Top 3 Questions About Apparel Manufacturing in China in 2023

Bret Schnitker  00:03

You know a lot of people are going to are going to be forced to make decisions perhaps that they wouldn't normally make. But it's get an expert on board, review review country infrastructure, understand the strengths and weaknesses of a country. Make sure that you are actively involved in looking at the factories yourselves. If you don't have a good partner that's got vetted factories and vetted production.

Emily Lane  00:31

Welcome to Clothing Coulture of fashion industry podcast at the intersection of technology and innovation. I'm Emily Lane.

Bret Schnitker  00:40

I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward and discuss solutions to real industry challenges.

Emily Lane  00:49

Clothing Coulture is produced by Stars Design Group, a global design and production house with more than 30 years of experience.

Emily Lane  00:57

Welcome to this special episode of Clothing Coulture, we've been receiving so many questions around this one particular theme. So we thought we would create an edition just to address this question or a series of questions that we continue to receive around China.

Bret Schnitker  01:19

Yeah, there's really no easy answers to most of the questions. First, the political tensions between China and the US, I don't think China wants that political tension. I don't think the US really wants it because so much of our livelihood and, and production comes out of China, but it is what it is. And so we we kind of manage that on a daily, monthly, weekly, whatever basis. And hopefully, you know, the political leaders kind of see their way through these situations, you know, good business tries to manage itself around political situations, but it does exist. Second is Xinjiang cotton, you know, there's a band on Xinjiang cotton, over 80% of the cotton and China's produced and it's Xinjiang region. That doesn't look like it's going away anytime soon, does not look like there's a major shift in ideology on either side. So that's a real issue. COVID. COVID right now, the waters somewhat at least as we see them on this side of the water somewhat calm, when you're in a situation with 1.5, 1.6 billion people. And you're dealing with strains of COVID that become more and more contagious, that could flare up and create a lot of issues, not to mention tragedy that could occur in that country that can impact a lot of things. And then finally, shipping. Shipping is not intrinsically a China issue. It's been an issue globally, from a number of manufacturing countries. But on the on the positive note. Today, China's lead times on shipping are better, or lead times coming from China to the US are better. And certainly costs are more reasonable. But it's a ongoing kind of point of view. And we've got to continue to manage those situations.

Emily Lane  03:10

In previous episodes, we've addressed a lot of these common questions that are coming our way with regards to this topic. Today, we're going to take highlights from those previous episodes and touch base with some of the latest current information. The first question that we are hearing most commonly is I want to move all my production. Can I move my production out of China? Right now? Bret, I'd like you to take that on.

Bret Schnitker  03:39

No. I would say it first, it depends on one the size of your organization, the number of units, the particular category of product that you're producing, small to medium companies that might be cotton rich. That's kind of a foregone conclusion today with the ban on Xinjiang cotton. There are other places to produce for more established organizations with larger volumes, multiple categories and classifications. Trying to manage all those things and get out of China is a much more challenging situation. I really believe that the answer is diversification. So while not every country does everything well, focusing on the benefits that China does provide, they've established an unbelievable infrastructure, some great Mills close to factories, the ability to do amazing product, use China for its benefits, and then look to other areas around the world. To increase your percentage as a business as it makes sense.

Emily Lane  04:42

You bring up the topic of the Xinjiang cotton ban, and we do have an excellent episode that does a deep deep dive on this. That's season two, Episode 24. That really addressed it in a very timely manner. As soon as that hit the news. We released episode just days after helping to provide some guidance on how to navigate those complexities, why don't we take a listen to a clip from that episode, but you can't just, you know, shove 80% of the world's production into places that don't quite have that established infrastructure yet. You know, what are some some maneuvers that people can make to help them, you know, carefully make some of those transitions.

