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It's time RMG strategy was reset as West chooses

nearshoring and automation
MS Siddiqu i | Novemb er 16, 2018

Some d ecad es ag o, mass -market app arel b rand s and retailers in the West
were rush ing to outsource th eir p rodu ction to Asia p articul arl y to Chin a as
mu ch as p ossible in order to g ain a cost ad vantag e. Th e western retail ers
and brands were n ot very exp erien ced or aware of Bangl ad esh's cap abil ities
till th e end of '80s wh en some test export were don e by a typ ewriter
mech anic n amed Jakaria and a retail g ar ment sh op-own er n amed Reaz. The
buyers were surp rised by th e in exp ensive lab our costs and product qual ity,
driving them to con sider sou rcing apparel products from Bangl adesh again st
b ackdrop of excessive imp ort tariff on raw materials and lead time as
con straints in other countries. In course of time, Ch in a also b egan to demand
h igher prices for apparel p roducts forcing most retailers and b rands to move
from Ch ina to more cost-efficient frontier markets such as Banglad esh.

Th e con sumers were tradition ally influ enced by ad vertisement and designs
d evel oped b y apparel whol esal er and retail ers. For d ecad es, th is 'pu sh'
mod el worked for app arel pl ayers. But in th e last d ecad e, western apparel
comp anies have off -sh ored th e bulk of their manufacturing to Chin a and
oth er Asian countries to take ad vantage of th e dramatically l ower l abou r
costs.

Tod ay, the market h as ch anged significantl y in th e West. Now the retailers
are eng aged in th e 'pull' mod el. Some cel ebrities and stylish con sumers, with
l arg e foll owings on soc ial med ia, h ave b ecome th e trend setters and
tastemakers.

An oth er ch alleng e is from onlin e sell ers and stagn ation in key markets,
comp etition is fierce. Consumer demand is n ow more difficult to p red ict.
App arel b rands and retail ers are comp eting with pure -play onlin e start -ups,
th e most successful of wh ich can repl icate trendy styl es and get them to
cu stomers with in weeks.

Consumers take th eir styl e cues from In stagram, user reviews, and their
p eers, and not so much from b ig brands' marketing gurus. Th is mak es it easy
for a sh opper to b rowse many apparel collections on a variety of web sites
with in a minute.

A consequ ence of th is migration to e -commerce is g reater vol atil ity in

apparel compan ies' sal es. Some onl ine comp an ies are emerg ing as a n ew
g eneration of ultra-fast fash ion pl ayers, wh o are overtaking the first -
g eneration fast -fash ion l ead ers in speed to market and growth rates.

Th e retail ers in th e West are und er p ressu re on profitabil ity du e to

d ecreasing full-price sell-through, as well as increasing concern s reg ard ing
th e en viron mental impact of overp rodu ction, call for ag il e production in
smaller b atch sizes and for on -d emand replen ish ment. Eventuall y, th e
retail ers transfer the pressure to manufacturers.

A lead -time of minimum six-months of fash ion was con sidered 'fast' in the
recent p ast. The next d ecad e will be very d ifficult for apparel brands and
retail ers unless they speed up th e manufacturing and del ivery p rocess and
transform to a d emand -focused model. Brands and retail ers are looking for
faster time to reach the market in ord er to cop e with th e ever -chang ing taste
and fash ion ch oice of consu mers. Wh ile moving to a d emand -l ed mod el
requ ires apparel comp an ies to pull levers in all phases of the fash ion cycl e,
bring ing production b ack cl oser to con sumers with n ear- or onsh oring offers
th em with the opp ortun ity to el imin ate big chunks of lead time.

Nearshoring is th e practice of transferring a busin ess operation to a nearby

country, esp ecially in preferen ce to a more d istant on e.

Consumers are becoming increasingly aware of th e en viron mental imp act of

tradition al lin ear app arel p roduction mod es and su stainab il ity. Th is concern
will al so be somewh at l ikely a key purch asing factor for mass -market app arel
con sumers by 2025. Apparel players, who are produ cing h igh qual ity
products, h ave sp eed in production, and are en viron mentall y compliant, h ave
b een abl e to d el iver rel evant p rodu cts to consu mers at th e 'b est' prices.

Th e growth of export from Banglad esh h as a rel atively lower in crease rate.
Bu t other factors are at pl ay in the minds of buyers.

