs & order delivery issues Sustainable: socially and environmentally responsible, and transparent Price/profits still the major factor
What should governments do? Attract investment in textile production Invest in upgrading and training (workers and management) Improve transport infrastructure, lessen bureaucratic delays More attention to environmental issues all along production chain Better labour and environmental regulations/enforcement
What does MSN think about what the brands are saying? Not sufficient information on sourcing plans Upgrading could bring higher value processes But, buyer demands could increase: flexibilization, pressure to meet production targets, work overtime, cut labour costs Brands want lower prices and more services -- workers get squeezed Consolidation benefits large manufacturers, but not necessarily workers
Environment tops labour rights Rising oil costs & consumer concern make environment more important than workers But, carbon footprint concerns also give Americas advantage over Asia Could also favour national/regional production for domestic/regional markets Can we link environmental, health & safety and community health issues?
Shift of emphasis on labour rights Labour rights still important, but part of a package of demands Cost and failure of auditing shifts emphasis to government regulation Could we enlist brand support for better laws and better enforcement?