Bret Schnitker  05:27

This, the difficult part about that also for individuals that are kind of doing them that that themselves and don't already have an infrastructure for multicountry production, because some have really focused and continue to have a lot of their production in China. If you don't have a diversified portfolio today, you need to at Stars, we ensure that we've got diversified portfolios of countries of manufacture, to balance things like this in terms of production, and we've increased or decreased production in certain countries based upon all of these many, many things that are affecting the apparel industry today. But they're, you know, you've got due diligence, you know, a lot of people are going to, are going to be forced to make decisions perhaps that they wouldn't normally make. But it's get an expert on board, review country infrastructure, understand the strengths and weaknesses of a country, make sure that you are actively involved in looking at the factories yourselves. If you don't have a good partner, that's got vetted factories and vetted production, make sure that they're certified look at, you know, the particular category of apparel that you're producing, make sure that it fits within the country that you're focusing on. And then be cognizant that as you mentioned before, this is a sort of a math problem, that when you've got a portion of all these goods that are, in addition to people already exiting out of China, for other reasons, tariffs are looking to diversify their portfolio, demand is already exceeding supply in many countries, and this is just going to further exacerbate that situation, right. So you gotta be prepared for delayed production, unless you've got resource and planning in place to reserve production lines and ensure that there's some consistency or existing relationships. And I think you you're going to look for, you're going to look for some learning curves, with new relationships, as everybody does, they don't always know your business, you haven't developed a relationship, they might have more solid relationships that people have already made that pivot. Yeah, so there's, you gotta go down the path, you've got to make sure that you've got a portfolio. But

Emily Lane  08:00

it certainly is becoming more competitive out there, you know, with more people looking at these options, and you know, there are some, I can see some complications that would arise out of that, you know, if, if all of these places are trying to go to these new factories, the new factories are going to make decisions of who they want to work with, based on quantities and complexity of garments. So it's going to shift what's readily available, and the options that are out there,

Bret Schnitker  08:31

You gotta go in realistically, I think we've had a few calls of people saying, Look, I want to near shore. And, you know, there's parts that, you know, we're willing to pay a little bit more, but we want to work with smaller quantities and more difficult to sew garments. And we want a ton of flexibility. And, you know, when the world is in this situation, that that that thought process, while it's healthy for your organization might not align completely with the factory's thought process, especially when they can say I can choose less complicated goods that I have quicker production, therefore making me more money.

Emily Lane  09:12

So basically, nothing's impossible. It's just going to cost you it might cost you financially might compromise quality, it might take a little bit of time. All of this, of course, requires planning, perhaps, and we're realistic option is diversify diversification, as you mentioned. You know, let's talk a little bit about what that process is.

Bret Schnitker  09:37

Yeah, the diversification process means you're gonna potentially either increase volume in some of the factories you're currently working with. And that becomes a little more tricky When demand exceeds supply. So planning and communication with that factory is really important, but if you're going to look for new factories, I've never seen success about throwing the dart at the proverbial factory wall and it being a super big success. I've heard of people book product without going to a factory. But look you. In many cases, you're investing a lot of dollars in production. And so you don't ever do things without really exploring that firsthand. And so I suggest visiting the factory more than once understanding the strengths and weaknesses of the particular factory or organization. There's certain ways to vet those factories that kind of are tried and true. Looking at social certifications, and then really, the end up thing is developing that relationship with the organization that again, take some time. And so vetting a factory, there's a lot of multiple steps that take time, it's not as simple as just shifting to a new factory and hoping that production will occur.

Emily Lane  10:52

That's right, it is complicated. And we did create an episode in our very first season episode number three entirely dedicated to that this very conversation of vetting all of the critical information around that. So if you want a deeper dive on that, definitely check that episode out. Let's move on to our next question. Can we nearshore or onshore our production, we're seeing trends in this area target just announced and Columbia Sportswear just announced that they're investing in Central America, a lot of people are motivated, bring things closer to home.

