Will Fashion Brands Move The Production Base Away From China?

In many ways, the rise of modern China is a symbol of globalization. Today, as countries around the world turn to the interior to cope with the spread of the epidemic, many people believe that too complex supply chains and relying on China's single market away from home are at great risk.

In fact, for the most part of the past ten years, the global fashion industry has been trying to break away from this dangerous interdependence with Chinese manufacturers. Although this trend has made some progress, China has a mature manufacturing infrastructure and attractive supply chain, so it is still an attractive place of production, and it has proved that the brand is hard to get away from such convenience.

Although the garment manufacturing industry, especially the cutting and sewing parts, has shifted to other cheaper markets largely, while China's labor prices continue to rise, the trade war triggered by US President Trump has also increased tariffs, but fashion industry still has no way to get rid of the habit of purchasing raw materials, trimming, zippers and other products from China.

Several experts from China's fashion manufacturing, purchasing and supply chain management said in an interview with BoF that if the production of raw materials, fibers, textiles, accessories and accessories, such as elastic belts, zippers and tag plates, were counted, about 60% of the world's fashions were still produced in China.

"The garment industry in most other countries is not completely self-sufficient, and they rely on getting raw materials and accessories from China," explains Melanie DiSalvo, founder of Virtue + Vice, a consultancy. The purpose of the company is to help fine fashion brands straighten out their supply chain.

Her work is mainly concentrated in India and China, but she said that people may be surprised to find that many of the raw materials produced by India factories are actually from China.

"A lot of denim trade comes from China," she added. "All India's silk is also from China. I don't think people realize that all the trimmings and elastic bands can't be found in India. They all come from China.

In the first few months of this year, this continued dependence on China reached its peak. At that time, China became the first country to experience large-scale outbreak of epidemics, leading to the cut-off of key raw materials in the fashion supply chain. Brands that outsource the supply chain to China initially felt that they had done the right thing because they avoided the disruption of supply, but they did not expect the outbreak to erupt around the world.

Levi s CEO Chip Bergh said to the supply chain managers at the meeting of the retail industry leaders Association at the end of February: "I want to say that compared with many industries, we are doing more risk hedging in China than many peers." The company reduced its manufacturing business in China from 16% in 2017 to 1% to 2% in 2019, mainly in order to avoid tariffs caused by trade wars. Bergh added that it saved the company from the initial attack, when its stores in China remained closed.

Today, we know that nowhere can we avoid the epidemic. Fashion brands that have shifted the supply chain from China to Bangladesh and Vietnam have also been disturbed by the supply of their products.

According to data from Bangladesh clothing manufacturers and Exporters Association (BGMEA) and its knitwear Association (BKMEA), although in many cases, the impact of supplier interruption is not as large as the interruption of demand caused by global retail closes, demand disruption has resulted in the cancellation of orders of about $6 billion for many fashion labels in that country alone. At the same time, stores, warehouses and distribution centers are idle in the current quarter.

But now, even if production stops in most parts of the world, China has resumed production, producing orders that have not been cancelled. As overseas businesses become increasingly scarce, Chinese manufacturers are faced with an uncertain future. The demand for growing local fashion brands on the market has only alleviated this uncertainty to a certain extent.

Although the shift of production to China is largely due to rising costs and the very low profitability of large-scale garment production, this is an unsustainable option, but changing the trend of production is also a diversified attempt to reduce future risks.

The epidemic highlights how the world relies on China in important supply chain links, especially in medicines and personal protective equipment, and many countries have to work together for these two aspects. Therefore, the pressure on European and North American pharmaceutical companies to move back to their country is increasing.

Similarly, fashion companies, especially fashion companies in the US, may feel the pressure of "decoupling" from China in the election year, because this year's election year is sure to be full of Anti China rhetoric.

There are so many variables in the process of spreading the epidemic, taking into account the dependence of fashion industry on China and the many factors that affect the industry. It is too early to know exactly what will happen in the fashion industry's supply chain after the epidemic. However, fashion brands now need to prepare for the post epidemic business.

