Central America Strives to Compete With China

Central American apparel factories are moving at top speed to come up with ways to compete with China, now that the manufacturing giant and other Asian nations are cutting away at their share of the U.S. market.

In the last year, manufacturers throughout the Central American region have developed a host of strategies to make their apparel plants attractive alternatives to ventures in China, India, Pakistan and Sri Lanka.

Realizing that geographic proximity does not necessarily translate into speed-to-market, executives are rethinking their product mix, making their operations leaner and more efficient, integrating sophisticated computer systems and applications to give customers around-the-clock access to production information, and enticing textile mills and trim suppliers to open up shop in Central America.

Even the El Salvadoran economic minister is stepping forward and urging executives to give her a call if they have trouble wrangling a business visa. “If you have a problem getting visas on a timely basis, call my office and I will personally ensure that the process is expedited,” said Yolanda de Gavidia, a petite woman with a spray of freckles who has been known to send a car, driver and translator to the airport to pick up business executives thinking of investing in El Salvador.

Gavidia was one of several speakers at an April 8 seminar called “Speed to Market: Balanced Sourcing Strategies, China vs. CAFTA.” The event—sponsored by the American Apparel & Footwear Association (AAFA), headquartered in Washington, D.C., and organized by Walter Wilhelm Associates, a consulting agency in Salt Lake City—took place at the downtown Los Angeles campus of the Fashion Institute of Design & Merchandising.

Gavidia and business executives from El Salvador are on an aggressive campaign to attract and grow business in that country. Their efforts are starting to work. Two textile mills, one from Spain and the other from the United States, will consider El Salvador if the U.S. Congress approves the Central American Free Trade Agreement (CAFTA), Gavidia said.

Central American manufacturers are hoping the agreement will be passed some time this summer. “If CAFTA doesn’t pass this year, it probably won’t ever pass,” observed Carlos Arias, a speaker at the AAFA seminar and the executive vice president of Koramsa, a major blue jeans manufacturer in Guatemala.

Koramsa produces 700,000 pairs of jeans a week for mostly Gap Inc. and Levi Strauss & Co. But the decades-old company has a four-year plan to boost weekly production to 1.2 million pairs if the free-trade accord goes through.

The passage of CAFTA would also mean that Cone Mills Corp., the U.S. textile company purchased out of bankruptcy last year by contrarian Wilbur Ross, would build a denim mill next to Koramsa’s facilities.

Moving forward

Even without the free-trade accord in place, many manufacturers are going ahead with aggressive expansion plans.

Alfonso Hernandez, chairman and chief executive of The Argus Group, which has eight cutting and sewing plants in El Salvador and Nicaragua, said his company plans to grow twelvefold in the next two years. The El Salvador–based business expects to add two factories to its lineup by the end of the year, growing from 6,000 employees to 8,000. That number will explode to 12,000 by the end of 2006, according to the company.

Argus opened a temporary pants sewing facility in Nicaragua, but the permanent sewing plant should be operational by September. By the end of phase one, which the company expects to complete by early next year, workers will be producing 200,000 pants a week (80 percent denim and20 percent twill). Phase two will have workers making 400,000 pairs of pants a week. Hernandez said the plant already is making pants under the Faded Glory label, the Wal-Mart Stores Inc. in-house brand. Argus also has commitments from Gap, VF Corp. and Levi Strauss, Hernandez said.

Argus’ venture into pants production will help El Salvador boost its apparel exports, which grew rapidly between 1990 and 1997 but began to taper off in 2000. Apparel exports account for more than 50 percent of the tiny country’s total exports. In 2004, El Salvador exported $1.67 billion of apparel to the United States. In 2003, that number was slightly higher, at $1.75 billion.

“The greatest weakness that El Salvador has in its supply chain is the lack of local fabric production,” Gavidia said. “It becomes a great challenge when you realize that 50 percent of the apparel goods exported use fabric coming from the U.S., 40 percent comes from Asia, and only 10 percent use fabric produced locally and regionally.”

To address this and other issues, members of the El Salvador government and representatives from private business held a powwow last summer to develop an expansion plan that involves developing niche businesses and commodities that go beyond the traditional apparel made in the country.

“Some of the products we have historically made are commodity items such as cottonT-shirts and underwear,” Gavidia said. “We are shifting part of our product mix to goods with high tariff rates. This means concentrating on synthetics, where tariff rates are 32 percent, almost twice the 16.7 percent rate for cotton T-shirts. Also products such as sportswear and fashion-oriented goods, where fast turn and quick response are important and styles change relatively frequently.”

This strategy is dependent upon CAFTA passing. Under the accord, Central American–made goods would enter the United States duty- and quota-free, while goods from China would still be subject to duties.

El Salvador also wants to create “virtual vertical” companies, where the textile mill, garment factory and customers would work together to reduce costs and produce apparel more efficiently.

In many ways, the Partex Apparel Group is already doing that. The Miami-based company’s sewing plant in El Salvador produces sports team–based apparel that carries team logos and players’ names.

