U.S. Companies Reassess China Sourcing Strategies
Source: CCPIT TEX Date: 2008-02-18
WASHINGTON — China's steamrolling of global apparel manufacturing finally may have hit a roadblock.
American apparel importers aren't making any sudden moves yet, but rising costs in China and potential punitive action by the U.S. are forcing companies to review the risks associated with sourcing billions of dollars in apparel from the manufacturing powerhouse.
Rapid economic growth in China has sparked inflation in several sectors, driving up prices for energy, raw materials, transportation and labor.
"The overall climate in China has become difficult," said Rick Darling, president of Li & Fung USA. "Price increases are real and here to stay, production has begun to migrate to the western provinces and U.S. protectionist attitude is not diminishing. All speak to a more difficult market to navigate over the next few years. That said, there are significant opportunities to expand sourcing bases."
Darling said the sourcing giant is always challenged to develop alternative sources of supply in reaction to cost, quota or political pressures.
"Most good supply chains are constantly reviewed for balance across many countries," he said.
The significant rise in prices and labor costs in China, combined with an appreciation of the yuan against the dollar of about 13 percent since 2005, have taken a bite out of margins, forcing U.S. companies to recalibrate their sourcing strategies in the event they will have to further diversify. Many vendors were forced to reassess their manufacturing plans after being caught with too much production in China when the U.S. first imposed safeguard quotas in May 2005 and then struck a deal with China to limit imports on a range of products through the end of this year.
The explosive rate of import increases seen throughout the decade and particularly after global quotas were lifted on Jan. 1, 2005, has slowed, although, as figures released Thursday show, China continued to strengthen its position as the largest supplier of apparel and textiles to the U.S. in 2007.
The country increased the volume of apparel and textile imports to the U.S. by 14.8 percent to 21.37 billion square meters equivalent compared with 2006, according to the Commerce Department's December and year-end import figures. China's import growth in 2006 compared with 2005 was 11 percent.