In this uncertain period, BoF consulted experts in China's manufacturing, purchasing and supply chain management, and what factors the brand should consider before making any major decisions.

Managing director of KTC Limited, a high-end clothing company in Guangdong, which serves Europe's niche brands and Chinese designer brand Yang Li. Gerhard Flatz said:

"Whether in China, Kampuchea, Bangladesh, Burma, the United States or other places that nobody knows, we must jump out of this macro environment and create a micro environment. I foresee this day when I took over the company in 2008. We have increased our cash reserves and improved the quality of our products. Even then, we could see that China would become too expensive and the brand would shift the focus of its purchase to Southeast Asia while staying in China was the quality part of that cake. A diversified supply chain means a lot of manpower and uncertainty, so we have to recover from this extended supply chain. "

Chief executive officer of leading underwear manufacturing supplier Gelmart International Yossi Nasser said:

"In the days of Bangladesh and India going through the blockade period, the flexible supply chain with China is the key. In the short term, such factors will come back to China, but the brand does not want to fall into the face of many enterprises in the US China trade war, that is, only 30 days ahead of time, you can impose tariffs on your products. It is a positive move if the brand strategically replaces part of the supply chain back to China (now returning but then leaves), making China an alternative. It may be possible to concentrate most of the business there and then use diverse sources for sewing and tailoring, so that if there is a supply chain disruption, you can flexibly and quickly expand a production source to make up for the lack of the original production area.

Virtue + Vice, a sustainable supply chain consulting firm, has developed products for Walmart, Target, Ralph Lauren and Levi's, and its founder. Melanie DiSalvo said:

"China is the best place to manufacture. The infrastructure is there and everything is working. If I were a struggling brand, I would like to live in a country like this. In such a country, everything is ready and the problems encountered are the least. You need to focus your money, employees and attention on rebuilding your business. The diversification of supply chain is a long-term goal, but I do not recommend that the brand that I cooperate with will directly enter this goal, because all other areas are closed, while China is still developing. That's why some of my brands can survive now. This is not something we can walk away from. "

Managing director of strategy and operations management consulting firm Tractus Asia John Evan said:

"Politically, you will continue to see decoupling. It is clear that both sides hope to reduce their dependence on the other side. I think you will continue to see that companies will turn their attention to China and turn to offshore or reflow, especially in fashion and clothing. Another problem that highlights the epidemic is the trouble of putting too many eggs in one basket. All of a sudden, the risk of dispersal has been seen from people's point of view, and when people turn to be a trade war, people realize its real importance. Until now, the epidemic has made it the most important concern. "

Bombyx is a professional sustainable manufacturer providing silk fabrics for the famous eco brands such as Everlane, J Crew and Madewell, its vice president. Hilmond Hui said:

"Reopening the retail industry and the economy is a priority, and the overseas business of us and European brands may be relegated to a secondary position, especially in our industry. Personally, I think outsourcing from China will break the supply chain, resulting in a lot of logistics and information pressure and inefficiency. The integrated supply chain can be achieved through partnerships with vertical business suppliers of different materials or product categories. By doing so, suppliers have the opportunity to become more flexible in their own architecture because they control more supply chains and have more room to disperse production and financial costs. "

He has worked as a senior purchasing manager for Li & Fung in the industry of supply chain for more than 10 years, and now is a free consultant in purchasing and supply chain management of customers such as Macy s, JC Penney and Tommy Hilfiger. Anson Zhou said:

"Most retailers and brands are uncertain about the market situation, but it is clear that the size of orders will be much lower than last year. The best strategy is to try out some small orders, put the product on the market, see the reaction, and make the decision to make the order again quickly. This means that they need to accelerate the pace of supply chain management. Most of the delivery time in Southeast Asia, Bangladesh and Burma is too long. If we focus on fast delivery within 45 days or even 25 days, China will become the main choice, so international brands will have to turn their eyes to China because they are in the lead in this regard. "