Life Without Quotas

— June 01, 2003

If you're like most apparel executives, you probably have a strong appetite these days for business predictions, particularly as they relate to apparel market share and hot sourcing trends.

One of my favorite industry pundits is Mary O'Rourke, managing director of The Jassin-O'Rourke Group, and a well-acknowledged industry expert on international trade issues, global production and sourcing migration. I've heard her speak on numerous occasions, most recently at the annual meeting of SPESA (Sewn Products Equipment & Suppliers of the Americas). As usual, Ms. O'Rourke did not disappoint, providing interesting perspective and food for thought on the brink of 2005 (and life without quotas). Here are some of her most compelling predictions.

Key Prediction: While quotas may be going away, don't count on saving any money. O'Rourke says governments aren't about to give up revenue, so quota costs will simply transition into some other type of added expense, keeping the cost of goods to buyers at about the same price.

Key Prediction: Post-2005, it's all about sourcing overhead costs. O'Rourke predicts that by the end of 2004, sourcing staffs will be reduced by 40 percent, and that secondary sourcing and quality assurance offices in Asia will be shuttered as well. Trading companies will evolve into the areas of product development, merchandising and the licensing of trademarks for brands (i.e., Li & Fung's recent deal to buy Ferragamo).

Key Prediction: China's production will surge in 2004 - as there will be no 2005 bucket of quotas from which they will have to borrow - but mainly at the expense of higher cost Asian suppliers including Taiwan, Korea, Thailand, Malaysia and the Philippines.

Key Prediction: Of goods consumed in the United States and Canada, 20 percent to 25 percent of the demand will be sourced regionally in the Western Hemisphere to reduce inventory risk; to facilitate Quick Response, test orders and replenishment orders; and to take advantage of regional trade programs.

Key Prediction: O'Rourke says that goods produced in the Western Hemisphere within a Quick Response or replenishment niche can generate an associated lead time cost savings of $.10 to $.15 per garment as compared with Asia and the Middle East.

Key Prediction: Central America can offer an advantage over Asia in knit cotton basics, men's woven cotton bottoms and Quick Response fabric basics, the latter wherein colors can be tested and replenished as appropriate depending on what sells.

Key Prediction: Central America will be vulnerable due to lack of fabric availability and a decreasing ability to provide coordinates (such as woven bottoms to coordinate with women's knit tops). O'Rourke says the Central American Free Trade Agreement must be passed prior to the 2004 elections in order to impact the region's growth favorably.

Key Prediction: Peru will become more important in better quality knit tops (such as men's golf shirts); Colombia will re-emerge strong in woven tailored goods; Mexico will remain a denim king but continue to lose ground in other categories; the Dominican Republic's production will contract; and Sub-Saharan Africa will have short-term sourcing advantages until 2005, and then lose some ground to China and Bangladesh.

Whether you agree, disagree or are neutral about these predictions, they're good nuggets of industry intelligence to ponder as your team deals with the changing global scenario and plots its next strategy.

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