Bret Schnitker  11:28

Yeah, you know, Kamala Harris is talking about the call to action for Northern Central America, etc. And, you know, there's a lot of investments, since 2021, I think there's been over three or four billion with investment in Central America, a number of organizations are investing a lot private enterprises now committing another 600 million gap is investing another 150 million, there's a lot of conversation about moving to Central America, with our experience in Central America mind going back almost 30 years. Central America, again, is those places is one of those areas that have strengths and weaknesses. And so understanding those, those different strengths and weaknesses of that area is going to be very important. They also make up a very, very small percentage of the world's global production. So moving it from almost single digit numbers to moving into 40, or 50% is just unrealistic in a short amount of time. So people think they can move wholesale down into those organizations and those areas and make a dramatic shift in their pipeline into production in near showing this is not an overnight situation, this is going to be a long term deal. And you don't want to be caught where supply is about this big demand is this big and you're all running to one area because obviously prices are going to sky right skyrocket. Deliveries are going to push out quality can become suspect, there's a lot of situations where, you know, if an area heats up, there's there's reason to be quite cautious.

Emily Lane  13:01

Yeah. And the surface it sounds like a great idea. But certainly understand how it's not necessarily the overnight Utopia everybody is hoping for requires a lot of planning. And again, that keyword diversification that we keep talking about. We do have an episode that talks about nearshoring for apparel, manufacturing, it is episode two, or season two, Episode 23. Let's take a listen. There are a lot of benefits to looking at this region. One of them that we've experienced a few times now is just the travel is so much easier. We can get there in a few hours. And, you know, easily come back home. And so looking at a trip to Central America versus going going east. It's quite a time and cost savings. So I think some of those benefits, are there other benefits that you think people should consider as they're exploring this region? Yeah,

Bret Schnitker  14:01

certainly, the US trade department has allowed for duty free imports, as long as you know a large majority of the product is built in those in those countries. And that can be a definite benefit. You know, sometimes the rising costs that are occurring in Central America times the product to productivity levels that are occurring, you know, defuse that benefit a little bit but there is certainly a benefit to that. For some of the key operations down there, if companies are strategic about how they build and develop plans their production can be done rather quickly. More on Basics of course, but you know, you can build 35 45 day turns out of Central America and production stocking gray stocking dye, you know, and I'm talking more T shirts, sweatshirts more basic items. But that's great. You know, a lot of people love to be able to react to business. And that's, that's becoming more and more challenging in for in, in Asia, both near and far. So that's a benefit. The other thing too certainly is the transit times. So we've talked at nauseam about all the issues that are going on today. And I don't think in freight, they're they're not going to go away anytime soon. And so when you're looking at really 75 to 90 days, including clearance out of Asia at the best, your ability to to ship and clear, in nine to ten days out of Central America seems drastically better. Of course, of course, behind the scenes,

Emily Lane  15:45

you are more excited about chasing demand.

Bret Schnitker  15:48

Well, I think in general, you buy closer to business, maybe you make better decisions, hopefully. But I would say in addition to that the actual cost per container. So you know, costs are starting to add, I really put heavy quotation marks on this stabilize in in container costs, you know, they had skyrocketed 22,000 24,000 container, when things got really nuts, maybe were eight or 10,000 in container now on a 40 foot. And and they might they might come down, but they're certainly nowhere close to where they were a couple of years ago. But out of Central America, your container costs are three to 4000. So when you're amortizing shipments there, that cost is certainly better. Also, I think the desire to do business in the countries exists. You know, also I, again, I think our business is made of people and and there's a desire, and an aggressiveness from the people that we've met, too. They really want to change their lives, they you know, they want to improve their lives. Yeah,

Emily Lane  16:54

building relationships over the last couple of years. It's it's certainly something we've fallen in love with a lot of people there and want to see their lives improve.

Bret Schnitker  17:02

Yeah, everywhere I've gone good business solves a lot of issues if you can scale.

Emily Lane  17:07

Yeah, what are some of the key challenges that you see still remaining in this region?