A stud y on 'Nearsh oring, automation, and sustainab il ity - establishing a

d emand-focused apparel valu e ch ain' was conducted by McKin sey Apparel,
Fashion & Lu xury Group in Octob er of 2018. Th e study raised th e questio n
wh ether apparel manufacturing is coming back to Americas and Europ e. Th e
rep ort observed th at tomorrow's su ccessful apparel compan ies will b e th ose
th at take th e lead to enh ance th e app arel valu e chain on two fronts:
n earshoring and automation.
Th e n earshore markets are also g etting read y to take over th e western
market. For exampl e, Mexico is a potential n earshore market for th e US and
Tu rkey is on e for the Europ ean market. At p resent, Mexico is offering l ower
averag e manufacturing l ab our costs th an Ch in a. Th e h ourl y manufactu ring
l abou r costs in Tu rkey were more th an five times h igh er th an th ose in Ch in a
in 2005. This d imin ish ed to only 1.60 times b y 2017.

Th e oth er pl an of app arel compan ies are to optimise th e apparel p roduction

circul ar mod el, includin g el ements su ch as n earshoring, automating new
d elivery mod els around customisation, and sh ifts toward su stainabl e, circular
valu e chains. Th ey are going for automation of th e d eal s in ord er to
overcome probabl e chall enges. Th ey are focussing on 'central c ross-
function al merch andising teams, reduction of approval iterations, and closer
coll ab oration with suppliers'.

Digitisation of processes now exists in all phases of th e fashion cycl e from

intellig ent con sumer in sights to virtu al d esign and prototyping to integrated
vend or-man ag ement tools and d ig ital selling. Nearsh ore app arel industries
can in vest in resource -efficient d esign p rocess. Th ey are also actively
con sidering inb ound log istics with an aim to strike an effective b al ance of air
versu s sea freight and establish highly -efficient wareh ouse p rocesses.

A circul ar (zero-waste) design process th rough improved recycl ing by

el imin ating sh ipping, redu cing unsold items and automated fin ish ing
sign ificantl y reduces use of en erg y, water, and chemicals. It also in cludes
automated production of high -qu al ity and customised garments, on -d emand
d istribution and retail sal es, co -l ocated coll ection and recycling of textil es,
su stainabl e technol ogy. A p rop osed automated finishing can in crease the
valu e of (fast) fashion items for con sumers and pro-l ong garment l ife.

Nearshoring is econ omicall y viabl e in certain cases, mostly du e to savings in

freight and duties du e to various Free Trad e Ag reement (FTA) and
Preferential Trad e Agreement (PTA). For in stance, USA and Mexico h ave a
Region al Trad e Agreement (RTA). Und er th is, an apparel comp any based in
th e US can move its p roduction from Bangl adesh or Ch ina to Mexico. By
d oing so, th e comp any can maintain or even slightly in crease its marg in.
Similarly, Turkey can offer simil ar prices to Europ ean countries.

Decision s about the future production footp rint of each product typ e d ep end
on th e b asis of two main criteria: cost reduction from n earshoring and th e
commercial valu e of redu cing l ead times. A sh orter l ead time will have h igh
commercial valu e for on -trend items sin ce cu stomers' taste ch ang e very fast.
Sh op s will g et items into stores faster, it will be abl e to test and scale more
styl es. Th is will boost sal es volumes and sell -th rough rates. Th e comp any
can al so reduce in ven tory l evel s and mitigate brand dilution resulting from
markd owns and clearan ces.
Th ere are some ch alleng es as well for western brands and retail ers for
n earshoring. One of th e b iggest ch all enges of n earshoring in west is sourcing
of raw materials, fabrics, and ingred ients. Onl y a co -located valu e ch ain
with out cl oser sou rces of raw materials can off -set th e b enefits of
n earshoring options.

In n earshore countries for USA and Europ ean app arel markets, the existing
cap acity is limited and local yarn and fabric supply varies greatly. The well -
d evel oped Europ ean fabric and yarn industry is focu sed on p remium and
lu xu ry customers. Th e option of n ew yarn -sp inning and fabric mills takes time
and requ ires high cap ital exp end iture. Indu stry insid ers presume th at fabri c
production will move toward nearsh ore in order to support reg ion al supply
ch ains by 2025.

By th is time th ere will b e a sh ift of econ omic growth centre to Asia from
Eu rope. Banglad esh and oth er Asian manufactu rers are l ikely to get
altern ative market oppo rtunities in oth er emerg ing markets of Asia in cluding
Ch ina. Con sumers in Asia are buying more cl oth es than ever b efore and
apparel sal es in Asia are p rojected to grow b y 6.0 per cent each year,
accounting for about 40 per cent of glob al sal es by 2025.

M S Siddiqui is a Legal Economist.

mssi ddi qui 2035@gmail.com