A decades-old quota system that controls access to the huge US apparel sector is about to come to an end and Latin American clothing makers are gearing up for fierce new competition from China. A Wall Street Journal story today tells of what could be catastrophic consequences for the Dominican Republic and other regional nations facing the reality of Chinese competition. A graph published in the paper shows that China currently provides just 2.5% of the cotton pants for the US market of over two billion pants purchased every year. The Dominican Republic and Central America provide 16%, Mexico ships 23%, the rest of Asia, including India, ships 30% and others ship 28%. Projections for 2009 are scary for local manufacturers, though. China is expected to supply 45%, the DR and CA 9%, Mexico 9%, rest of Asia, including India, 22%, and others 16%. The article focuses on Koramsa, a Guatemalan giant pants manufacturer and Grupo M, the largest private employer in the Dominican Republic and a major supplier for Levi Straus. While the news from Guatamala is very interesting, being based on speed of delivery, the important story for the Dominican Republic companies is the series of steps being taken by innovators such as Fernando Capellan and his Grupo M. With 500,000 jobs and a thousand companies involved, this is very serious business. The WSJ article focuses on two items: The first one is the new mission statement on the wall of Mr. Capellan?s office-?To be better than Asia in the Americas?. The second item is the new industrial zone started by Grupo M and financed by the World Bank?s International Finance Corporation on the Dominican-Haitian frontier town of Ouanaminthe that employs a thousand people in that very impoverished area of Haiti and projections are for as many as 9000 to be employed by 2009. Pay in Haiti is 20% lower than in Santiago, Grupo M?s main base of operations. However, at US$16.00 a day, wages are only a dollar more than paid in China. Thus the Haiti strategy is the Grupo M?s attempt to hold on to the market share with the Haiti factory. The factory is a big gamble as was demonstrated after the violence last week threatened to close the operation as union organizers sought increased wages. Capellan said that the troubles have been solved. Capellan told the WSJ that the shifting of the more labor-intensive work to Haiti and then washing and packaging the exports and boosting the more advanced finishing work in Santiago, savings of up to 30% could be had on production costs. “If I’m lucky, I may keep a step ahead of China,” he says.
See ?Latin Pants Makers Seek Leg Up on Asia? in http://online.wsj.com/public/us