Bret Schnitker  17:11

People want to transplant some of the things that they can do in Asia and Central America. And that's where the challenge lies, and especially where demand far exceeds supply. So everyone is looking south. Now, everyone wants to go south, because I like for all the reasons we've mentioned, the challenges you have or that that business in the South has been built on commodity basics for a lot of years. And it makes sense, it's easiest to go through lines, you're maximizing your profit on each line. And so it's going to be challenging some of the conversations that we've had, whether they want to implement some challenging difficult garments into a factory that's doing basics. And they want to have a ton of flexibility in terms of orders. Look, when demand far exceeds supply factories aren't going to be super keen to do that, you know, they're going to be focusing on the most efficient production possible that's going through there. There's also some limitations on the type of products that you can produce in the region and qualify for duty free. So those are things to be aware of to

Emily Lane  18:21

Yeah, well, you always say evolution, not revolution, right. So absolutely, there are some opportunities brewing that will help support a lot of nearshoring roles, but we always recommend moving slowly and thoughtfully have a plan in place. And, you know, you don't have to just make a sudden, sudden move tomorrow.

Bret Schnitker  18:44

Yeah, it's part of a portfolio. You know, when you when you diversify your stocks, you diversify your production similarly.

Emily Lane  18:52

Well, I am really getting the key word for this episode, hashtag diversify, that is subtly or not so subtly intelligently diversify. Absolutely. Let's take on our next question. And our final question of this episode. Can we build our own factory? I love this idea. You know, people people are like, Wow, there's so much money. It takes so much time all this stuff. Maybe I just do it myself. Bret, this is something you actually have some personal experience in and I'd love for you to answer that, that question.

Bret Schnitker  19:30

Yeah, this comes back to the intelligent thing. I think, you know, we as visionaries make a lot of mistakes of our life and that becomes wisdom. But there was a there was a period and you know, eight where diversification is always important in our business, exploring new territories and areas are important and we explored Ethiopia as an opportunity. I look back at that time with bittersweet memories. It was certainly very challenging because we not only moved into relatively new factories and they were city size factory, some of the most vertical factories, I have seen 3200 workers in the floor remote areas, lots of development and an investment by the development bank. But also a new area, you know, this was part of African Africa has its own unique set of challenges and, and, you know, we started when that factory is relatively new, they had a, they had a very, very competent staff of multinational consultants and managers and things like that running these factories, ran some great production through there on test orders, seemed like everything was gonna go swimmingly well. And as I had millions of dollars in multiple containers heading into Djibouti to clear into Ethiopia, political situations arose, and they kicked out the majority of the staff that was making things work the experts and replaced that staff with completely untrained locals. I saw that my life passed before my eyes and, and I ended up spending almost three years in Ethiopia, kind of working with the locals trying to get millions of units out and owning your own factory is outrageously time. You know, time has large time demands, you have to realize that all those workers are full time you've got that overhead that's consistent. You gotta manage political situations of political politics change, like this case, or economic situations change, you own that factor, you're going to still be producing whether or not it makes sense. There's just massive investments in terms of owning a factory, and certainly, for organizations that have a lot of scale and size and running consistent product. That certainly could be a good decision, but realize that you better have one hell of a team that's going to commit themselves to that factor of your period of time.

Emily Lane  22:01

It's already a trained and efficiency. Yes, yeah.

Bret Schnitker  22:05

And an area that's somewhat stable. You know, I don't think there's a single country, including ours that's considered stable today. We live in very interesting times. But you know, doing a lot of research on and understanding what you're getting into is going to be very, very critical. It's not for the faint of heart. And it's certainly not for small to medium size, you know, organisms.

Emily Lane  22:28

Yeah because it's a business like any other business at that point. Now, you're also dedicated to finding other programs to produce in that factory.

Bret Schnitker  22:36

If you can't fill them yourself, right.

Emily Lane  22:37

Right yeah, Wow. Well, so much to navigate through. If we can be of any help in any of these questions and beyond please feel free to reach out to us at Stars Design Group. And make sure to subscribe to stay apprised of upcoming episodes of Clothing Coultures, so that we can help answer any of your questions in the industry. Thank you.

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