To work more leanly, Partex has forsaken the progressive bundle system that involves stacks of clothing piled next to sewing machines and has moved to a one-piece flow system, where one item maneuvers its way through the production line until it is complete. The result is faster work and more open space on the production floor.

“We had a 30 percent increase in space,” noted Sam Waksman, executive vice president and chief operating officer at Partex. “You no longer have to build new buildings when you save space.”

Partex has also collaborated with one of its principal customers, who used to source 50 percent of its apparel in Asia and 50 percent in Central America. To have a shorter lead time for time-sensitive athletic jerseys carrying famous players’ names, the customer convinced its Asian textile mill to open a plant in Honduras to supply Partex with fabric in two days.

Before, the customer had its blank jerseys sent from Asia and Central America at the last minute to have players’ names embellished on the tops. Then they were sent to the retailer. Now Partex is warehousing the blanks and working with a U.S. company that is setting up shop next door to embellish the tops.

“Before, the customer was making blanks in Asia and Central America and then converting them with the player’s name in the United States,” Waksman said. “But the demand of the day [the name of the most popular athlete at the moment] was not being realized, leaving opportunity at the table.”

By doing everything in Central America, Partex has reduced the production cycle time by 70 percent and has decreased costs by 40 percent, Waksman said.

Technology power

Partex has also been aggressive in implementing the latest technologies in its factory, including CAD-based pattern- and marker-making, CAM-based spreading and cutting systems, and laser cutting for appliqueacute;s.

Adding new technology to the mix is an essential ingredient to remaining competitive in Central America, apparel executives noted during the seminar.

Apparel companies that have not adopted emerging product lifecycle management (PLM) technology stand to become noncompetitive within two years, industry executives warned. PLM database software uses Internet technology to tie all the steps in production together—from raw materials sourcing to costing to shipping. Trading partners in the supply chain can collaborate via the Web on product development and other steps in a product’s life cycle to enhance efficiency and speed. The technology has been known to reduce the product life cycle by up to four weeks for some companies, saving at least 10 percent of costs.

“It’s now an indispensable tool,” said Derek Jones, an associate of Walter Wilhelm Associates. “With the end of quotas, there’s no more need for ’quota-hopping.’ Retailers have since reduced by one-third the suppliers they deal with, and that is helping to develop closer partnerships.”

Working more closely with overseas factories has facilitated the implementation of PLM and other technologies. Now companies are moving from older or in-house systems to new cutting-edge products developed by Gerber Technology Inc., Lectra, SAP, Freeborders, NGC, Blue Cherry and others.

Los Angeles–based Guess Inc. plans to install a new PLM system by the first quarter of 2006. Director of Applications Lamont Wharton said Guess is on a mission to improve collaboration between the company and its suppliers and to reduce redundancies, which occur during and after product development. PLM drastically reduces the need for Microsoft Excel spreadsheets, e-mails, faxes and phone calls.

“We’re identifying the risks in the supply chain. Our shipping and tracking is done outside of the [PLM] system,” Wharton said. “There is no collaboration between internal and external parties, so we want to reduce those collaboration gaps and increase our speed-to-market.”

Citing reports from Stamford, Conn.–based Gartner Research, John Seville, chief information officer for Denver-based Miller International Inc., said PLM is so vital in today’s market that those who don’t adopt the technology by 2007 will become noncompetitive.

He called PLM a “single source of truth” because everyone is on the same page.“There’s repeatable work flow,” Seville said. “It creates a history of changes and reduces prototype reviews such as fittings.”

Seville said Miller, which distributes Rocky Mountain brand clothing, also incorporates core values such as integrity, customer satisfaction, innovation and team work into the formula. The company, founded in 1913, uses Lectra’s GalleryWeb for its PLM needs.

Frank Schneider, chief financial officer for Jockey International, said PLM has also changed the working landscape within companies. “Everyone is accountable. We tend to be compartmentalized. This has forced us to collaborate on development and other issues,” he said. Jockey uses Gerber’s WebPDM product.

The Warnaco Group Inc., based in New York, recently signed on to use SAP’s system. Roger Williams, president of Warnaco Swimwear Group in Southern California, said the goal is to leverage the synergies across the company’s stable of brands, which include Speedo swimwear, Calvin Klein jeans and Olga innerwear. “We want to enable a virtual product development process. To make it work, it must span across the organization,” he said.

At Ventura, Calif.–based Patagonia, PLM has helped to reduce “re-circling,” according to Chief Information Officer Mike Busch.

“We found that people spent 50 percent of their time looking for something. There was a lack of visibility,” Busch said. “Now there’s more time to be creative and less time chasing information.”

Busch added that it’s also a “greener” way of doing business because it eliminates so much paperwork. “It also allows us to make riskier decisions about certain products closer to market,” he said.

PLM is still an obscure technology for smaller companies, but Williams said that was how Excel was at first.

Added conference moderator Walter Wilhelm: “You have to be willing to invest in the process. The technology available now is incredible.”

Biggest Central American apparel exporters to the U.S. in terms of value

1) Honduras2) Dominican Republic3) Guatemala4) El Salvador 5) Costa Rica6) Nicaragua